United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended DECEMBER 31, 1996
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number 0-5127
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MERCANTILE BANKSHARES CORPORATION
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(Exact name of registrant as specified in its charter)
MARYLAND 52-0898572
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
TWO HOPKINS PLAZA, P. O. BOX 1477, BALTIMORE, MARYLAND 21203
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (410) 237-5900
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
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Securities registered pursuant to section 12(g) of the Act:
COMMON STOCK ($2 PAR VALUE)
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(Title of class)
PREFERRED STOCK PURCHASE RIGHTS
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(Title of class)
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
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No
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Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. [X]
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At February 28, 1997, the aggregate market value of shares of Common
Stock held by non-affiliates of Registrant (including fiduciary accounts
administered by affiliates) was $1,739,027,849 based on the last sale price
on the Nasdaq National Market on February 28, 1997.
As of February 28, 1997, 47,443,251 shares of common stock were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Parts I, II and IV - Portions
of Registrant's Annual Report to Stockholders for year ended December 31,
1996, as indicated, Part III - Definitive Proxy Statement of Registrant
filed with the Securities and Exchange Commission under Regulation 14A.
Page 1
PART I
ITEM 1. BUSINESS
GENERAL
Mercantile Bankshares Corporation ("Mercshares") was incorporated
under the laws of Maryland on May 27, 1969. Mercshares is a bank holding
company registered under the Bank Holding Company Act of 1956 and, as of
December 31, 1996, owned substantially all of the outstanding shares of
capital stock of twenty-one banks (the "Affiliated Banks"): The Annapolis
Banking and Trust Company ("Annapolis"), Baltimore Trust Company
("Baltimore Trust"), Bank of Southern Maryland ("Southern"), Calvert Bank
and Trust Company ("Calvert"), The Chestertown Bank of Maryland
("Chestertown"), The Citizens National Bank ("Citizens"), County Banking &
Trust Company ("County"), The Eastville Bank ("Eastville"), Farmers &
Merchants Bank - Eastern Shore ("Farmers & Merchants"), The Fidelity Bank
("Fidelity"), The First National Bank of St. Mary's ("First National"), The
Forest Hill State Bank ("Forest Hill"), Fredericktown Bank & Trust Company
("Fredericktown"), Mercantile-Safe Deposit and Trust Company ("Merc-Safe"),
The National Bank of Fredericksburg ("Fredericksburg"), Peninsula Bank
("Peninsula"), The Peoples Bank of Maryland ("Peoples"), Potomac Valley
Bank ("Potomac"), St. Michaels Bank ("St. Michaels"), The Sparks State Bank
("Sparks Bank") and Westminster Bank and Trust Company of Carroll County
("Westminster"). Mercshares also owns all of the outstanding shares of
Mercantile Mortgage Corporation, a mortgage banking company, MBC Agency,
Inc., an insurance agency, and MBC Realty, Inc., which owns and operates
various properties used by Merc-Safe. Merc-Safe owns all of the
outstanding shares of Hopkins Plaza Agency, Inc., which acts as agent in
the sale of fixed rate annuities, and MBC Leasing, Inc. (formed in 1996),
which provides tax oriented and finance leases of equipment. MBC Agency,
Inc., owns all of the outstanding shares of Mercantile Life Insurance
Company, which is in the business of reinsuring credit insurance
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made available through the Affiliated Banks. Mercantile Mortgage
Corporation owns all of the outstanding shares of Benchmark Appraisal
Group, Inc. which appraises real property in connection with loans made by
Mercantile Mortgage Corporation, certain of the Affiliated Banks, and
others. The Affiliated Banks, Mercantile Mortgage Corporation, MBC Agency,
Inc., Mercantile Life Insurance Company, MBC Realty, Inc., Hopkins Plaza
Agency, Inc. MBC Leasing, Inc. and Benchmark Appraisal Group, Inc. are
herein referred to as "Affiliates." For information on the location and
number of offices of the Affiliated Banks and Mercantile Mortgage
Corporation, at December 31, 1996, see pages 49 to 55 of Registrant's
Annual Report to Stockholders for the year ended December 31, 1996, which
information is incorporated by reference herein.
Mercshares periodically reviews and considers possible acquisitions
of banks and corporations performing related activities and discusses such
possible acquisitions with managements of the subject companies, and such
acquisitions may be made from time to time. Such acquisitions are normally
subject to regulatory approval.
In October, 1996, Mercshares entered into an agreement to acquire all
the outstanding shares of Home Bank, Newark, Maryland. Under terms of the
agreement, Mercshares will issue up to 475,218 shares of its common stock
representing an exchange of 2.6 shares for each outstanding share of the
common stock of Home Bank.
In December, 1996, Mercshares entered into an agreement to acquire
all the outstanding shares of Farmers Bank of Mardela Springs, Mardela
Springs, Maryland. Under terms of the agreement, Mercshares will issue up
to 115,035 shares of its common stock, representing an exchange of 1.25
shares for each outstanding share of the common stock of Farmers Bank.
It is anticipated that these affiliations will be completed during
1997, by mergers of Home Bank and Farmers Bank into Peninsula. The
affiliations have
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been approved by the respective shareholders of Home Bank and Farmers Bank
and regulatory approvals are pending. Each affiliation is expected to be
accounted for as a purchase.
OPERATIONS
The Affiliated Banks are engaged in a general commercial and retail
banking business with normal banking services, including acceptance of
demand, savings and time deposits and the making of various types of loans.
Merc-Safe offers a full range of personal trust services, investment
management services and (for corporate and institutional customers),
investment advisory, financial and pension and profit sharing services. As
of December 31, 1996, assets under the investment supervision of
Merc-Safe's trust division had an estimated value of $10.9 billion, assets
held in its personal and corporate custody accounts had an estimated value
of $16.5 billion and assets held in escrow accounts had an estimated value
of $15.1 million.
Mercantile Mortgage Corporation, through offices in Maryland and
Delaware, arranges for and services various types of mortgage loans as
principal and as agent primarily for non-affiliated institutional investors
and also for the Affiliated Banks. Benchmark Appraisal Group, Inc.
appraises real property in connection with loans made by Mercantile
Mortgage Corporation, certain of the Affiliated Banks, and others.
Mercantile Pennsylvania Corporation, which made various commercial
extensions of credit in Pennsylvania, has been merged into Merc-Safe. Its
operations will be continued by a Merc-Safe branch office in Pennsylvania.
Hopkins Plaza Agency, Inc. acts as agent in the sale of fixed rate
annuities, and MBC Leasing, Inc. provides tax oriented and finance leases
of equipment.
MBC Agency, Inc., provides, under group policies, credit life
insurance in connection with extensions of credit by Affiliated Banks.
