UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 1996
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-5127
------------------------------
MERCANTILE BANKSHARES CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-0898572
--------------------------- --------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Hopkins Plaza, Baltimore, Maryland 21201
------------------------------ ------------
(Address of principal executive (Zip code)
offices)
(410) 237-5900
------------------------------------------
(Registrant's telephone number, including area code)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X . No .
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
As of July 31, 1996, registrant had outstanding 47,594,648 shares of Common
Stock.
PAGE 1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
MERCANTILE BANKSHARES CORPORATION
<TABLE>
CONSOLIDATED BALANCE SHEETS
<CAPTION>
JUNE 30, December 31,
(Dollars in thousands, except per share data) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks.......................................................... $ 272,637 $ 247,301
Interest-bearing deposits in other banks......................................... 100 100
Investment securities:
U.S. Treasury and government agencies
Available-for-sale at fair value........................................... 1,520,743 1,535,418
States and political subdivisions
Held-to-maturity--market value of $14,751 (1996) and $15,353 (1995)........ 14,780 15,233
Available-for-sale at fair value........................................... 36 45
Other investments
Held-to-maturity--market value of $5,740 (1996) and $5,359 (1995).......... 5,734 5,352
Available-for-sale at fair value........................................... 15,919 16,206
------------- -------------
Total investment securities.............................................. 1,557,212 1,572,254
------------- -------------
Federal funds sold............................................................... 4,710 26,081
Securities purchased under resale agreements..................................... 49,982
Loans............................................................................ 4,456,566 4,301,270
Less: allowance for loan losses.................................................. (97,290) (91,398)
------------- -------------
Loans, net............................................................... 4,359,276 4,209,872
------------- -------------
Bank premises and equipment, less accumulated depreciation of
$80,592 (1996) and $77,742 (1995).............................................. 79,943 78,363
Other real estate owned, net..................................................... 2,868 2,858
Excess cost over equity in affiliated banks, net................................. 29,249 30,251
Other assets..................................................................... 127,286 132,041
------------- -------------
Total assets............................................................. $6,433,281 $6,349,103
============= =============
LIABILITIES
Deposits:
Noninterest-bearing deposits................................................. $1,026,713 $ 983,021
Interest-bearing deposits.................................................... 4,215,484 4,186,360
------------- -------------
Total deposits........................................................... 5,242,197 5,169,381
Short-term borrowings............................................................ 272,489 281,642
Accrued expenses and other liabilities........................................... 67,111 78,631
Long-term debt................................................................... 49,409 25,623
------------- -------------
Total liabilities........................................................ 5,631,206 5,555,277
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value; authorized 2,000,000 shares; issued and
outstanding--None
Common stock, $2 par value; authorized 67,000,000 shares;
issued 47,665,507 shares in 1996 and 48,272,451 shares in 1995................. 95,332 96,545
Capital surplus.................................................................. 52,714 66,107
Retained earnings................................................................ 655,484 620,391
Unrealized gains (losses) on securities, net..................................... (1,455) 10,783
------------- -------------
Total stockholders' equity............................................... 802,075 793,826
------------- -------------
Total liabilities and stockholders' equity........................... $6,433,281 $6,349,103
============= =============
See notes to consolidated financial statements
</TABLE>
PAGE 2
MERCANTILE BANKSHARES CORPORATION
<TABLE>
STATEMENT OF CONSOLIDATED INCOME
<CAPTION>
For the 6 Months Ended For the 3 Months Ended
June 30, June 30,
(Dollars in thousands, except per share data) 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans........................... $196,914 $186,428 $ 98,958 $ 95,799
------------ ------------ ----------- -----------
Interest and dividends on investment securities:
Taxable interest income............................ 44,492 40,162 22,484 19,447
Tax-exempt interest income......................... 360 326 178 161
Dividends.......................................... 310 223 166 120
Other investment income............................ 291 118 144 56
------------ ------------ ----------- -----------
45,453 40,829 22,973 19,784
------------ ------------ ----------- -----------
Other interest income................................ 2,439 321 1,062 319
------------ ------------ ----------- -----------
Total interest income........................ 244,806 227,578 122,993 115,902
------------ ------------ ----------- -----------
INTEREST EXPENSE
Interest on deposits................................. 84,853 77,250 42,038 40,388
Interest on short-term borrowings.................... 6,884 8,431 3,281 3,473
Interest on long-term debt........................... 960 990 555 467
------------ ------------ ----------- -----------
Total interest expense....................... 92,697 86,671 45,874 44,328
------------ ------------ ----------- -----------
NET INTEREST INCOME.................................. 152,109 140,907 77,119 71,574
Provision for loan losses............................ 6,674 2,975 3,275 1,535
------------ ------------ ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.. 145,435 137,932 73,844 70,039
------------ ------------ ----------- -----------
NONINTEREST INCOME
Trust division services.............................. 23,011 21,548 11,642 10,806
Rental income........................................ 4,613 4,523 2,312 2,205
Service charges on deposit accounts.................. 7,928 7,831 4,040 3,923
Other fees........................................... 11,233 9,827 6,028 5,311
Investment securities gains and (losses)............. 74 (1,842) 8 (849)
Other income......................................... 565 392 267 262
------------ ------------ ----------- -----------
Total noninterest income..................... 47,424 42,279 24,297 21,658
------------ ------------ ----------- -----------
NONINTEREST EXPENSES
Salaries............................................. 48,880 46,839 24,052 24,713
Employee benefits.................................... 11,554 12,485 5,011 5,997
Occupancy expense of bank premises................... 9,325 8,818 4,513 4,465
Furniture and equipment expenses..................... 9,074 8,068 5,217 4,421
Communications and supplies.......................... 5,144 4,805 2,627 2,373
FDIC insurance premium expense....................... 114 5,471 41 2,734
Other expenses....................................... 17,330 12,956 9,750 4,930
------------ ------------ ----------- -----------
Total noninterest expenses................... 101,421 99,442 51,211 49,633
------------ ------------ ----------- -----------
Income before income taxes........................... 91,438 80,769 46,930 42,064
Applicable income taxes.............................. 34,403 30,447 17,628 15,950
------------ ------------ ----------- -----------
NET INCOME........................................... $ 57,035 $ 50,322 $ 29,302 $ 26,114
============ ============ =========== ===========
NET INCOME PER SHARE OF COMMON STOCK(2).............. $1.19 $1.05 $.61 $.55
============ ============ =========== ===========
See notes to consolidated financial statements
</TABLE>
PAGE 3
MERCANTILE BANKSHARES CORPORATION
<TABLE>
STATEMENT OF CONSOLIDATED CASH FLOWS
<CAPTION>
For the 6 Months Ended
Increase (decrease) in cash and cash equivalents June 30,
(Dollars in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fees on loans............................................................. $195,940 $185,084
Interest and dividends on investment securities........................................ 46,054 42,012
Other interest income.................................................................. 2,349 328
Noninterest income..................................................................... 43,712 44,916
Interest paid.......................................................................... (93,890) (82,864)
Noninterest expenses paid.............................................................. (83,177) (88,922)
Income taxes paid...................................................................... (39,790) (32,928)
------------ ------------
Net cash provided by operating activities...................................... 71,198 67,626
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held-to-maturity..................... 325 88,375
Proceeds from sales of investment securities available-for-sale........................ 64,129 71,721
Proceeds from maturities of investment securities available-for-sale................... 313,937 121,111
Purchases of investment securities held-to-maturity.................................... (382) (36,339)
Purchases of investment securities available-for-sale.................................. (382,291) (82,593)
Net increase in customer loans......................................................... (158,375) (155,914)
Capital expenditures................................................................... (5,571) (4,816)
Proceeds from sales of other real estate owned......................................... 2,218 8,439
------------ ------------
Net cash provided by (used in) investing activities............................ (166,010) 9,984
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in noninterest-bearing deposits................................ 43,692 (25,755)
Net decrease in NOW and savings accounts............................................... (14,721) (165,012)
Net increase in certificates of deposit................................................ 43,845 313,144
Net decrease in short-term borrowings.................................................. (9,153) (155,483)
Proceeds from issuance of long-term debt............................................... 25,000
Repayment of long-term debt............................................................ (1,214) (5,459)
Proceeds from issuance of shares....................................................... 2,884 1,654
Repurchase of common shares............................................................ (19,596) (14,990)
Dividends paid......................................................................... (21,942) (19,023)
------------ ------------
Net cash provided by (used in) financing activities............................ 48,795 (70,924)
------------ ------------
Net increase (decrease) in cash and cash equivalents................................... (46,017) 6,686
Cash and cash equivalents at beginning of period....................................... 323,464 257,146
------------ ------------
Cash and cash equivalents at end of period............................................. $277,447 $263,832
============ ============
For the 6 Months Ended
Reconciliation of net income to net cash provided by operating activities June 30,
(Dollars in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
Net income............................................................................. $57,035 $50,322
------------ ------------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization........................................................ 3,991 3,804
Provision for loan losses............................................................ 6,674 2,975
Write-down of other real estate owned................................................ 69 1,313
Investment securities (gains) and losses............................................. (74) 1,842
Amortization of excess cost over equity in affiliates................................ 1,002 565
Increase in interest receivable...................................................... (463) (154)
Increase (decrease) in other receivables............................................. (3,638) 795
Decrease in other assets............................................................. 8,856 1,264
Increase (decrease) in interest payable.............................................. (1,193) 3,807
Increase in accrued expenses......................................................... 4,326 3,574
Decrease in taxes payable............................................................ (5,387) (2,481)
------------ ------------
Total adjustments.............................................................. 14,163 17,304
------------ ------------
Net cash provided by operating activities.............................................. $71,198 $67,626
============ ============
See notes to consolidated financial statements
</TABLE>
PAGE 4
MERCANTILE BANKSHARES CORPORATION
<TABLE>
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1996 AND 1995
Unrealized
Gains
Common Capital Retained (Losses) on
(Dollars in thousands, except per share data) Stock Surplus Earnings Securities
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994................................ $96,228 $22,988 $606,972 $(2,271)
Net income................................................ 50,322
Cash dividends paid:
Common stock ($.40 per share)........................... (19,023)
Issuance of 60,630 shares for dividend
reinvestment and stock purchase plan.................... 121 1,173
Issuance of 3,795 shares under exercise of stock
appreciation rights..................................... 8 76
Issuance of 12,822 shares for employee stock
purchase dividend reinvestment plan..................... 26 250
Purchase of 706,264 shares under stock repurchase plan.... (1,413) (13,577)
Change in unrealized gains (losses) on securities......... 4,165
------------ ----------- ----------- -----------
BALANCE, JUNE 30, 1995.................................... $94,970 $10,910 $638,271 $ 1,894
============ =========== =========== ===========
BALANCE, DECEMBER 31, 1995................................ $96,545 $66,107 $620,391 $10,783
Net income................................................ 57,035
Cash dividends paid:
Common stock ($.46 per share)........................... (21,942)
Issuance of 78,032 shares for dividend
reinvestment and stock purchase plan.................... 156 1,777
Issuance of 12,504 shares for employee stock
purchase dividend reinvestment plan..................... 25 301
Issuance of 28,562 shares for employee stock option plan.. 58 567
Purchase of 726,042 shares under stock repurchase plan.... (1,452) (18,144)
Additional paid-in capital--vested stock options.......... 2,106
Change in unrealized gains (losses) on securities......... (12,238)
------------ ----------- ----------- -----------
BALANCE, JUNE 30, 1996.................................... $95,332 $52,714 $655,484 $(1,455)
============ =========== =========== ===========
See notes to consolidated financial statements
</TABLE>
PAGE 5
MERCANTILE BANKSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) The statements include the accounts of the Corporation and all of its
affiliates, with all significant intercompany transactions eliminated, and
in the opinion of management, include all adjustments necessary for a fair
presentation of the results for the interim period. All such adjustments
are of a normal recurring nature. In view of the changing conditions in the
national economy, the effect of actions taken by regulatory authorities and
normal seasonal factors, the results for the interim period are not
necessarily indicative of annual performance.
2) Year to date per share amounts are based on the weighted average number of
common shares outstanding during the period of 47,829,128 shares for 1996
and 47,770,693 shares for 1995.
3) Amounts for 1996 include the accounts of The Sparks State Bank, Sparks,
Maryland, which became an affiliate after the close of business on October
31, 1995. The affiliation was accounted for using the purchase method of
accounting.
4) Under the provisions of Statements of Financial Accounting Standards
("SFAS") No. 114 and 118, "Accounting by Creditors for Impairment of a
Loan," a loan is considered impaired, based upon current information and
events, if it is probable that the Corporation will not collect all
principal and interest payments according to the contractual terms of the
loan agreement. Generally, a loan is considered impaired once either
principal or interest payments become 90 days past due at the end of a
calendar quarter. A loan may be considered impaired sooner if, in
management's judgement, such action is warranted. The impairment of a loan
is measured based upon the present value of expected future cash flows
discounted at the loan's effective interest rate, or the fair value of the
collateral if the repayment is expected to be provided predominantly by the
underlying collateral. Interest income on impaired loans is recognized on
the cash basis. A majority of the Corporation's impaired loans are measured
by reference to the fair value of the collateral. Information with respect
to impaired loans and the related valuation allowance (if the measure of the
impaired loan is less than the recorded investment) is shown below.
<TABLE>
<CAPTION>
JUNE 30, December 31,
(Dollars in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with a valuation allowance............................................ $ 3,142 $ 4,628
Impaired loans with no valuation allowance........................................... 15,475 13,661
-------------- ------------
Total impaired loans............................................................... $ 18,617 $ 18,289
============== ============
Allowance for loan losses applicable to impaired loans............................... $ 1,563 $ 1,907
Allowance for loan losses applicable to other than impaired loans.................... 95,727 89,491
-------------- ------------
Total allowance for loan losses.................................................... $ 97,290 $ 91,398
============== ============
Year-to-date interest income on impaired loans recorded on the cash basis............ $ 440 $ 471
============== ============
Year-to-date average recorded investment in impaired loans during the period......... $ 19,800 $ 23,300
============== ============
Quarter-to-date interest income on impaired loans recorded on the cash basis......... $ 249 $ 190
============== ============
Quarter-to-date average recorded investment in impaired loans during the period...... $ 19,400 $ 18,500
============== ============
</TABLE>
NOTE: Impaired loans do not include large groups of smaller balance
homogeneous loans that are evaluated collectively for impairment (e.g.
residential mortgages and consumer installment loans). The allowance for loan
losses related to these loans is included in the allowance for loan losses
applicable to other than impaired loans.
5) Various commitments to extend credit (lines of credit) are made in the
normal course of banking business. At June 30, 1996, total unused lines of
credit approximated $1,879,104,500. In addition, letters of credit are issued
for the benefit of customers by affiliated banks. Outstanding letters of
credit were $123,641,900 at June 30, 1996.
PAGE 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MERCANTILE BANKSHARES CORPORATION
EARNINGS SUMMARY
Consolidated net income per share for the second quarter of 1996 was $.61,
an increase of 11% over the $.55 for the comparable period last year.
Consolidated net income was $29,302,000, an increase of 12% over the
$26,114,000 for the second quarter of 1995.
Consolidated net income per share for the six months ended June 30, 1996 was
$1.19, an increase of 13% over the $1.05 for the comparable period last year.
Consolidated net income was $57,035,000, an increase of 13% over the
$50,322,000 for the first six months of 1995.
Amounts for 1996 include the accounts of The Sparks State Bank, Sparks,
Maryland, which became an affiliate after the close of business on October 31,
1995. The affiliation was accounted for using the purchase method of
accounting.
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income for the three months ended June 30, 1996 was 8% higher
than the amount for the comparable period in 1995 due to an increase of 9% in
average earning assets which was partially offset by a slight decline in net
interest margin. Average total loans increased by 8% over the second quarter
of 1995 to $4,389,400,000. Contributing to the decrease in net interest margin
were shifts in the earning asset and deposit mixes and lower yields on average
earning assets which were partially offset by lower interest rates paid on
interest-bearing funds.
Net interest income for the six months ended June 30, 1996 was 8% higher
than the amount for the comparable period in 1995 primarily due to an increase
of 8% in average earning assets. Average loans increased by 8% over the first
half of 1995 to $4,342,200,000 for the first half of 1996.
NONINTEREST INCOME
Total noninterest income for the quarter ended June 30, 1996 increased 12%
to $24,297,000 from $21,658,000 for the second quarter of 1995. Factors
contributing to this increase include $8,000 in gains on investment securities
during the second quarter of 1996 compared to $849,000 in losses on securities
in 1995, an 8% increase in trust division revenues and increases in other
sources of fee income.
For the first six months of 1996, total noninterest income increased 12% to
$47,424,000 from $42,279,000 for the first half of 1995. Factors contributing
to this increase include $74,000 in gains on investment securities during the
first half of 1996 compared to $1,842,000 in losses on securities in 1995, a
7% increase in trust division revenues and higher mortgage banking fees.
NONINTEREST EXPENSES
Total noninterest expenses, excluding the provision for loan losses, for the
second quarter of 1996 increased 3% from the comparable period in 1995.
Increases in furniture and equipment expenses, communications and supplies,
and other expenses, were largely offset by a reduction in FDIC insurance
premiums paid and to lower expenses related to employee benefits and salaries.
Other expenses for the second quarter of 1995 include a net recovery of
$2,795,000 of expenses related to foreclosed property when the property was
sold during the second quarter of 1995.
Total noninterest expenses, excluding the provision for loan losses, for the
first half of 1996 increased 2% from the comparable period in 1995. Increases
in salaries, occupancy expense of bank premises, furniture and equipment
expenses, communications and supplies, and other expenses, were largely offset
by a reduction in FDIC insurance premiums paid and lower expenses related to
employee benefits. Other expenses for the first six months of 1995 also
reflect the second quarter sale of foreclosed property and include a net
recovery of foreclosed property related expenses of $2,019,000.
ANALYSIS OF FINANCIAL CONDITION
Investment securities decreased 1% to $1,557,212,000 at June 30, 1996 from
$1,572,254,000 at December 31, 1995. Total loans outstanding increased 4% to
$4,456,566,000 at June 30, 1996 from $4,301,270,000 at December 31, 1995.
Total deposits changed very little to $5,242,197,000 at June 30, 1996 from
$5,169,381,000 at December 31, 1995. However, noninterest-bearing deposits
increased 4% to $1,026,713,000, or 20% of total deposits at June 30, 1996
compared to $983,021,000, or 19% of total deposits at December 31, 1995 while
interest-bearing deposits increased slightly to $4,215,484,000, but declined
to 80% of total deposits at June 30, 1996 compared to $4,186,360,000, or 81%
of total deposits at December 31, 1995. The growth in interest-bearing deposit
accounts is primarily due to an increase in time deposits.
An increase of $23,786,000 in long-term debt reflects the issuance of
$25,000,000 in 6.94% senior notes and the amortization of principal on
pre-existing debt. The proceeds of the new notes are to be used for general
corporate purposes.
Total stockholders' equity increased slightly because the increase from net
income for the six months ended June 30, 1996 was largely offset by dividends
paid, share repurchases, and unrealized losses on investment securities.
However, exceptional capital strength is still maintained as evidenced by the
ratio of stockholders' equity to total assets, which stood at 12.5% at June
30, 1996 and at December 31, 1995. For more details see the Statement of
Changes in Consolidated Stockholders' Equity on page 5.