Mercantile Life
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Insurance Company, which is owned by MBC Agency, Inc., reinsures the
insurance
provided by that Company.
STATISTICAL INFORMATION
The statistical information required in this Item 1 is incorporated
by reference to the information appearing in Registrant's Annual Report to
Stockholders for the year ended December 31, 1996, as follows:
DISCLOSURE REQUIRED BY GUIDE 3 REFERENCE TO 1996 ANNUAL REPORT
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(I) Distribution of Assets,
Liabilities and Stockholder
Equity; Interest Rates and
Interest Differential ......... Analysis of Interest Rates and
Interest Differentials (pages 8-9)
......... Rate/Volume Analysis (page 10)
......... Non-performing Assets (pages 16-17)
(II) Investment Portfolio ......... Bond Investment Portfolio (page 13)
(III) Loan Portfolio ......... Year-End Loan Data (page 45)
......... Loan Maturity Schedule (page 18)
......... Asset/Liability and Liquidity
Management (pages 19-20)
......... Non-performing Assets (pages 16-17)
(IV) Summary of Loan Loss
Experience ......... Allowance for Loan Losses
(pages 15-16)
and Credit Risk Analysis (page 14)
......... Allocation of Allowance for Loan
Losses (page 15)
(V) Deposits ......... Analysis of Interest Rates and
Interest Differentials (pages 8-9)
......... Notes to Financial Statements,
Note 5 - Deposits (page 33)
(VI) Return on Equity
and Assets ......... Return on Equity and Assets (page 47)
(VII) Short-Term Borrowings ......... Notes to Financial Statements,
Note 6 (page 34)
Page 5
EMPLOYEES
At December 31, 1996, Mercshares and its Affiliates had approximately 804
officers and 2,009 other employees.
COMPETITION
The banking business, in all of its phases, is highly competitive.
Within their service areas, the Affiliated Banks compete with commercial
banks (including local banks and branches or affiliates of other larger
banks), savings and loan associations and credit unions for loans and
deposits, and with insurance companies and other financial institutions for
various types of loans. The Affiliated Banks also face competition for
commercial and retail banking business from banks and financial
institutions located outside their service areas. The Riegle-Neal
Interstate Banking and Branching Efficiency Act of 1994 (the "1994
Interstate Act"), which became law September 29, 1994, provided, among
other things that, over time, bank holding companies that are adequately
capitalized and managed will be permitted to acquire banks in any state,
preempting essentially all state laws prohibiting interstate bank
acquisitions and mergers, subject to certain state "opt-out" rights with
respect to interstate mergers, as well as certain state "opt-in" rights
with respect to other vehicles for interstate branching and with respect to
acceleration of the interstate merger provisions of the 1994 Interstate
Act. Maryland, Virginia, Pennsylvania and numerous other states, have
"opted-in" and generally accelerated these provisions, initially on a
reciprocal basis, to the full extent permitted by the 1994 Interstate Act.
As a result of this and other provisions of the Interstate Act and related
state actions, competition may increase.
While Mercshares is the second largest bank holding company
headquartered in Maryland, it is the largest independent bank holding
company in the state. Its largest subsidiary, Merc-Safe, is the fifth
largest commercial bank in
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Maryland. During 1996, Mercshares also competed with Maryland-based bank
subsidiaries of the first, second, fourth and sixth largest bank holding
companies in the United States as well as banking subsidiaries of other
non-Maryland bank holding companies. Measured in terms of assets under
investment supervision, Merc-Safe believes it is one of the largest trust
institutions in the southeastern United States. Merc-Safe competes for
various classes of fiduciary and investment advisory business with other
banks and trust companies, insurance companies, investment counseling
firms, mutual funds and others.
Mercantile Mortgage Corporation and Benchmark are relatively small
competitors in their areas of activity. MBC Agency, Inc. is limited to
providing credit life, health and accident insurance in connection with
credit extended by the Affiliated Banks. Hopkins Plaza Agency, Inc. and
MBC Leasing, Inc. commenced business in 1996 and are small competitors in
their areas of activity.
SUPERVISION AND REGULATION
MERCSHARES
Mercshares, as a registered bank holding company, is subject to
regulation and examination by the Board of Governors of the Federal Reserve
System under the Bank Holding Company Act of 1956 (the "Act") and is
required to file with the Board of Governors quarterly and annual reports
and such additional information as the Board of Governors may require
pursuant to the Act. With various exceptions, Mercshares is prohibited
from acquiring direct or indirect ownership or control of more than 5% of
any class of the voting shares of any company which is not a bank or bank
holding company and from engaging in any business other than that of
banking or of managing or controlling banks or of furnishing services to,
or performing services for, its Affiliated Banks. The
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Act and Regulations promulgated under the Act require prior approval of the
Board of Governors of the Federal Reserve System of the acquisition by
Mercshares of more than 5% of any class of the voting shares of any
additional bank.
Further, under Section 106 of the 1970 Amendments to the Act and the
Board's Regulations, bank subsidiaries of bank holding companies are
prohibited from engaging in certain tie-in arrangements with bank holding
companies and their non-bank subsidiaries in connection with any extension
of credit or provision of any property or services.
The Act, generally, restricts activities of all bank holding companies
and their subsidiaries to banking, and the business of managing and
controlling banks, and to other activities which are determined by the
Board of Governors of the Federal Reserve System to be so closely related
to banking or managing or controlling banks as to be a proper incident
thereto. Mercshares is also subject to certain restrictions with respect
to engaging in the securities business.
It is Federal Reserve Policy that a bank holding company should serve
as a source of financial and managerial strength for and commit resources
to support each of its subsidiary banks even in circumstances in which it
might not do so (or may not legally be required or financially able to do
so) absent such a policy.
Changes in control of Mercshares and its Affiliated Banks are
regulated under the Bank Holding Company Act of 1956, the Change in Bank
Control Act of 1978 and various state laws.
AFFILIATED BANKS
All Affiliated Banks, with the exception of Citizens, Baltimore Trust,
Eastville, Farmers & Merchants, First National and Fredericksburg are
Maryland banks, subject to the banking laws of Maryland and to regulation
by the
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Commissioner of Financial Regulation of Maryland, who is required by
statute to make at least one examination in each calendar year (or at 18-
month intervals if the Commissioner determines that an examination is
unnecessary in a particular calendar year). Their deposits are insured by,
and they are subject to certain provisions of Federal law and regulations
and examination by, the Federal Deposit Insurance Corporation.
In addition, Annapolis, Forest Hill and St. Michaels are members of
the Federal Reserve System, and are thereby subject to regulation by the
Board of Governors of that System.
Citizens, First National and Fredericksburg are national banks subject
to regulation and regular examination by the Comptroller of the Currency in
addition to regulation and examination by the Board of Governors of the
Federal Reserve System and the Federal Deposit Insurance Corporation, which
insures their deposits.