ASSET QUALITY
Non-Performing Assets
Non-performing assets consist of non-accrual loans, renegotiated loans and
other real estate owned (i.e., real estate acquired in foreclosure or in lieu
of foreclosure). With respect to non-accrual loans, the Corporation's policy
is that, regardless of the value of the underlying collateral and/or
guarantees, no interest is accrued on the entire balance once either principal
or interest payments on any loan become 90 days past due at the end of a
calendar quarter. All accrued and uncollected interest on such loans is
eliminated from the income statement and is recognized only as collected. A
loan may be put on non-accrual status sooner than this standard if, in
management's judgement, such action is warranted. During the six months ended
June 30, 1996, non-performing assets increased $1,786,000 to $25,879,000.
Other real estate owned, one of the components of non-performing assets,
increased $10,000 while non-performing loans, the other component, increased
$1,776,000.
PAGE 7
<TABLE>
<CAPTION>
Non-Performing Assets JUNE 30, December 31,
(Dollars in thousands) 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual loans (1)................................................................... $23,011 $21,235
Renegotiated loans (1).................................................................. NONE NONE
Loans contractually past due 90 days or more and still accruing interest................ NONE NONE
--------- ---------
Total non-performing loans.......................................................... 23,011 21,235
Other real estate owned................................................................. 2,868 2,858
--------- ---------
Total non-performing assets......................................................... $25,879 $24,093
========= =========
</TABLE>
1) Total interest on these loans is not considered to be material in any of
the periods reported herein. Aggregate gross interest income of $1,079,000
and $1,946,000 for the first six months of 1996 and the year 1995
respectively, on non-accrual and renegotiated loans, would have been
recorded if these loans had been accruing on their original terms
throughout the period or since origination if held for part of the period.
The amount of interest income on the non-accrual and renegotiated loans
that was recorded totalled $445,000 and $1,086,000 for the first six months
of 1996 and the year 1995, respectively.
NOTE: As of June 30, 1996, the Corporation was monitoring loans estimated to
aggregate $5,323,000 not currently classified as non-accrual or renegotiated
loans. These loans have characteristics which indicate they may result in such
classification in the future.
Provision and Allowance for Loan Losses
Each Mercantile Bankshares Corporation (MBC) affiliate is required to maintain
an adequate allowance for loan losses and their boards of directors, along
with MBC management, maintain a regular overview to assure that adequacy. On a
periodic basis, significant credit exposures, non-accrual loans, impaired
loans, other non-performing assets and various statistical measurements of
asset quality are examined to assure the adequacy of the allowance for loan
losses.
The following table presents a summary of the activity in the Allowance for
Loan Losses.
<TABLE>
<CAPTION>
For the 6 Months Ended For the 3 Months Ended
Allowance for Loan Losses June 30, June 30,
(Dollars in thousands) 1996 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance balance--beginning.................... $ 91,398 $ 91,257 $ 94,997 $ 92,738
Charge-offs:
Commercial, financial and agricultural........ (1,340) (3,781) (631) (3,610)
Real estate--construction..................... (55) (109) (55) (109)
Real estate--mortgage......................... (258) (1,049) (196) (889)
Consumer...................................... (1,639) (885) (730) (470)
------------ ------------ ------------ ------------
Totals...................................... (3,292) (5,824) (1,612) (5,078)
------------ ------------ ------------ ------------
Recoveries:
Commercial, financial and agricultural........ 1,079 461 153 112
Real estate--construction..................... 4 28 2
Real estate--mortgage......................... 806 119 120 4
Consumer...................................... 621 531 357 234
------------ ------------ ------------ ------------
Totals...................................... 2,510 1,139 630 352
------------ ------------ ------------ ------------
Net charge-offs................................. (782) (4,685) (982) (4,726)
Provision for loan losses....................... 6,674 2,975 3,275 1,535
------------ ------------ ------------ ------------
Allowance balance--ending....................... $ 97,290 $ 89,547 $ 97,290 $ 89,547
============ ============ ============ ============
Average loans outstanding during period......... $4,342,200 $4,023,100 $4,389,400 $4,070,400
============ ============ ============ ============
Net charge-offs (annualized) as a percentage of
average loans outstanding during period....... .04% .23% .09% .47%
============ ============ ============ ============
Allowance for loan losses at period end as a
percentage of average loans................... 2.2 % 2.2 % 2.2 % 2.2 %
============ ============ ============ ============
Allowance for loan losses at period end as a
percentage of non-performing loans at period 422.8 % 333.4 %
end........................................... ============ ============
</TABLE>
Charge-Offs
Intensive collection efforts continue after charge-off in order to maximize
the recovery of amounts previously charged off. Net charge-offs were
$782,000 for the first half of 1996 versus $4,685,000 during the first six
months of 1995. For further details of charge-offs and recoveries see the
preceding Allowance For Loan Losses table.
PAGE 8
MERCANTILE BANKSHARES CORPORATION
<TABLE>
ANALYSIS OF INTEREST RATES AND INTEREST DIFFERENTIALS
The following table presents the distribution of the average consolidated
balance sheets, interest income/expense and annualized yields earned and rates
paid through the first six months of the year.
<CAPTION>
1996 1995
-------------------------------------- --------------------------------
Average Income*/ Yield*/ Average Income*/ Yield*/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets
Loans:
Commercial....................................... $1,417,200 $ 65,891 9.3% $1,323,200 $ 64,149 9.8%
Mortgage and construction........................ 2,430,000 109,955 9.1 2,209,500 101,195 9.2
Consumer......................................... 495,000 22,916 9.3 490,400 22,874 9.4
----------- ----------- ----------- ----------
Total loans.................................. 4,342,200 198,762 9.2 4,023,100 188,218 9.4
----------- ----------- ----------- ----------
Federal funds sold................................. 81,800 2,110 5.2 10,800 319 6.0
Securities purchased under resale agreements....... 10,600 325 6.2
Securities:
Taxable securities
U.S. Treasury securities....................... 1,529,800 43,961 5.8 1,480,900 39,478 5.4
U.S. Agency securities......................... 19,800 531 5.4 25,900 684 5.3
Other stocks and bonds......................... 16,600 651 7.9 9,200 381 8.4
Tax-exempt securities
States and political subdivisions.............. 15,100 568 7.6 13,300 515 7.8
----------- ----------- ----------- ----------
Total securities............................. 1,581,300 45,711 5.8 1,529,300 41,058 5.4
----------- ----------- ----------- ----------
Interest-bearing deposits in other banks........... 200 4 4.6 100 2 4.0
----------- ----------- ----------- ----------
Total earning assets......................... 6,016,100 246,912 8.3 5,563,300 229,597 8.3
Cash and due from banks.............................. 209,200 ----------- 192,900 ----------
Bank premises and equipment, net..................... 79,500 75,200
Other assets......................................... 152,000 142,700
Less: allowance for loan losses...................... (94,700) (92,600)
----------- -----------
Total assets................................. $6,362,100 $5,881,500
=========== ===========
Interest-bearing liabilities
Deposits:
Savings deposits................................. $2,218,700 29,024 2.6 $2,216,500 33,457 3.0
Time deposits.................................... 2,008,800 55,829 5.6 1,652,500 43,793 5.3
----------- ----------- ----------- -----------
Total interest-bearing deposits.............. 4,227,500 84,853 4.0 3,869,000 77,250 4.0
Short-term borrowings.............................. 281,700 6,884 4.9 309,200 8,431 5.5
Long-term debt..................................... 29,700 960 6.5 29,900 990 6.7
----------- ----------- ----------- ----------
Total interest-bearing funds................. 4,538,900 92,697 4.1 4,208,100 86,671 4.1
Noninterest-bearing deposits......................... 949,700 ----------- 867,400 ----------
Other liabilities and accrued expenses............... 76,000 67,400
----------- -----------
Total liabilities............................ 5,564,600 5,142,900
Stockholders' equity................................. 797,500 738,600
----------- -----------
Total liabilities and stockholders' equity... $6,362,100 $5,881,500
=========== ===========
Net interest income.................................. $154,215 $142,926
Net interest rate spread............................. =========== 4.2% ========== 4.2%
Effect of noninterest-bearing funds.................. 1.0 1.0
-------- -------
Net interest margin on earning assets................ 5.2% 5.2%
Taxable-equivalent adjustment included in: ======== =======
Loan income...................................... $ 1,848 $ 1,790
Investment securities income..................... 258 229
----------- ----------
Total........................................ $ 2,106 $ 2,019
=========== ==========
*Presented on a tax equivalent basis using the statutory federal corporate
income tax rate of 35%.
</TABLE>
PAGE 9
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
Description of matters voted upon and vote at Annual Meeting of
Shareholders held April 24, 1996.
Results of voting for Election of Directors:
DIRECTORS FOR WITHHELD
-------------------------- ---------------------- ----------------------
H. Furlong Baldwin 37,105,002 288,571
Thomas M. Bancroft, Jr. 37,132,084 261,489
Richard O. Berndt 36,710,595 682,978
James A. Block, M.D. 37,122,431 271,142
George L. Bunting, Jr. 37,135,014 258,559
Edward K. Dunn, Jr. 37,127,827 265,746
Martin L. Grass 37,126,839 266,734
B. Larry Jenkins 37,138,039 255,534
Robert D. Kunisch 37,115,688 277,885
William J. McCarthy 36,694,415 699,158
Morris W. Offit 37,007,969 385,604
Christian H. Poindexter 37,115,020 278,553
William C. Richardson 37,117,082 276,491
Bishop L. Robinson 37,096,691 296,882
Donald J. Shepard 37,136,966 256,607
Brian B. Topping 37,127,822 265,751
Calman J. Zamoiski, Jr. 37,131,110 262,463
Results of Voting on Mercantile Bankshares Corporation Retainer Stock
Plan for Non-Employee Directors
For Against Abstained
-------------------------- ----------------------- -----------------------
35,119,510 1,227,082 1,037,892
Results of Voting on Ratification of Appointment of Auditor (Coopers &
Lybrand L.L.P.)
For Against Abstained
-------------------------- ----------------------- -----------------------
37,016,711 110,732 266,130
There were no broker non-votes on these matters except for 9,089
non-votes on Mercantile Bankshares Corporation Retainer Stock Plan
for Non-Employee Directors.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits--
Exhibit 10 S--Supplemental Cash Balance Plan and Thrift Aggrement,
dated April 12, 1996, between Mercantile Bankshares Corporation
and Alan D. Yarbro.
Exhibit 10 T--Executive Severance Agreement, dated as of April 24,
1996, between Mercantile Bankshares Corporation, Mercantile-
Safe Deposit and Trust Company and Alan D. Yarbro.
Exhibit 10 U--Mercantile Bankshares Corporation Option Agreement
with Alan D. Yarbro, dated April 26, 1996.
Exhibit 27--Financial Data Schedule
(b) No Forms 8-K filed.
PAGE 10
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Mercantile Bankshares Corporation
August 13, 1996 /s/ H. Furlong Baldwin
By: H. Furlong Baldwin
Chairman of the Board and
Chief Executive Officer
August 13, 1996 /s/ Jerry F. Graham
By: Jerry F. Graham
Vice President and Controller
PAGE 11
SUPPLEMENTAL CASH BALANCE PLAN AND THRIFT PLAN AGREEMENT
THIS SUPPLEMENTAL CASH BALANCE AND THRIFT PLAN AGREEMENT,
effective the 12th day of April, 1996 (the "Date of Hire") by and
between Mercantile Bankshares Corporation ("Employer") and Alan D.
Yarbro ("Employee").
WITNESSETH:
WHEREAS, Section 4.8(b) of the Cash Balance Plan for Employees of
Mercantile Bankshares Corporation and Participating Affiliates (the
"Cash Balance Plan") and Section 7.3(a) of the Employees' Thrift Plan
of Mercantile Bankshares Corporation and Participating Affiliates (the
"Thrift Plan") (collectively "the Plans") each require certain terms
of employment to be completed before an employee becomes fully vested;
and
WHEREAS, the Cash Balance Plan provides that upon termination of
employment prior to disability or retirement an employee must have
completed five Years of Service (a plan year during which 1,000 hours
of service are completed) in order to be 100% vested in his Accrued
Benefit; and
WHEREAS, the Thrift Plan provides that upon termination of
employment prior to death, disability or retirement, an employee must
have completed five Years of Service (a 12-consecutive month period
measured from Date of Hire and each consecutive 12-month period
thereafter) in order to be 100% vested in Employer's basic and
matching contributions to his account; and
WHEREAS, Employer has hired Employee and wishes to provide
Employee with a benefit under each of the Plans that is fully vested
as of his Date of Hire as though Employee is deemed to have five Years
of Service, for vesting purposes only, effective as of his Date of
Hire.
NOW, THEREFORE, in consideration of the agreements contained
herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Employer and Employee
intending to be legally bound, agree as follows:
1. (a) Should Employee's employment terminate for any reason
other than dismissal for Cause prior to his becoming 100% vested under
the Plans, Employer shall provide Employee or his designated
beneficiary with cash benefits (the "Benefits"), at such times as
provided for in the Plans for payment of such types of Benefits to
vested employees. With respect to the Cash Balance Plan, the Benefits
shall be equivalent to the monthly retirement payment to which
Employee would have been entitled thereunder had his Accrued Benefit
(as defined under the Cash Balance Plan) been 100% vested at
termination. The Benefits with respect to the Cash Balance Plan shall
be payable in the form of a straight single life annuity (or, at the
discretion of Employer, in an actuarial
Page 1
equivalent lump sum payment based upon the actuarial assumptions used
for determining lump sum equivalents under the Cash Balance Plan).
With respect to the Thrift Plan, Employer shall pay a Benefit to Employee,
in a single lump sum, equivalent to the market value of the portion of
Employee's Thrift Plan Account which will be forfeited by reason of
Employee's Years of Service being fewer than five.
(b) For purposes of this Agreement, "Cause" shall mean (i)
an act or acts of personal dishonesty taken by Employee and intended
to result in substantial personal enrichment of Employee at the
expense of Employer, (ii) repeated material violations by Employee of
his duties to Employer which are demonstrably willful and deliberate
on Employee's part and which are not remedied in a reasonable period
of time after receipt of written notice from Employer, or (iii) the
conviction of Employee of a felony.
2. Employer and Employee agree that any amounts payable under
this Agreement are not funded. Employer shall not be required to
reserve, or otherwise set aside, physically or legally, any funds for
the payment of its obligations hereunder. The obligations of Employer
with respect to Benefits payable hereunder shall be paid out of
Employer's general assets and shall not be secured by any form of
trust, escrow, evidence of indebtedness or otherwise. Employee has no
property interest, legal or equitable, in any specific asset of
Employer and has no right greater than, nor has any preference or
priority over, the rights of any unsecured general creditor of
Employer.
3. Whenever the terms "Cash Balance Plan", "Thrift Plan" or
"Plans" appear in this Agreement, those terms shall refer to those
Plans, as they shall be amended from time to time, and any restatement
or successor to those Plans, it being the intent of the parties that
the provisions of those Plans, as amended or restated, or any
successor plans, at the time of Employee's termination of service
shall govern. In the event that Employer terminates the Plans for any
reason and does not immediately initiate sponsorship of successor
plans, the Benefits under this Agreement shall be determined with
respect to the terms of the terminated Plans, notwithstanding when
such Benefits become payable. All other terms and provisions of the
Cash Balance Plan and the Thrift Plan as amended from time to time
shall remain in full force and effect.
4. This Agreement shall terminate on the later of the dates
Employee becomes fully vested under the terms and provisions of the
Cash Balance Plan and the Thrift Plan.
5. Nothing in this Agreement shall be deemed to be a contract,
guarantee or condition of employment.
6. This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland, without reference
to the principles of conflict of laws.
7. This Agreement shall inure to the benefit of and be
enforceable by Employee's legal representatives and shall be binding
upon Employer and its successors and assigns.
Page 2
8. All rights and benefits under this Agreement are personal to
Employee and shall not be subject to any voluntary or involuntary
alienation, assignment, pledge, transfer or other disposition.
IN WITNESS WHEREOF, Employee has hereunto set his hand and
the proper officers of Mercantile Bankshares Corporation have caused
this Agreement to be executed, all as of the 12th day of April, 1996.
WITNESS:
/s/ Wanda Reese /s/ Alan D. Yarbro
_____________________________ ____________________________(SEAL)
Alan D. Yarbro
ATTEST: MERCANTILE BANKSHARES CORPORATION
/s/ John A. O'Connor, Jr. /s/ Edward K. Dunn, Jr.
____________________________ By: _________________________(SEAL)
Page 3
EXECUTIVE SEVERANCE AGREEMENT
AGREEMENT by and between Mercantile Bankshares Corporation
("Mercshares"), Mercantile-Safe Deposit & Trust Company ("Trust Company")
(collectively the "Company"), and Alan D. Yarbro (the "Employee"), dated
as of the 24th day of April, 1996.
WHEREAS: The Board of Directors of Mercshares (the "Board"), acting
upon the recommendation of its Compensation Committee, has determined that
it is in the best interests of Mercshares and its shareholders to assure
that the Company will have the continued dedication of the Employee as a
key executive of Mercshares and the Trust Company, notwithstanding the
possibility, threat or occurrence of a Change of Control (as defined below)
of Mercshares. The Board believes it is necessary to diminish the
inevitable distraction of the Employee by virtue of the personal
uncertainties and risks created by a pending or threatened Change of
Control, to encourage the Employee's full attention and dedication to the
Company currently and in the event of any threatened or pending Change of
Control (including the potential rendering of advice as to the best
interests of Mercshares and its shareholders should the possibility of a
Change of Control of Mercshares arise), and to provide the Employee with
compensation arrangements upon a Change of Control which provide the
Employee with individual financial security and which are competitive with
those of other corporations and, in order to accomplish these objectives,
the Board has caused Mercshares to enter into this Agreement. The Board of
Directors of the Trust Company has made similar determinations and has
caused the Trust Company to enter into this Agreement.
NOW, THEREFORE, IT IS HEREBY AGREED AS FOLLOWS:
1. CERTAIN DEFINITIONS.
(a) "Cause" shall mean (i) an act or acts of personal
dishonesty taken by the Employee and intended to result in substantial
personal enrichment of the Employee at the expense of the Company, (ii)
repeated material violations by the Employee of his duties to the Company
(as in effect immediately prior to the Effective Date) which are
demonstrably willful
Page 1
and deliberate on the Employee's part and which are not remedied in a
reasonable period of time after receipt of written notice from the Company,
or (iii) the conviction of the Employee of a felony.