Eastville and Farmers & Merchants are Virginia banks, subject to the
banking laws of Virginia and to regulation by its State Corporation
Commission, which is required by statute to make at least one examination
in every three year period. Their deposits are insured by, and they are
subject to certain provisions of Federal law and regulation and examination
by, the Federal Deposit Insurance Corporation.
Baltimore Trust is a Delaware bank, subject to the banking laws of
Delaware and to regulation by the Delaware State Bank Commissioner, who is
required by statute to make periodic examinations. Its deposits are
insured by, and it is subject to certain provisions of Federal law and
regulation and examination by the Federal Deposit Insurance Corporation.
Mercshares and its Affiliates are subject to the provisions of Section
23A of the Federal Reserve Act which limit the amount of loans or
extensions of credit to, and investments in, Mercshares and its nonbanking
Affiliates by the
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Affiliated Banks, and Section 23B of the Federal Reserve Act which requires
that transactions between the Affiliated Banks and Mercshares and its
nonbanking Affiliates be on terms and under circumstances that are
substantially the same as with non-affiliates. Under the Financial
Institutions Reform, Recovery, and Enforcement Act of 1989, there are
circumstances under which Affiliated Banks could be responsible to the
Federal Deposit Insurance Corporation for losses incurred by it with
respect to other Affiliated Banks.
OTHER AFFILIATES
As affiliates of Mercshares, the nonbanking Affiliates are subject to
examination by the Board of Governors of the Federal Reserve System and, as
affiliates of the Affiliated Banks, they are subject to examination by the
Federal Deposit Insurance Corporation and the Commissioner of Financial
Regulation of Maryland. In addition, MBC Agency, Inc., Mercantile Life
Insurance Company and Hopkins Plaza Agency, Inc. are subject to licensing
and regulation by state insurance authorities.
RECENT BANKING LEGISLATION
The 1994 Interstate Act made a number of major changes that will have
a significant effect on the operations of banks. Although there are
numerous provisions, the principal elements include those summarized below.
Commencing September 29, 1995, bank holding companies that are
adequately capitalized and managed are permitted to acquire banks in any
state, essentially preempting state laws prohibiting interstate bank
acquisitions. Commencing June 1, 1997, adequately capitalized and managed
banks will be able to engage in interstate branching by merging banks in
different states. States may elect not to permit such merger generated
branching by adopting specific legislation before June 1, 1997 in which
case out-of-state banks generally will not be able to branch into such
states, and banks headquartered in such states generally will
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not be permitted to branch into other states. In addition, states may
elect to permit such branching earlier by adopting specific legislation to
that effect prior to June 1, 1997, which must apply equally to all out-of-
state banks and permit interstate merger transactions with all out-of-state
banks. States may also elect, by legislation, to permit acquisitions of
existing branches of banks by out-of-state banks without the acquisition of
the entire bank.
With respect to both interstate acquisitions and branching through
mergers, states may require that banks to be acquired have been in
existence for a period of time (not more than five years), may limit, on a
non-discriminatory basis, the percent of deposits within a state that may
be held by a bank, or bank holding company, and may adopt, on a non-
discriminatory basis, laws relating to the operations of a bank within the
state. The Federal Reserve Board may not permit an acquisition, and the
responsible federal agency may not permit a merger, that would result in
the acquiring institution controlling more than 10% of total insured
deposits in the U. S., or 30% of a state's insured deposits (other than in
connection with an initial entry into a state or with an interstate merger
involving affiliated banks), although this 30% limit may be increased or
decreased by a state on a non-discriminatory basis. The pertinent federal
agencies must take into account the acquiring institution's record under
the Community Reinvestment Act and any applicable state community
reinvestment laws. States may impose filing requirements and may continue
to regulate intrastate branching in a non-discriminatory way, examine banks
and branches operated in that state, impose non-discriminatory notification
and reporting requirements, adopt laws relating to community reinvestment,
consumer protection and fair lending, and exercise taxing authority.
The appropriate federal banking agency may also permit an adequately
capitalized and managed bank to open and operate an interstate branch de
novo in any state that has a law that applies equally to all banks and
expressly permits all out-of-state banks to open and operate such a branch,
provided the bank complies with state filing and community reinvestment
requirements.
Commencing September 29, 1995, subsidiaries of the same bank holding
Page 11
company may act as agents for one another in receiving deposits, closing
and servicing loans and accepting loan payments without being deemed
branches, but the new authority does not extend to originating or approving
loans or opening deposit accounts.
Generally, foreign banks will be allowed to engage in interstate
banking in the same way as domestic banks without establishing U. S. bank
subsidiaries.
There are many other provisions of the 1994 Interstate Act, such as
prohibitions against interstate branches being operated primarily to
produce deposits, requiring hearings on closing of certain branches, and
requiring separate evaluations and ratings of a bank's Community
Reinvestment Act performance in each state in which it operates, and
separate evaluations for each metropolitan area and for the remaining non-
metropolitan area in which the bank maintains a branch.
Although the 1994 Interstate Act, and regulations implementing its
provisions, become effective over a multi-year period so that the ultimate
impact cannot now be predicted, it is clear that it will have a substantial
impact on the manner in which the banking business in the United States is
conducted. In this regard also, Maryland, Virginia, Pennsylvania and
numerous other states, have adopted legislation accelerating implementation
of the interstate merger provisions of the 1994 Interstate Act and "opting-
in" to its provisions with respect to interstate de novo branching and
interstate acquisition of existing branches without acquisition of the
whole institution. Generally speaking, these "opt-in" provisions are
initially on a reciprocal basis.
In addition, the Riegle Community Development and Regulatory
Improvement Act of 1994, which contains a number of provisions affecting
the operations of financial institutions, became law September 23, 1994.
Among these provisions are those that, (1) establish a Community
Development Financial Institutions Fund to promote economic revitalization
and development in communities considered to be financially underserved,
through investment in Community Development Financial Institutions, (2) add
additional protections to individuals entering into reverse mortgage
transactions and "high cost" mortgage transactions, (3) remove certain
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existing impediments to the securitization of small business loans and
leases in an effort to improve access to capital by small businesses, (4)
reduce or simplify administrative requirements, previously imposed by
regulations, of financial institutions to the extent consistent with safe
and sound banking practices, (5) reduce and revise reporting requirements
relating to money laundering, (6) improve compliance with the National
Flood Insurance Program by lenders and secondary market purchasers in order
to increase participation nationally by individuals with mortgaged homes or
businesses in special flood hazard areas who have not purchased or
maintained flood insurance coverage, and (7) ameliorate certain provisions
of Section 39 of the Federal Deposit Insurance Act relating to the
establishment of regulatory requirements with respect to asset quality,
among other things. Regulations and standards designed to implement
certain provisions of this law have been issued. The various provisions of
this Act should facilitate the operations of banks but their overall impact
cannot be predicted.