(b) "Change of Control" shall mean:
(i) The acquisition (other than from Mercshares) by any
person, entity or "group", within the meaning of Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934 as in effect on the date
hereof (the "Exchange Act"), (excluding, for this purpose, Mercshares or
its subsidiaries, and excluding any acquisition of securities by any
employee benefit plan of Mercshares or its subsidiaries which shall have
occurred prior to any other event constituting a Change of Control
hereunder) of beneficial ownership (within the meaning of Rule 13d-3
promulgated under the Exchange Act as in effect on the date hereof) of 20%
or more of either the then outstanding shares of common stock of Mercshares
or the combined voting power of Mercshares' then outstanding voting
securities entitled to vote generally in the election of directors (such
common stock or then outstanding voting securities being referred to herein
as "Voting Securities"), calculated on the date of the transaction causing
the foregoing 20% test to be met, without regard to any limitation upon the
voting rights of any acquiring person under Maryland statutes and without
regard to the potential exercisability of rights, not exercised on such
date, pursuant to any Shareholder Protection Rights Agreement of Mercshares
then in effect; or
(ii) Individuals who, as of the date hereof, constitute the
Board (as of the date hereof the "Incumbent Board") cease for any reason to
constitute at least a majority of the Board, provided that any person
becoming a director subsequent to the date hereof whose election, or
nomination for election by the shareholders of Mercshares, is approved by a
vote of at least a majority of the directors then comprising the Incumbent
Board (other than an election or nomination of an individual whose initial
assumption of office is in connection with an actual or threatened election
contest relating to the election of the Directors of Mercshares, as such
terms are used in Rule 14a-11 of Regulation 14A promulgated under the
Page 2
Exchange Act as in effect on the date hereof) shall be, for purposes of
this Agreement, considered as though such person were a member of the
Incumbent Board; or
(iii) Approval by the stockholders of Mercshares of
(A) a reorganization, merger, consolidation or statutory share exchange, in
each case, with respect to which persons who are the holders of the
outstanding Voting Securities of Mercshares immediately prior to such
reorganization, merger, consolidation or statutory share exchange do not,
immediately thereafter, own more than 50% of the combined voting power
entitled to vote generally in the election of directors of the entity
resulting from such reorganization, merger, consolidation or statutory
share exchange, or (B) a liquidation or dissolution of Mercshares or the
sale of all or substantially all of the assets of Mercshares.
(c) "Change of Control Period" shall mean the period commencing
on the date hereof and ending on the earlier to occur of (i) the third
anniversary of such date, or (ii) the first day of the month next following
the Employee's normal retirement date ("Normal Retirement Date") under the
Cash Balance Plan for Employees of Mercantile Bankshares Corporation and
Participating Affiliates or any successor retirement plan ("Retirement
Plan"); provided, however, that commencing on the date one year after the
date hereof, and on each annual anniversary of such date (such date and
each annual anniversary thereof hereinafter referred to as the "Renewal
Date"), the Change of Control Period shall be extended automatically so as
to terminate on the earlier of (A) three years from such Renewal Date, or
(B) the first day of the month coinciding with or next following the
Employee's Normal Retirement Date, unless at least 60 days prior to the
Renewal Date the Company shall give notice that the Change of Control
Period shall not be so extended.
(d) "Date of Termination" shall mean for purposes of this
Agreement the date of receipt of the Notice of Termination or any later
date specified therein, as the case may be; provided, however, that if the
Employee's employment is terminated by the Company other than for Cause or
Disability, the Date of Termination shall be the date on which the Company
notifies the Employee of such termination.
Page 3
(e) "Effective Date" shall mean the first date during the
"Change of Control Period" on which a Change of Control occurs provided
that the Employee is employed by the Company on such date. Anything in
this Agreement to the contrary notwithstanding, if the Employee's
employment with the Company has terminated for any reason prior to the
first date on which a Change of Control occurs, this Agreement shall be
null and void as of the date of such termination of employment; provided,
however, that if it is reasonably demonstrated that such termination
(i) was at the request of a third party who has taken steps reasonably
calculated to effect a Change of Control, or (ii) otherwise arose in
connection with or anticipation of a Change of Control, then for all
purposes of this Agreement the "Effective Date" shall mean the date
immediately prior to the date of such termination.
(f) "Good Reason" shall mean any of the following actions which
is effected by the Company without the consent of the Employee:
(i) The assignment to the Employee of any duties
inconsistent in any respect with the Employee's position immediately prior
to the Effective Date (including status, offices, titles and reporting
requirements, authority, duties or responsibilities) or any other action by
the Company that results in a diminution in such position or in the nature
and quality of Employee's office facilities, secretarial and support
assistance, excluding for this purpose an isolated, insubstantial and
inadvertent action that is not taken in bad faith and that is remedied by
the Company promptly after receipt of notice thereof given by the Employee;
(ii) Any reduction in Employee's compensation or benefits
from the levels of compensation and benefits in effect immediately prior to
the Effective Date (whether or not such reduction would be permitted under
any employment agreement), including but not limited to salary, bonuses
(under an annual incentive compensation plan or otherwise), expense
allowance, vacation time or other vacation benefits, excusal from
performance of duties under Company policies or agreements (by reason of
illness, disability or other factors), continuance of all employee benefits
and benefit plans and preservation of Employee's levels of participation
and benefits thereunder (including any agreement between the Company and
Page 4
Employee, incentive compensation plan, deferred compensation arrangement,
pension or other retirement or profit-sharing plan, thrift and medical
reimbursement plan, health insurance or other health or disability plan,
life insurance plan, omnibus stock plan, stock option plan, stock purchase
plan, stock appreciation right plan, or any other employee benefit plan or
provision for fringe benefits in effect immediately prior to the Effective
Date), other than an isolated, insubstantial or inadvertent failure to
provide compensation or benefits that is remedied by the Company promptly
after receipt of notice thereof given by the Employee;
(iii) The Company's requiring the Employee to be based
at any office or location other than the Company's principal offices within
the City of Baltimore, except for travel reasonably required in the
performance of the Employee's responsibilities;
(iv) Any purported termination by the Company of the
Employee's employment otherwise than as expressly contemplated hereunder in
the case of Cause, or death pursuant to Section 2(a) of this Agreement, or
Disability pursuant to Section 2(b) of this Agreement; or
(v) Any failure by the Company to comply with and satisfy
Section 6(c) of this Agreement.
For purposes of this Agreement, any good faith determination of "Good
Reason" made by the Employee shall be conclusive.
(g) "Notice of Termination" shall mean a written notice (from
the Employee to the Company, or from the Company to the Employee, as the
case may be) that (i) indicates the specific basis for termination of
employment, (ii) sets forth in reasonable detail the facts and
circumstances claimed to provide the basis for termination of the
Employee's employment, and (iii) if the Date of Termination is other than
the date of receipt of such notice, specifies the termination date (which
date shall be not more than 15 days after the giving of such notice). The
failure by the Employee to set forth in a Notice of Termination any fact or
circumstance that contributes to a showing of Good Reason shall not waive
any right of the
Page 5
Employee hereunder or preclude the Employee from asserting
such fact or circumstance in enforcing his rights hereunder.
2. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
(a) Death. If the Employee's employment is terminated by reason
of the Employee's death prior to the delivery (i) by the Employee to the
Company of a Notice of Termination for Good Reason or (ii) by the Company
to the Employee of any notification of termination of the Employee's
employment other than for Cause or Disability, then this Agreement shall
terminate without further obligations to the Employee's legal
representatives under this Agreement.
(b) Disability. If the Employee's employment is terminated by
reason of the Employee's Disability, this Agreement shall terminate without
further obligations to the Employee under this Agreement. For purposes of
this Agreement, "Disability" shall mean termination of the Employee's
employment on account of disability as determined under any governing
agreement between the Employee and the Company or, if there is no such
agreement or such agreement does not provide a definition of "disability,"
then "Disability" shall mean disability as defined under the Company's long-
term disability insurance plan.
(c) Cause; Other Than for Good Reason. If the Employee's
employment shall be properly terminated for Cause or if the Employee
terminates employment other than for Good Reason, this Agreement shall
terminate without further obligations to the Employee under this Agreement.
(d) Good Reason; Other Than for Cause or Disability. If, at any
time during the period beginning with the Effective Date and ending on the
earlier to occur of (i) the third anniversary of such date or (ii) the
first day of the month coinciding with or next following the Employee's
Normal Retirement Date, the Company shall terminate the Employee's
employment other than for Cause, Disability or death, or if the Employee
shall terminate his employment with the Company for Good Reason, the
Company shall pay to the Employee in a lump sum in cash within 30 days
after the Date of Termination a severance payment, the value of
Page 6
which is three times the Employee's base amount of compensation
(as defined in Section 280G(b)(3) of the Internal Revenue Code of 1986
(the "Code")) including, but not limited to, such items as salary, bonus,
fringe benefits, and deferred compensation, less one dollar ($1.00).
3. NON-EXCLUSIVITY OF RIGHTS. Nothing in this Agreement shall
prevent or limit the Employee's continuing or future participation in any
benefit, bonus, incentive or other plans, programs, policies or practices,
including those of the types identified in Section 1(f)(ii) hereof,
provided by the Company or any subsidiaries of Mercshares and for which the
Employee may qualify, nor shall anything herein limit or otherwise affect
such rights as the Employee may have under any stock option or other
agreements with the Company or any subsidiaries of Mercshares. Amounts
which are vested benefits or which the Employee is otherwise entitled to
receive under any plan, policy, practice or program of the Company or any
subsidiary of Mercshares at or subsequent to the Date of Termination shall
be payable in accordance with such plan, policy, practice or program.
4. FULL SETTLEMENT. The Company's obligation to make the payments
provided for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim, recoupment,
defense or other claim, right or action that the Company may have against
the Employee or others. In no event shall the Employee be obligated to
seek other employment or take any other action by way of mitigation of the
amounts payable to the Employee under any of the provisions of this
Agreement. The Company agrees to pay, to the full extent permitted by law,
all legal fees and expenses that the Employee may reasonably incur as a
result of any contest (regardless of the outcome thereof) by the Company or
others of the validity or enforceability of, or liability under, any
provision of this Agreement or any guarantee of performance thereof
(including as a result of any contest by the Employee about the amount of
any payment pursuant to Section 5 of this Agreement), plus in each case,
interest at the applicable Federal rate provided for in Section 7872(f)(2)
of the Code; provided, however, that the total amount of such legal fees
payable by the Company under this Section 4 with respect
Page 7
to any such contest (exclusive of interest payable under this Section 4)
shall not exceed one hundred thousand dollars ($100,000).
5. CERTAIN REDUCTION OF PAYMENTS BY THE COMPANY.
(a) Anything in this Agreement to the contrary notwithstanding,
in the event it shall be determined that any payment or distribution by the
Company to or for the benefit of the Employee (whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise) (a "Payment") would be nondeductible by the Company for Federal
income tax purposes because of Section 280G of the Code, then the amount
payable or distributable to or for the benefit of the Employee pursuant to
this Agreement (such payments or distributions pursuant to this Agreement
are hereinafter referred to as "Agreement Payments") shall be reduced to
the Reduced Amount. The "Reduced Amount" shall mean an amount which
maximizes the Payment without causing any Payment to be nondeductible by
the Company because of Section 280G of the Code. For purposes of this
Section 5, the value of any Payment shall be determined in accordance with
Section 280G of the Code.
(b) All determinations required to be made under this Section 5
shall be made by Coopers & Lybrand, or such other independent accounting
firm as shall be serving as independent public accountants for Mercshares
immediately prior to the Effective Date (the "Accounting Firm") which shall
provide detailed supporting calculations both to the Company and the
Employee within 20 business days of the Date of Termination or such earlier
time as is requested by the Company and an opinion to the Employee that he
has substantial authority not to report any excise tax on his Federal
income tax return with respect to the Agreement Payments. Any such
determination by the Accounting Firm shall be binding upon the Company and
the Employee. Within 10 business days thereafter, the Company shall pay to
or distribute to or for the benefit of the Employee such amounts as are
then due to the Employee under this Agreement.
(c) As a result of potential uncertainty in the application of
Section 280G of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is
Page 8
possible that Agreement Payments will have been made by the Company that
should not have been made ("Overpayment") or that additional Agreement
Payments that will not have been made by the Company could have been made
("Underpayment"), in each case, consistent with the calculations required to
be made hereunder. In the event that the Accounting Firm, based upon the
assertion of a deficiency by the Internal Revenue Service against the Employee
that the Accounting Firm believes has a high probability of success, determines
that an Overpayment has been made, any such Overpayment paid or distributed by
the Company to or for the benefit of the Employee shall be treated for all
purposes as a loan ab initio to the Employee that the Employee shall repay
to the Company together with interest at the applicable Federal rate provided
for in Section 7872(f)(2) of the Code; provided, however, that no such loan
shall be deemed to have been made and no amount shall be payable by the
Employee to the Company if and to the extent such deemed loan and payment
would not either reduce the amount on which the Employee is subject to tax
under Section 1 and/or Section 4999 of the Code or generate a refund of such
taxes. In the event that the Accounting Firm, based upon controlling
precedent or other substantial authority, determines that an Underpayment
has occurred, any such Underpayment shall be promptly paid by the Company
to or for the benefit of the Employee together with interest at the
applicable Federal rate provided for in Section 7872(f)(2) of the Code.
6. SUCCESSORS.
(a) This Agreement is personal to the Employee and without the
prior written consent of the Company shall not be assignable by the
Employee otherwise than by will or the laws of descent and distribution.
This Agreement shall inure to the benefit of and be enforceable by the
Employee's legal representatives.
(b) This Agreement shall inure to the benefit of and be binding
upon the Company and its successors and assigns.
(c) The Company shall require any successor (whether direct or
indirect, by purchase, merger, consolidation, share exchange or otherwise)
to all or substantially all of the business and/or assets of the Company to
assume expressly and agree to perform this
Page 9
Agreement in the same manner and to the same extent that the Company
would be required to perform it if no such succession had taken place.
As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor to its business and/or assets as
aforesaid which assumes and agrees to perform this Agreement by operation
of law or otherwise.
7. MISCELLANEOUS.
(a) This Agreement shall be governed by and construed in
accordance with the laws of the State of Maryland, without reference to
principles of conflict of laws. The captions of this Agreement are not
part of the provisions hereof and shall have no force or effect. This
Agreement may not be amended or modified otherwise than by a written
agreement executed by the parties hereto or their respective successors and
legal representatives.
(b) All notices and other communications hereunder shall be in
writing and shall be given by hand delivery to the other party or by
registered or certified mail, return receipt requested, postage prepaid,
addressed as follows:
If to the Employee:
Alan D. Yarbro
Mercantile Bankshares Corporation
2 Hopkins Plaza
Baltimore, Maryland 21201
If to the Company:
Mercantile Bankshares Corporation
2 Hopkins Plaza
Baltimore, Maryland 21201
Attention: President
or to such other address as either party shall have furnished to the other
in writing in accordance herewith. Notice and communications shall be
effective when actually received by the addressee.
Page 10
(c) The invalidity or unenforceability of any provision of this
Agreement shall not affect the validity or enforceability of any other
provision of this Agreement.
(d) Any act, omission, right, obligation or activity of
Mercshares or the Trust Company shall be deemed an act, omission, right,
obligation or activity of the Company hereunder, and each of Mercshares and
the Trust Company is jointly and severally liable under this Agreement.
The unenforceability or invalidity of this Agreement with respect to either
such party shall not affect the enforceability or validity of this
Agreement with respect to the other such party.
(e) The Company may withhold from any amounts payable under this
Agreement such Federal, state or local taxes as shall be required to be
withheld pursuant to any applicable law or regulation.
(f) The Employee's failure to insist upon strict compliance with
any provision hereof shall not be deemed to be a waiver of such provision
or any other provision thereof.
(g) This Agreement contains the entire understanding of the
Company and the Employee with respect to the subject matter hereof,
preserving, however, the rights and obligations of any party under any
other agreements or benefit plans to the extent such rights and obligations
are not inconsistent with the terms hereof; and in the event and to the
extent of any inconsistency, this Agreement shall prevail. Notwithstanding
any contrary provision of any other agreement, following any termination of
Employee occurring after the Effective Date, whether for Cause, Good Reason
or any other reason, Employee shall be free to engage in any activity
competitive with any activity of the Company or any affiliate of the
Company, through employment by or ownership of securities of any other
entity or otherwise.
IN WITNESS WHEREOF, the Employee has hereunto set his hand and,
pursuant to the authorization from their respective Board of Directors,
each of Mercshares and
Page 11
Trust Company has caused these presents to be executed in its name
and on its behalf, all as of the day and year first above written.
WITNESS:
/s/ Wanda Reese /s/ Alan D. Yarbro
___________________________ __________________________
Alan D. Yarbro
ATTEST: MERCANTILE BANKSHARES
CORPORATION
/s/ John A. O'Connor, Jr. /s/ Edward K. Dunn, Jr.
___________________________ By:________________________
Sr. Vice President President
Secretary
ATTEST: MERCANTILE-SAFE DEPOSIT
& TRUST COMPANY
/s/ John A. O'Connor, Jr. /s/ Edward K. Dunn, Jr.
___________________________ By:________________________
Sr. Vice President President
Secretary
Page 12
MERCANTILE BANKSHARES CORPORATION
OPTION AGREEMENT
This Option Agreement is entered into this 26th day of April,
1996, by and between Mercantile Bankshares Corporation ("MBC"), a Maryland
corporation, and Alan D. Yarbro ("Grantee").
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement, the definitions set forth in
Sections 1.1 through 1.27 shall be applicable.
Section 1.1 Affiliate. "Affiliate" shall mean: (i) any corporation
in which MBC owns, directly or indirectly, within the meaning of 424(f) of
the Code, fifty percent (50%) or more of the total combined voting power of
all classes of stock of such corporation on a Grant Date; and (ii) any
parent corporation of MBC, within the meaning of 424(e) of the Code.
Section 1.2 Agreement. "Agreement" shall mean this Option Agreement
and shall include the applicable provisions of the Plan which is hereby
incorporated into and made a part of the Agreement.
Section 1.3 Anniversary Date. "Anniversary Date" shall mean the
first four (4) anniversaries of the Grant Date.
Section 1.4 Anniversary Date Option Amount. "Anniversary Date
Option Amount" shall mean twenty-five percent (25%) of the Option Amount.
Section 1.5 Base Year. "Base Year" shall mean the 1994 calendar
year.
Section 1.6 Board. "Board" shall mean the Board of Directors of
MBC.
Section 1.7 Calculation Year. "Calculation Year" shall mean the
calendar year ending immediately prior to the calendar year in which an
Anniversary Date falls.
Page 1
Section 1.8 Code. "Code" shall mean the Internal Revenue Code of
1986, as amended, and any regulations issued thereunder.
Section 1.9 Committee. "Committee" shall mean the Committee
appointed pursuant to Section 3.3 of the Plan.
Section 1.10 Disability. "Disability" shall mean Grantee's
inability to engage in any substantial gainful activity, by reason of any
medically determined physical or mental impairment that may be expected to
result in death or that has lasted or may be expected to last for a
continuous period of not less than twelve (12) months, as determined by the
Committee based on proof of the existence of such disability in such form
and manner and at such times as the Committee may require.
Section 1.11 Earnings. "Earnings" shall mean the earnings per share
of Stock for a calendar year (including the Base Year), as reported in the
Annual Report to Shareholders for such calendar year and as may be adjusted
by the Committee in its discretion.
Section 1.12 Earnings AGR. "Earnings AGR" shall mean the annual
rate of growth in Earnings, expressed as a percentage (rounded up to the
nearest whole percent), determined in accordance with the following
formula:
(A-B) (100)
___________
B
where "A" equals Earnings for the Calculation Year, and "B" equals Earnings
for the calendar year immediately preceding the Calculation Year.