More recently, the "Economic Growth and Regulatory Paperwork Reduction
Act of 1996" made numerous changes in Federal banking laws to recapitalize
the Savings Association Insurance Fund ("SAIF"), provide regulatory burden
relief, amend the Fair Credit Reporting Act, and limit lender liability for
environmental cleanup. The recapitalization of SAIF requires certain
payments by banks to help pay interest on the bonds that funded the initial
capitalization of SAIF and mandates regulatory actions to prevent the
shifting of deposits from SAIF to the Bank Insurance Fund ("BIF"). It also
provides for the merger of SAIF and BIF on January 1, 1999, but only if no
insured depository institution is a savings association on that date and
with no merger provision otherwise, and mandates a Treasury Department
study on the development of a common charter for all insured depository
institutions. The provisions designed to provide regulatory relief
establish expedited procedures to permit bank holding companies to engage
in permissible non-banking activities and alleviate some of the constraints
in the Depository Institution Management Interlocks Act.
Page 13
In addition, the Board of Governors of the Federal Reserve System
recently adopted numerous changes to their existing procedures with respect
to (1) the acquisition of banks and non-banks, (2) changes in bank control,
(3) commencement of non-banking activity DE NOVO, (4) simplifying and
expanding the regulatory list of permissible non-banking activities, (5)
alleviating the tying rules, and (6) removing outmoded restrictions on bank
holding company activity. The Board of Governors of the Federal Reserve
System has also recently adopted and proposed significant changes designed
to facilitate entry of holding companies into the securities business
within the confines of the Glass-Steagall Act.
EFFECTS OF MONETARY POLICY
All commercial banking operations are affected by the Federal Reserve
System's conduct of monetary policy and its policies change from time to
time based on changing circumstances. A function of the Federal Reserve
System is to regulate the national supply of bank credit in order to
achieve economic results deemed appropriate by its Board of Governors,
including efforts to combat unemployment, recession or inflationary
pressures. Among the instruments of monetary policy used to implement
these objectives are open market operations in the purchase and sale of
U.S. Government securities, changes in the discount rate charged on bank
borrowings and changes in reserve requirements against bank deposits.
These means are used in varying combinations to influence the general level
of interest rates and the general availability of credit. More
specifically, actions by the Board of Governors of the Federal Reserve
influence the levels of interest rates paid on deposits and other bank
funding sources and charged on bank loans as well as the level of
availability of bank funds with which loans and investments can be made.
The monetary policies of bank regulatory and other authorities have
affected the operating results of commercial banks in the past and are
expected to continue to do so in the future. In view of changing
conditions in the national economy, in the money markets, and in the
relationships of international currencies, as well as the effect of
legislation and of actions by monetary and
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fiscal authorities, no prediction can be made as to possible future changes
in interest rates, deposit levels, loan demand, or the business and
earnings of the Affiliated Banks.
ITEM 2. PROPERTIES
The main offices of Merc-Safe and Mercshares are located in a 21-story
building at Hopkins Plaza in Baltimore owned by MBC Realty, Inc., a wholly
owned subsidiary of Mercshares. At December 31, 1996, approximately
134,000 square feet were occupied by Merc-Safe and Mercshares. At December
31, 1996, Merc-Safe also occupied approximately 132,000 square feet of
leased space in a building located in Linthicum, Maryland, in which its
operations and certain other departments are located. This building is
also owned by MBC Realty, Inc. Of the 18 banking and bank-related offices
occupied by Merc-Safe, five are owned in fee, four are owned subject to
ground leases and nine are leased with aggregate annual rentals of
approximately $874,000, not including rentals for the main office and
adjacent premises owned by MBC Realty, Inc.
Of the 146 banking offices of the other Affiliated Banks, 82 are owned
in fee, ten are owned subject to ground leases and 54 are leased, with
aggregate annual rentals of approximately $2,855,000 as of December 31,
1996.
ITEM 3. LEGAL PROCEEDINGS
There was no matter which is required to be disclosed in this Item 3
pursuant to the instructions contained in the form for this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders which is required to
be disclosed pursuant to the instructions contained in the form for this
Report.
Page 15
SPECIAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers of Registrant are:
NAME POSITION AGE
- - ----------------------- ----------------------------------- ---
H. Furlong Baldwin Chairman of the Board and 65
Chief Executive Officer
Edward K. Dunn, Jr. President and Director 61
Hugh W. Mohler Executive Vice President 51
Jay M. Wilson Executive Vice President 50
Alan D. Yarbro General Counsel and Secretary 55
Terry L. Troupe Chief Financial Officer and
Treasurer 49
Robert W. Johnson Senior Vice President 54
O. James Talbott, II Senior Vice President 53
No family relationships, as defined by the Rules and Regulations of
the Securities and Exchange Commission, exist among any of the Executive
Officers.
All officers are elected annually by the Board of Directors and hold
office at the pleasure of the Board.
Mr. Baldwin has been Chairman of the Board of Mercshares since 1984,
and has been its Chief Executive Officer since 1976. He has been Chairman
of the Board and Chief Executive Officer of Merc-Safe since 1976.
Mr. Dunn has been President of Mercshares since 1991. He has served
as President and Chief Operating Officer of Merc-Safe since July, 1995. He
was Chairman of the Executive Committee of Mercshares and of Merc-Safe from
1988 to 1991, and Vice Chairman of the Board of Merc-Safe from 1991 to
1995.
Mr. Mohler was elected an Executive Vice President of Mercshares in
March, 1994. He was a Senior Vice President of Merc-Safe from March, 1994
until September, 1994 when he was elected an Executive Vice President. He
was President and Chief Executive Officer of Peninsula from 1978 until
February, 1994.
Mr. Wilson was elected an Executive Vice President of Mercshares and
Merc-Safe in September, 1994. He was a consultant to U. S. Can Corporation
from January, 1994 until September, 1994 and President and Chief Executive
Officer of Steeltin Can Corporation from 1978 until January, 1994. Mr.
Wilson served as a Director of Mercshares and Merc-Safe from 1989 until
September, 1994.
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Mr. Yarbro has been General Counsel of Mercshares and Merc-Safe
since April, 1996 and was elected Secretary of both companies in June,
1996. His prior employment was as a partner of Venable, Baetjer and
Howard, LLP, where he practiced law for 29 years.
Terry L. Troupe has been Chief Financial Officer of Mercshares and
Merc-Safe, and Treasurer of Mercshares, since September, 1996. He was Vice
President and Chief Financial Officer of IREX Corporation, a specialty
mechanical insulation contractor and distributor, from May, 1993 to May,
1996. Prior thereto, Mr. Troupe was Vice Chairman of Meridian Bancorp,
Inc.
Mr. Johnson has been Senior Vice President of Mercshares since 1989.
He has been a Vice President of Merc-Safe since 1982.
Mr. Talbott has been a Senior Vice President of Mercshares since
1989. He has been a Vice President of Merc-Safe since 1977.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information required by this Item 5 is incorporated by reference to
the information appearing under the captions "Dividends" on page 22 and
"Recent Common Stock Prices" on page 22 of the Registrant's Annual Report
to Stockholders for the year ended December 31, 1996.
The following information is given in response to Item 701 of
Regulation S-K. On December 10, 1996, one director of Mercshares received
115 shares of Mercshares common stock, at fair market value in lieu of a
cash retainer fee, under the Mercshares Retainer Stock Plan for Non
Employee Directors. The shares issuable under the Plan have not been
registered under the Securities Act of 1933 in reliance on Release 33-6188
(1980) and Release 33-6281 (1981). The only potential Plan participants
are 15 outside directors. Mercshares common stock is actively traded on
the Nasdaq National Market. The maximum number of shares (300,000)
issuable over ten years under the Plan is less than 1% of the total shares
outstanding.
Page 17
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item 6 is incorporated by reference
to the information appearing under the caption "Five Year Selected
Financial Data" on page 45 of the Registrant's Annual Report to
Stockholders for the year ended December 31, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The information required by this Item 7 is incorporated by
reference to the information appearing under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
on pages 6 to 22 of the Registrant's Annual Report to Stockholders for the
year ended December 31, 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 and the auditor's report
thereon are incorporated by reference to pages 23 to 44 of the Registrant's
Annual Report to Stockholders for the year ended December 31, 1996.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There was no matter which is required to be disclosed in this Item
9 pursuant to the instructions contained in the form for this Report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 with respect to the
Executive Officers of Registrant appears in Part I of this Report.
The remaining information required by this Item 10 is incorporated
by reference to the definitive proxy statement of Registrant filed with the
Securities and Exchange Commission under Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference
to the definitive proxy statement of Registrant filed with the Securities
and
Page 18
Exchange Commission under Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference
to the definitive proxy statement of Registrant filed with the Securities
and Exchange Commission under Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13, is incorporated by
reference to the definitive proxy statement of Registrant filed with the
Securities and Exchange Commission under Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report, except as
indicated.
(1) (2) The financial statements and schedules filed herewith or
incorporated by reference are listed in the accompanying Index to
Financial Statements.
(3) Exhibits filed herewith or incorporated by reference herein are
set forth in the following table prepared in accordance with Item 601
of Regulation S-K.
EXHIBIT TABLE
(3) Charter and by-laws
A. Charter of the Registrant (Exhibits 3-A(1) through
3-A(5) listed below are incorporated by reference to
Exhibits 3-A(1) through 3-A(5) to Form S-1 of the
Registrant, No. 2-39545, Exhibit 3-A(6) listed below
is incorporated by reference to Exhibit 3-A(6) of
Form S-1 of the Registrant, No. 2-41379, Exhibit 3-A(7)
listed below is incorporated by reference to
Registrant's Annual Report on Form 10-K for the year
ended 1993, Exhibit 3-A(7), Commission File No. 0-5127,
Exhibit 3-A(8) listed below is incorporated by
reference to Registrant's Annual Report on Form 10-K
for the year ended
Page 19
1993, Exhibit 3-A(8), Commission File No. 0-5127,
Exhibit 3-A(9) listed below is incorporated by
reference to Exhibit B attached to Exhibit 4-A of
Form 8-K of Registrant filed September 27, 1989,
Commission File No. 0-5127, Exhibit 3-A(10) listed
below is incorporated by reference to
Exhibit B attached to Exhibit 4-A of Form 8-K of the
Registrant filed January 9, 1990, Commission File
No. 0-5127, and Exhibit 3-A(11) listed below is
incorporated by reference to Exhibit 3-A(11) of the
Annual Report on Form 10-K for the year ended
December 31, 1990, Commission File No. 0-5127).
(1) Articles of Incorporation effective May 27, 1969.
(2) Articles of Amendment effective June 6, 1969.
(3) Articles Supplementary effective August 28, 1970.
(4) Articles of Amendment effective December 14, 1970.
(5) Articles Supplementary effective May 10, 1971.
(6) Articles Supplementary effective July 30, 1971.
(7) Articles of Amendment effective May 8, 1986.
(8) Articles of Amendment effective April 27, 1988.
(9) Articles Supplementary effective September 13,
1989.
(10) Articles Supplementary effective January 3, 1990.
(11) Articles of Amendment effective April 26, 1990.
B. By-Laws of the Registrant, as amended to date (filed
herewith).
(4) Instruments defining the rights of security holders, including
indentures, Charter and by-laws: See Item 14(a)(3) above.
A. Rights Agreement dated as of September 12, 1989 between
Registrant and the Rights Agent, including Form of
Rights Certificate and Articles Supplementary
(Incorporated by reference to Form 8-K of the
Registrant filed September 27, 1989, Exhibit 4-A,
Commission File No. 0-5127).
B. First Amendment, dated as of December 31, 1989, to Rights
Agreement dated as of September 12, 1989 between
Registrant and the Rights Agent, including amended Form
of Rights Certificate and amended Form of Articles
Supplementary (Incorporated by reference to Form 8-K of
the Registrant filed January 9, 1990, Exhibit 4-A,
Commission File No. 0-5127).
C. Second Amendment, dated as of September 30, 1993, to
Rights
Page 20
Agreement dated as of September 12, 1989 between
Registrant and the Rights Agent, including amended
Form of Rights Certificate (Incorporated by reference
to Form 8-K of the Registrant filed September 30, 1993,
Exhibit 4-A, Commission File No. 0-5127).
D. Amendment No. 1 to Registrant's Registration
Statement on Form 8-B, amending description of
securities previously filed (Incorporated by reference
to Form 8 filed December 20, 1991, Commission File
No. 0-5127).
(10) Material contracts
A. Mercantile Bankshares Corporation and Affiliates
Annual Incentive Compensation Plan, as amended through
March 14, 1995 (Incorporated by reference to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994, Exhibit 10 A, Commission File
No. 0-5127).
B. Dividend Reinvestment and Stock Purchase Plan of
Mercantile Bankshares Corporation (Incorporated by
reference to the Plan text included in the Form S-3
Registration No. 33-44376.)
C. Executive Employment Agreement dated March 24, 1982,
between Mercantile Bankshares Corporation, Mercantile-
Safe Deposit and Trust Company and H. Furlong Baldwin,
as amended by Agreements dated March 13, 1984 and
December 13, 1988 (Incorporated by reference to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1989, Exhibit 10 D, Commission File
No. 0-5127), as amended by Agreement dated January 29,
1997 (filed herewith).