Section 1.13 Earnings CGR. "Earnings CGR" shall mean the compounded
growth rate of Earnings and shall be determined by calculating the rate of
interest at which Earnings for the Base Year would have to be invested to
yield the Earnings for
Page 2
the Calculation Year in question, assuming such interest compounded annually
during the period commencing with the first day of the calendar year
immediately succeeding the Base Year and ending on the last day of such
Calculation Year.
Section 1.14 Exercise Date. "Exercise Date" shall mean the date on
which the Committee receives the written notice required under Section 3.4
of this Agreement that Grantee has exercised the Option.
Section 1.15 Fair Market Value. "Fair Market Value" of a share of
Stock on the Grant Date or Exercise Date, as the case may be, shall mean
the last reported sale price per share of Stock, regular way, or, in case
no such sale takes place on such day, the average of the closing bid and
asked prices, regular way, in either case as reported in the principal
consolidated transaction reporting system with respect to securities listed
or admitted to trading on a national securities exchange or included for
quotation on the NASDAQ-National Market, or if the Stock is not so listed
or admitted to trading or included for quotation, the last quoted price, or
if the Stock is not so quoted, the average of the high bid and low asked
prices, regular way, in the over-the-counter market, as reported by the
National Association of Securities Dealers, Inc. Automated Quotations
System or, if such system is no longer in use, the principal other
automated quotations system that may then be in use or, if the Stock is not
quoted by any such organization, the average of the closing bid and asked
prices, regular way, as furnished by a professional market maker making a
market in the Stock as selected in good faith by the Committee or by such
other source or sources as shall be selected in good faith by the
Committee; provided, however, that the determination of Fair Market Value
shall be made by the Committee in good faith in accordance with the Code.
If, as the case may be, the Grant Date or the Exercise Date is not a
trading day, the determination shall be
Page 3
made as of the next preceding trading day. As used herein, the term
"trading day" shall mean a day on which public trading of securities occurs
and is reported in the principal consolidated reporting system referred
to above, or if the Stock is not listed or admitted to trading on a national
securities exchange or included for quotation on the NASDAQ-National Market,
any day other than a Saturday, a Sunday or a day on which banking institutions
in the State of New York are closed.
Section 1.16 Grant Date. "Grant Date" shall mean April 24, 1996.
Section 1.17 Incentive Stock Option. "Incentive Stock Option" shall
mean an option as defined in 422(b) of the Code.
Section 1.18 Net Operating Income. "Net Operating Income" shall
mean the dollar amount of net after tax operating income for a calendar
year for Mercantile-Safe Deposit and Trust Company, as reported to the
Board and as may be adjusted by the Committee in its discretion.
Section 1.19 Net Operating Income AGR. "Net Operating Income AGR"
shall mean the annual rate of growth in Net Operating Income, expressed as
a percentage (rounded up to the nearest whole percent), determined in
accordance with the following formula:
(A-B)(100)
__________
B
where "A" equals Net Operating Income for the Calculation Year, and "B"
equals Net Operating Income for the calendar year immediately preceding the
Calculation Year.
Section 1.20 Net Operating Income CGR. "Net Operating Income CGR"
shall mean the compounded growth rate of Net Operating Income, determined
by calculating the rate of interest at which Base Year Net Operating Income
would have to be invested
Page 4
to yield the Net Operating Income for the Calculation Year in question,
assuming such interest compounded annually during the period commencing
with the first day of the calendar year immediately succeeding the Base
Year and ending on the last day of such Calculation Year.
Section 1.21 Normal Retirement Date. "Normal Retirement Date" shall
mean the first day of the month coincident with or next following the date
on which Grantee attains age sixty-five (65).
Section 1.22 Option. "Option" shall mean an option to acquire Stock
and, as is hereby designated by the Committee in accordance with and to the
fullest extent permitted by the Code and other applicable law, shall mean
an Incentive Stock Option.
Section 1.23 Option Amount. "Option Amount" shall mean 20,000
shares of Stock.
Section 1.24 Option Price. "Option Price" shall mean the price per
share of Stock at which the Option may be exercised.
Section 1.25 Plan. "Plan" shall mean the Mercantile Bankshares
Corporation Omnibus Stock Plan.
Section 1.26 Retirement. "Retirement" shall mean early or normal
retirement in accordance with the terms of The Cash Balance Plan for
Employees of Mercantile Bankshares Corporation and Participating
Affiliates, as it may exist from time to time, or any successor plan.
Section 1.27 Stock. "Stock" shall mean shares of MBC's authorized
but unissued common stock, par value of Two Dollars ($2.00) per share.
Page 5
ARTICLE 2
GRANT OF OPTION
Section 2.1 Grant of Option. On the Grant Date, MBC, pursuant to
the Plan, granted to Grantee an Option to purchase shares of Stock, not to
exceed the Option Amount, at an Option Price of Twenty-five and Eighty-
seven and one-half Cents ($25.875) per share.
Section 2.2 Term of Option. The Option granted pursuant to Section
2.1 shall expire on April 24, 2006, unless all or a portion of the Option
terminates earlier pursuant to other provisions of this Agreement.
ARTICLE 3
RESTRICTIONS ON EXERCISE
Section 3.1 Termination of Option or Portion of Option. The Option
shall become exercisable, if at all, only on an Anniversary Date. The
extent to which the Option shall become exercisable on any Anniversary Date
shall be determined pursuant to the provisions of Sections 3.2 and 3.3 of
the Agreement; provided that, except as otherwise provided under Section
4.4 of the Agreement, in no case shall the Option become exercisable on any
one (1) Anniversary Date for more than the Anniversary Date Option Amount.
To the extent that, by application of the provisions of Sections 3.2 or 3.3
of the Agreement, no portion of the Option becomes exercisable on an
Anniversary Date, or the Option becomes exercisable for less than the
Anniversary Date Option Amount on such Anniversary Date, the Option shall
terminate with respect to that number of shares of Stock that is equal to
the difference between the Anniversary Date Option Amount and the number of
shares of Stock as to which the Option becomes exercisable on such
Anniversary Date.
Page 6
Section 3.2 Attainment of Earnings CGR. No portion of the Option
shall become exercisable on an Anniversary Date unless the Earnings CGR for
the Calculation Year applicable to that Anniversary Date equals or exceeds
five percent (5%). If such Earnings CGR equals or exceeds five percent
(5%), the portion of the Anniversary Date Option Amount that shall become
exercisable on such Anniversary Date shall be determined pursuant to the
provisions of Section 3.3 of the Agreement.
Section 3.3 Determination of Exercisable Portion of Anniversary Date
Option Amount.
(a) Amounts Dependent on Earnings. Subject to the provisions of the
first sentence of Section 3.2 of the Agreement, if the Earnings AGR for the
Calculation Year applicable to an Anniversary Date equals or exceeds six
percent (6%), Grantee may, on and after such Anniversary Date, exercise the
Option with respect to that percentage of the Anniversary Date Option
Amount that corresponds to the Earnings AGR in the following chart.
Anniversary Date Option
Earnings AGR Amount That May Be Exercised
____________ ____________________________
6% 10%
7% 20%
8% 30%
9% 40%
10% 50%
(b) Amounts Dependent on Net Operating Income. Subject to the
provisions of the first sentence of Section 3.2 of the Agreement, if, and
only if, the Net Operating Income CGR for the Calculation Year applicable
to an Anniversary Date equals or exceeds five percent (5%) and if the Net
Operating Income AGR for such Calculation Year equals or exceeds six
percent (6%), Grantee may, on and after such Anniversary
Page 7
Date, exercise the Option with respect to that percentage of the
Anniversary Date Option Amount that corresponds to the Net Operating
Income AGR in the following chart.
Anniversary Date Option
Net Operating Income AGR Amount That May Be Exercised
________________________ ____________________________
6% 10%
7% 20%
8% 30%
9% 40%
10% 50%
Section 3.4 Manner of Exercise. The Option may be exercised, in
whole or in part, by delivering written notice to the Committee in such
form as the Committee may require from time to time. Such notice shall
specify the number of shares of Stock subject to the Option as to which the
Option is being exercised, and shall be accompanied by full payment of the
Option Price of the shares of Stock as to which the Option is being
exercised. Payment of the Option Price may be made either in cash or
shares of Stock (including shares of Stock acquired upon the exercise of an
option) having a total Fair Market Value on the Exercise Date equal to the
Option Price multiplied by the number of shares of Stock as to which the
Option is being exercised. The Option may be exercised only in multiples
of whole shares and no partial shares shall be issued. If, as of the
fourth Anniversary Date, the total number of shares as to which the Option
is exercisable includes a partial share, the Option for such partial share,
whether or not previously designated by the Committee as an Incentive Stock
Option, shall be deemed to be a non-Incentive Stock Option. On the first
date, on or after the fourth Anniversary Date, that the Fair Market Value
of a share of Stock equals or exceeds the Option Price, Grantee shall be
deemed to have simultaneously exercised the Option for such partial share
and to have sold same to MBC for such Fair Market
Page 8
Value. MBC shall remit to Grantee, in payment of the purchase price of
such partial share, the excess, if any, of the Fair Market Value of such
partial share over the Option Price.
Section 3.5 Issuance of Shares and Payment of Cash upon Exercise.
Upon exercise of the Option, in whole or in part, in accordance with the
terms of the Agreement, and upon payment of the Option Price for the shares
of Stock as to which the Option is exercised, MBC shall issue to Grantee
the number of shares of Stock so paid for, in the form of fully paid and
non-assessable Stock.
Section 3.6 Loan or Guaranty. Solely at the discretion of the
Committee, and upon Grantee's written request, MBC may, but shall not be
required to, assist Grantee in the exercise of the Option by making a loan
to Grantee or by guaranteeing a third-party loan to Grantee. Such a loan
or guaranty shall be conditioned upon prior receipt by the Committee of
satisfactory assurances of Grantee's net worth and repayment ability.