D. Deferred Compensation Agreement, including supplemental
pension and thrift plan arrangements, dated
September 30, 1982, between Mercantile-Safe Deposit and
Trust Company and H. Furlong Baldwin, as amended by
Agreements dated as of October 24, 1983,
March 13, 1984, January 1, 1987, December 8, 1987 and
January
Page 21
1, 1989 (Incorporated by reference to Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1989, Exhibit 10 E, Commission File
No. 0-5127), as amended by Agreement dated
February 1, 1997 (filed herewith).
E. Mercantile Bankshares Corporation and Participating
Affiliates Unfunded Deferred Compensation Plan for
Directors, as amended through January 1, 1984
(Incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended
December 31, 1989, Exhibit 10 G, Commission File
No. 0-5127), as amended and restated by amendment
effective December 31, 1995 (Incorporated by reference
to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, Exhibit 10 F, Commission
File No. 0-5127).
F. Mercantile Bankshares Corporation Employee Stock
Purchase Dividend Reinvestment Plan dated February 13,
1995 (Incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1994, Exhibit 10 I, Commission File No. 0-5127).
G. Deferred Compensation Agreement, including supplemental
pension and thrift plan arrangements, dated September
30, 1982 between Mercantile-Safe Deposit and Trust
Company and Brian B. Topping, as amended by Agreements
dated as of October 24, 1983, March 13, 1984, January
1, 1987, December 8, 1987, and January 1, 1989
(Incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1989, Exhibit 10 N, Commission File No. 0-5127), and
as amended by Agreement dated July 12, 1996
(Incorporated by reference to Registrant's Quarterly
Report on Form 10-Q for the period ended September 30,
1996, Exhibit 10 W, Commission File No. 0-5127).
H. Executive Employment Agreement dated March 13, 1984
between Mercantile Bankshares Corporation, Mercantile-
Safe Deposit and
Page 22
Trust Company and Brian B. Topping as restated
September 13, 1988 and amended December 13, 1988
(Incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1993, Exhibit 10 L, Commission File No. 0-5127).
I. Executive Employment Agreement dated December 13, 1988
between Mercantile Bankshares Corporation, Mercantile-
Safe Deposit and Trust Company and Edward K. Dunn, Jr.
(Incorporated by reference to Registrant's Annual
Report on Form 10-K for year ended December 31, 1993,
Exhibit 10 M, Commission File No. 0-5127).
J. Executive Severance Agreements dated as of December 31,
1989 between Mercantile Bankshares Corporation and
Mercantile-Safe Deposit and Trust Company, and each of
H. Furlong Baldwin, Edward K. Dunn, Jr. and Brian B.
Topping (Incorporated by reference to Registrant's
Annual Report on Form 10-K for the year ended December
31, 1989, Exhibit 10 Q, Commission File No. 0-5127),
as amended with respect to Mr. Baldwin by Agreement
dated January 29, 1997 (filed herewith).
K. Mercantile Bankshares Corporation Omnibus Stock Plan
(Incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1990, Exhibit 10 O, Commission File No. 0-5127).
L. Supplemental Pension Agreement dated January 10, 1992
between Mercantile Bankshares Corporation, Mercantile-
Safe Deposit and Trust Company and Edward K. Dunn, Jr.
(Incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1991, Exhibit 10 P, Commission File No. 0-5127).
M. Supplemental Pension Agreement, dated February 10,
1995, between Mercantile Bankshares Corporation and
Mercantile-Safe Deposit and Trust Company, Peninsula
Bank and Hugh W. Mohler
Page 23
(Incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1994, Exhibit 10 Q, Commission File No. 0-5127).
N. Mercantile Bankshares Corporation and Participating
Affiliates Supplemental Cash Balance Executive
Retirement Plan, dated April 27, 1994, effective
January 1, 1994 (Incorporated by reference to
Registrant's Annual Report of Form 10-K for year ended
December 31, 1994, Exhibit 10 R, Commission File
No. 0-5127).
O. Mercantile Bankshares Corporation and Participating
Affiliates Supplemental 401(k) Executive Retirement
Plan, dated December 13, 1994, effective January 1,
1995 (Incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1994, Exhibit 10 S, Commission File No. 0-5127).
P. Mercantile Bankshares Corporation Option Agreement with
each of H. Furlong Baldwin (dated August 22, 1995 for
80,000 options), Edward K. Dunn, Jr. (dated August 17,
1995 for 45,000 options), Brian B. Topping (dated
August 23, 1995 for 35,000 options), Hugh W. Mohler
(dated August 22, 1995 for 30,000 options) and Jay M.
Wilson (dated August 18, 1995 for 30,000 options) the
Net Operating Income of each being that of Mercantile-
Safe Deposit and Trust Company, (Incorporated by
reference to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995, Exhibit 10 Q,
Commission File No. 0-5127).
Q. Mercantile Bankshares Corporation Retainer Stock Plan
For Non-Employee Directors dated March 12, 1996
(Incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1995, Exhibit 10 R, Commission File No. 0-5127).
R. Supplemental Cash Balance Plan and Thrift Agreement,
dated
Page 24
April 12, 1996, between Mercantile Bankshares
Corporation and Alan D. Yarbro (Incorporated by
reference to Registrant's Quarterly Report on
Form 10-Q for the period ended June 30, 1996,
Exhibit 10 S, Commission File No. 0-5127).
S. Executive Severance Agreement, dated as of April 24,
1996, between Mercantile Bankshares Corporation and
Alan D. Yarbro (Incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the
period ended June 30, 1996, Exhibit 10 T, Commission
File No. 0-5127).
T. Mercantile Bankshares Corporation Option Agreement with
Alan D. Yarbro, dated April 26, 1996 (Incorporated by
reference to Registrant's Quarterly Report for the
period ended June 30, 1996, Exhibit 10 U, Commission
File No. 0-5127).
U. Agreement, dated July 12, 1996, among Mercantile-Safe
Deposit and Trust Company, Brian B. Topping and
Mercantile Bankshares Corporation (Incorporated by
reference to Registrant's Quarterly Report on Form 10-Q
for the period ended September 30, 1996, Exhibit 10 V,
Commission File No. 0-5127).
(13) Annual Report to security holders for the year ended December
31, 1996 (filed herewith).
(21) Subsidiaries of the Registrant
Information as to subsidiaries of the Registrant (filed
herewith)
(23) Consent
Consent of Certified Public Accountants (filed herewith)
(24) Power of Attorney
Power of Attorney dated March 11, 1997 (filed herewith)
(b) No reports on Form 8-K were filed during the last quarter of the
period covered by this Report.
Page 25
INDEX TO FINANCIAL STATEMENTS
The Report of Independent Certified Public Accountants as pertaining to the
Consolidated Financial Statements of Mercantile Bankshares Corporation
and Affiliates and related notes is incorporated by reference to
page 23 of the Registrant's Annual Report to Stockholders for the
year ended December 31, 1996.
Consolidated Financial Statements and related notes are incorporated by
reference to the Registrant's Annual Report to Stockholders for the
year ended December 31, 1996, and may be found on the pages of said
Report as indicated in parentheses:
Consolidated Balance Sheets, December 31, 1996 and 1995 (page 24)
Statement of Consolidated Income for the years ended December 31,
1996, 1995 and 1994 (page 25)
Statement of Consolidated Cash Flows for the years ended December 31,
1996, 1995 and 1994 (pages 26 and 27)
Statement of Changes in Consolidated Stockholders' Equity for the
years ended December 31, 1996, 1995 and 1994 (page 28)
Notes to Consolidated Financial Statements (pages 29 to 44)
Supplementary Data:
Quarterly Results of Operations are incorporated by reference to the
information appearing under the caption "Quarterly Results of
Operations" on page 41 of the Registrant's Annual Report to
Stockholders for the fiscal year ended December 31, 1996.
Financial Statement Schedules are omitted because of the absence of
the conditions under which they are required or because the
information called for is included in the Consolidated Financial
Statements or notes thereto.
Page 26
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and 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
By: /S/ H. FURLONG BALDWIN March 27, 1997
H. Furlong Baldwin, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
Principal Executive Officer
/S/ H. FURLONG BALDWIN March 27, 1997
H. Furlong Baldwin, Chairman of the
Board and Chief Executive Officer
Principal Financial Officer
/S/ TERRY L. TROUPE March 27, 1997
Terry L. Troupe
Chief Financial Officer
Principal Accounting Officer
/S/ JERRY F. GRAHAM March 27, 1997
Jerry F. Graham
Vice President and Controller
A majority of the Board of Directors:
Freeman A. Hrabowski, III, Christian H. Poindexter, Robert A.
Kinsley, Thomas M. Bancroft, Jr., Bishop L. Robinson, Donald J. Shepard,
Robert D. Kunisch, William R. Brody, Calman J. Zamoiski, Jr., B. Larry
Jenkins, James A. Block, William C. Richardson.
By: /S/ H. FURLONG BALDWIN March 27, 1997
H. Furlong Baldwin
For Himself and as Attorney-in-Fact
Page 27
Cover Page
Exhibit (3) (B)
By-Laws of the Registrant
The provisions of Article Two, Section 2 of the By-Laws, changing the
number of directors from 19 to 18, will be effective at the commencement of
the Annual Meeting of Stockholders to be held April 30, 1997, at 10:30 a.m.
<PAGE>
EXHIBIT (3) (B)
BYLAWS
MERCANTILE BANKSHARES CORPORATION
ARTICLE I
SECTION 1. Annual Meeting. The annual meeting of the stockholders
of the Corporation for the election of directors and the transaction of
such other business as may properly come before the meeting shall be held
at the time and on the day in April of each year as shall be fixed from
time to time by the Board of Directors or by the Executive Committee.
Notice of the time and place of such annual meeting shall be given to each
stockholder in the manner provided in Section 1 of Article X of these
bylaws not less than ten days nor more than ninety days before the meeting.
SECTION 2. Special Meetings. Special meetings of the stockholders may
be called at any time by the Board of Directors, the Chairman of the Board,
the Vice-Chairman of the Board, the President, or as otherwise provided by
law. Notice of the time, place and purpose of each special meeting of
stockholders shall be given to each stockholder in the manner provided in
Section 1 of Article X of these bylaws not less than ten days nor more than
ninety days before the meeting. No business shall be transacted at a
special meeting except that specified in the notice.
SECTION 3. Removal of Directors. At any special meeting of the
stockholders called in the manner provided for by this Article, the
stockholders, by a majority of the votes entitled to be cast by the
stockholders entitled to vote thereon, may remove any director or directors
from office and may elect a successor or successors to fill any resulting
vacancies from the remainder of his or their terms.
SECTION 4. Voting; Proxies; Record Date. At all meetings of
stockholders any stockholder shall be entitled to vote by proxy. Such
proxy shall be in writing and signed by the stockholder or by his duly
authorized attorney in fact. It shall be dated but need not be
Page 1 3/97
sealed, witnessed or acknowledged. The Board of Directors may fix the
record date for the determination of stockholders entitled to vote in the
manner provided in Article IX, Section 4 of these bylaws.
SECTION 5. Quorum. If at any annual or special meeting of
stockholders a quorum shall fail to attend, those attending in person or by
proxy may, by majority of the votes entitled to be cast, adjourn the
meeting from time to time, not exceeding sixty days in all, and thereupon
any business may be transacted which might have been transacted at the
meeting originally called had the same been held at the time so called.
SECTION 6. Filing Proxies. At all meetings of stockholders, the
proxies shall be filed with and be verified by the Secretary of the
Corporation or, if the meeting shall so decide, by the Secretary of the
meeting.
SECTION 7. Place of Meetings. All meetings of stockholders shall be
held at the principal office of the Corporation in the State of Maryland or
at such other place either within or without the State of Maryland as may
be designated in the notice of the meeting.
SECTION 8. Order of Business. At all meetings of stockholders, any
stockholder present and entitled to vote in person or by proxy shall be
entitled to require, by written request to the Chairman of the meeting,
that the order of business shall be as follows:
(1) Organization.
(2) Proof of notice of meeting or of waivers thereof.
(The certificate of the Secretary of the Corporation, of the affidavit of
any other person who mailed or published the notice or caused the same to
be mailed or published, being proof of service of notice.)
(3) Submission by Secretary, or by Inspectors, if any shall have
been elected or appointed, of list of stockholders entitled to vote,
present in person or by proxy.
Page 2 3/97
(4) If an annual meeting or a special meeting called for that
purpose, reading of unapproved minutes of preceding meetings and action
thereon.
(5) Reports.
(6) The election of directors if an annual meeting or a special
meeting called to elect directors, or to remove directors and elect their
successors.
(7) Unfinished business.
(8) New Business.
(9) Adjournment.
SECTION 9. Advance Notice of Matters to be Presented at an Annual
Meeting of Stockholders.