Subject to Regulations G and U of the Federal Reserve Board, any such loan
or guaranty may be in an amount up to one hundred percent (100%) of the
Option Price of the shares of Stock as to which the Option is being
exercised. All loans shall bear interest at a rate determined by the
Committee based upon loans of similar maturity, but in no event shall the
interest rate be less than the rate necessary to avoid the imputation of
interest or original issue discount under the provisions of the Code. All
other terms of any loan or guaranty (including terms of repayment) shall be
established by the Committee, subject to Regulations G and U of the Federal
Reserve Board and all other applicable federal and state laws and
regulations.
Page 9
ARTICLE 4
TERMINATION OF OPTION
Section 4.1 Termination of Employment For Reason Other Than Death,
Disability, or Retirement. The Option granted to Grantee shall terminate
with respect to any shares of Stock as to which the Option has not been
exercised as of the date Grantee is no longer employed by either MBC or an
Affiliate for any reason other than Grantee's death, Disability or
Retirement, whether or not the Option was exercisable on such date.
Section 4.2 Upon Grantee's Death. In the event that upon Grantee's
date of death any portion of the Option is exercisable, then Grantee's
executor, personal representative or the person to whom the Option shall
have been transferred by will or the laws of descent and distribution, as
the case may be, may exercise all or any part of the portion of the Option
exercisable as of the date of death, provided such exercise occurs within
twelve (12) months after the date Grantee dies, but not later than the end
of the stated term of the Option. Upon Grantee's death, the portion of the
Option, if any, that has not become exercisable as of the date of Grantee's
death shall terminate on the date of Grantee's death.
Section 4.3 Termination of Employment By Reason of Disability. In
the event that Grantee ceases to be an employee of MBC or an Affiliate by
reason of Disability, the portion of the Option, if any, that has become
exercisable as of the date of Disability may be exercised in whole or in
part at any time on or after the date of Disability, but not later than the
end of the stated term of the Option or as otherwise provided by the
provisions of Section 4.2 of the Agreement. Upon Grantee's termination of
employment by reason of Disability, the portion of the Option, if any, that
has not become
Page 10
exercisable as of the date of Disability shall terminate on
the date of Disability.
Section 4.4 Termination of Employment By Reason of Retirement.
(a) Early Retirement.
(i) Exercisable Portion of Option. In the event that Grantee
ceases to be an employee of MBC or an Affiliate by reason of Retirement at
any time prior to Grantee's Normal Retirement Date, the portion of the
Option, if any, that has become exercisable as of the date of Retirement
may be exercised in whole or in part at any time on or after the date of
Retirement, but not later than the end of the stated term of the Option or
as otherwise provided by the provisions of Section 4.2 of the Agreement.
(ii) Non-exercisable Portion of Option. In the event that
Grantee ceases to be an employee of MBC or an Affiliate by reason of
Retirement at any time prior to Grantee's Normal Retirement Date, the
portion of the Option, if any, that has not become exercisable as of the
date of Retirement shall terminate on the date of Retirement.
(b) Normal Retirement Date.
(i) Exercisable Portion of Option. In the event that Grantee
ceases to be an employee of MBC or an Affiliate by reason of Retirement,
the portion of the Option, if any, that has become exercisable as of the
date of Retirement may be exercised in whole or in part at any time on or
after the date of Retirement, but not later than the end of the stated term
of the Option or as otherwise provided by the provisions of Section 4.2 of
the Agreement.
(ii) Non-exercisable Portion of Option. In the event that upon
the occurrence of Grantee's Normal Retirement Date all or a portion of the
Option has not become exercisable solely because one (1) or more of the
first four (4) Anniversary
Page 11
Dates have not occurred (hereinafter referred to
as the "Remaining Portion"), then such Remaining Portion shall become
exercisable, if at all, on the Anniversary Date coincident with or
immediately following Grantee's Normal Retirement Date. In all cases, the
Remaining Portion shall not include any portion of the Option that has
terminated pursuant to the provisions of Sections 3.1, 3.2, 3.3, 4.1, 4.2
or 4.3 of the Agreement. The extent to which the Remaining Portion shall
become exercisable shall be determined pursuant to the provisions of
Sections 3.2 and 3.3 of the Agreement; provided, however, that the term
"Remaining Portion" shall be substituted for the term "Anniversary Date
Option Amount" in all places noted therein. The amount, if any, of the
Remaining Portion of the Option that becomes exercisable on such
Anniversary Date may be exercised in whole or in part at any time on or
after such Anniversary Date, but not later than the end of the stated term
of the Option or as otherwise provided by the provisions of Section 4.2 of
the Agreement. Notwithstanding anything in the Agreement to the contrary,
the provisions of this Section 4.4(b)(ii) of the Agreement shall apply as
of the occurrence of Grantee's Normal Retirement Date, regardless of
whether Grantee continues to be an employee of MBC or an Affiliate after
such date.
ARTICLE 5
MISCELLANEOUS
Section 5.1 Non-Guarantee of Employment. Nothing in the Plan or the
Agreement shall be construed as a contract of employment between MBC (or an
Affiliate) and Grantee, or as a contractual right of Grantee to continue in
the employ of MBC or an Affiliate, or as a limitation of the right of MBC
or an Affiliate to discharge Grantee at any time.
Section 5.2 No Rights of Stockholder. Grantee shall not have any of
the rights
Page 12
of a stockholder with respect to the shares of Stock that may be
issued upon the exercise of the Option until such shares of Stock have been
issued to him upon the due exercise of the Option.
Section 5.3 Notice of Disqualifying Disposition. If Grantee makes a
disposition (as that term is defined in 424(c) of the Code) of any shares
of Stock acquired pursuant to the exercise of an Incentive Stock Option
within two (2) years of the Grant Date or within one (1) year after the
shares of Stock are transferred to Grantee, Grantee shall notify the
Committee of such disposition in writing.
Section 5.4 Withholding Taxes. MBC or any Affiliate shall have the
right to deduct from any compensation or any other payment of any kind
(including withholding the issuance of shares of Stock) due Grantee the
amount of any federal, state or local taxes required by law to be withheld
as the result of the exercise of the Option or the disposition (as that
term is defined in 424(c) of the Code) of shares of Stock acquired
pursuant to the exercise of the Option. In lieu of such deduction, MBC may
require Grantee to make a cash payment to MBC or an Affiliate equal to the
amount required to be withheld. If Grantee does not make such payment when
requested, MBC may refuse to issue any Stock certificate under the Plan
until arrangements satisfactory to the Committee for such payment have been
made.
Section 5.5 Limitation on Exercise. Notwithstanding anything in the
Plan or Agreement to the contrary, the Committee may restrict the right to
exercise the Option to the extent that such exercise would trigger an
"excess parachute payment" (as that term is defined in 280G(b) of the
Code) unless Grantee shall have the right to receive such an excess
parachute payment under an agreement with MBC or an Affiliate.
Section 5.6 Nontransferability of Option. The Option shall be
nontransferable
Page 13
otherwise than by will or the laws of descent and distribution. During
the lifetime of Grantee, the Option may be exercised only by Grantee or,
during the period Grantee is under a legal disability,by Grantee's guardian
or legal representative.
Section 5.7 Agreement Subject to Charter and By-Laws. This
Agreement is subject to the Charter and By-Laws of MBC, and any applicable
federal or state laws, rules or regulations.
Section 5.8 Gender. As used herein the masculine shall include the
feminine as the circumstances may require.
Section 5.9 Headings. The headings in the Agreement are for
reference purposes only and shall not affect the meaning or interpretation
of the Agreement.
Section 5.10 Notices. All notices and other communications made or
given pursuant to the Agreement shall be in writing and shall be
sufficiently made or given if hand delivered or mailed by certified mail,
addressed to Grantee at the address contained in the records of MBC or an
Affiliate, or to MBC for the attention of its Secretary at its principal
office.
ARTICLE 6
SCOPE OF AGREEMENT
Section 6.1 Entire Agreement; Modification. The Agreement contains
the entire agreement between the parties with respect to the subject matter
contained herein and may not be modified, except as provided in the Plan or
in a written document signed by each of the parties hereto.
Page 14
Section 6.2 Counterparts. The Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed
to be an original and all of which together shall constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties have executed the Agreement as of the
date first above written.
ATTEST: MERCANTILE BANKSHARES CORPORATION
/s/ John A. O'Connor, Jr. /s/ Edward K. Dunn, Jr.
_________________________ By:_____________________________
John A. O'Connor, Jr. Edward K. Dunn, Jr.
WITNESS: GRANTEE
/s/ Wanda Reese /s/ Alan D. Yarbro
Alan D. Yarbro
Page 15
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<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
MERCANTILE BANKSHARES CORPORATION JUNE 3O, 1996 FINANCIAL STATEMENTS AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 272,637,000
<INT-BEARING-DEPOSITS> 100,000
<FED-FUNDS-SOLD> 4,710,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,536,698,000
<INVESTMENTS-CARRYING> 20,514,000
<INVESTMENTS-MARKET> 20,491,000
<LOANS> 4,456,566,000
<ALLOWANCE> 97,290,000
<TOTAL-ASSETS> 6,433,281,000
<DEPOSITS> 5,242,197,000
<SHORT-TERM> 272,489,000
<LIABILITIES-OTHER> 67,111,000
<LONG-TERM> 49,409,000
0
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<COMMON> 95,332,000
<OTHER-SE> 706,743,000
<TOTAL-LIABILITIES-AND-EQUITY> 6,433,281,000
<INTEREST-LOAN> 196,914,000
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<INTEREST-DEPOSIT> 84,853,000
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