At an annual meeting of the stockholders, commencing with the annual
meeting to be held in 1996, only such business shall be conducted as shall
have been properly brought before the meeting as set forth below. To be
properly brought before an annual meeting, such business must (1) be
specified in the notice of the meeting (or any supplement thereto) given by
the Corporation pursuant to Section 1 of Article X of these bylaws, or (2)
be brought before the meeting by or under the direction of the Board of
Directors (or the Chairman or Vice Chairman of the Board or the President),
or (3) be properly brought before the meeting by a stockholder. In
addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a stockholder, the stockholder must
have given timely notice thereof in writing to the Secretary. To be
timely, such stockholder's notice must be delivered to or mailed and
received by the Secretary at the principal executive offices of the
Corporation, not less than 20 days nor more than 30 days prior to the
meeting (or, with respect to a proposal required to be included in the
Company's proxy statement pursuant to Rule 14a-8 of the Securities Exchange
Act of 1934, or its successor provision, the earlier date such proposal was
received); provided, however, that in the event that less than 30 days'
notice or
Page 3 3/97
prior disclosure by the Corporation of the date of the meeting is given or
made to stockholders, notice by the stockholder to be timely must be so
received by the Secretary not later than the close of business on the 10th
day following the earlier of the day on which the Corporation's notice of
the date of the annual meeting was mailed or the day on which the
Corporation's first public disclosure of the date of the annual meeting was
made. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting,
(ii) the name and record address of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (iv) any material interest of
the stockholder in such business.
Notwithstanding anything in these bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 9; provided, however, that nothing in
this Section 9 shall be deemed to preclude discussion by any stockholder of
any business properly brought before the annual meeting in accordance with
such procedures.
The presiding officer at the meeting shall have the authority, if the
facts warrant, to determine that business was not properly brought before
the meeting in accordance with the provisions of this Section 9, and if he
should so determine, he shall so declare to the meeting and any such
business not properly brought before the meeting shall not be transacted.
SECTION 10. Advance Notice of Nominees for Directors. Only persons
who are nominated in accordance with the following procedures shall be
eligible for election as directors at any meeting of stockholders held
after the annual meeting in 1995. Nominations of persons for election to
the Board of Directors of the Corporation may be made at an annual meeting
of stockholders or at a special meeting of stockholders as to which the
notice of meeting
Page 4 3/97
provides for election of directors, by or under the direction of the Board
of Directors, or by any nominating committee or person appointed by the
Board of Directors, or by any stockholder of the Corporation entitled to
vote for the election of directors at the meeting who complies with the
notice procedures set forth in this Section 10. Such nominations, other
than those made by or under the direction of the Board of Directors, shall
be made pursuant to timely notice in writing to the Secretary. To be
timely, such stockholder's notice shall be delivered to or mailed and
received by the Secretary at the principal executive offices of the
Corporation not less than 20 days nor more than 30 days prior to the
meeting; provided, however, that in the event that less than 30 days'
notice or prior public disclosure of the date of the meeting is given or
made by the Corporation to stockholders, notice by the stockholder to be
timely must be so received by the Secretary no later than the close of
business on the 10th day following the earlier of the day on which the
Corporation's notice of the date of the meeting was mailed or the day on
which the Corporation's first public disclosure of the date of the meeting
was made. Such stockholder's notice shall set forth: (a) as to each person
who the stockholder proposes to nominate for election or re-election as a
director, (i) the name, age, business address and residence address of the
person, (ii) the principal occupation or employment of the person, (iii)
the class and number of shares of stock of the Corporation which are
beneficially owned by the person, and (iv) any other information relating
to the person that is required to be disclosed in solicitations for proxies
for election of directors pursuant to Rule 14a under the Securities
Exchange Act of 1934 or any successor rule thereto; and (b) as to the
stockholder giving the notice, (i) the name and record address of the
stockholder and (ii) the class and number of shares of the Corporation
which are beneficially owned by the stockholder. The Corporation may
require any proposed nominee to furnish such other information as may
reasonably be required by the Corporation to determine the eligibility of
such proposed nominee
Page 5 3/97
to serve as a director of the Corporation. No person shall be eligible
for election as a director of the Corporation unless nominated in
accordance with the procedures set forth herein.
The presiding officer at the meeting shall have the authority, if the
facts warrant, to determine that a nomination was not made in accordance
with the foregoing procedure, and if he should so determine, he shall so
declare to the meeting and the defective nomination shall be disregarded.
ARTICLE II
DIRECTORS.
SECTION 1. Powers. The Board of Directors shall have the control
and management of the affairs, business and properties of the Corporation.
They shall have and exercise in the name of the Corporation and on behalf
of the Corporation all the rights and privileges legally exercisable by the
Corporation, except as otherwise provided by law, by the Charter or by
these bylaws. A director need not be a stockholder.
SECTION 2. Number. There shall be eighteen directors. The number
of directors may be decreased to not less than seven or increased to not
more than thirty from time to time by amendment of this bylaw by the
stockholders or by the Board of Directors. Each director, unless sooner
removed by the stockholders, shall serve until the next annual meeting of
stockholders or until his successor shall be elected and shall have
qualified.
No person shall be eligible for election as a director, either by the
stockholders or by the Board of Directors, who at the time of such proposed
election has passed his 70th birthday.
SECTION 3. Vacancies. If the office of a director becomes vacant,
or if the number of directors is increased, such vacancy may be filled by
the Board by a vote of a majority of directors then in office although such
majority is less than a quorum. The stockholders may, however, at any time
during the term of such director, elect some other person to fill said
vacancy and thereupon the election by the Board shall be superseded and
such election by the
Page 6 3/97
stockholders shall be deemed a filling of the vacancy and not a removal
and may be made at any meeting called for that purpose.
If the entire Board of Directors shall become vacant, any stockholder
may call a special meeting in the same manner that the President may call
such meeting, and directors for the unexpired term may be elected at the
said special meeting, in the manner provided for their election at annual
meetings.
SECTION 4. Meetings. Four or more regular meetings of the Board of
Directors shall be held at an office of the Corporation each year. One of
such meetings shall be held on the same day as and immediately following
the annual meeting of stockholders and the remaining meetings shall be held
on such days and at such times as shall be fixed by the chief executive
officer but there shall be at least one regular meeting in each calendar
quarter. Notice of the date and time of every regular meeting shall be
mailed or telegraphed or given personally to each director not less than
five days before the meeting.
SECTION 5. Special Meetings. Special meetings of the Board of
Directors may be called by the Board of Directors, the Executive Committee,
the Chairman of the Board, the Vice-Chairman of the Board or the President
and shall be called at the request of two or more directors. Notice of the
time and place of any special meeting shall be given to each director in
the manner provided in Section 2 of Article X of these bylaws not less than
twenty-four hours before the meeting.
SECTION 6. Quorum. One-third of the total number of directors, but
not less than four, shall constitute a quorum for the transaction of
business. If less than a quorum be present at any meeting duly called, a
majority of those present may adjourn the meeting from time to time with
notice to absent directors.
Page 7 3/97
SECTION 7. Place of Meetings. Regular or special meetings of the
Board may be held within or without the State of Maryland as the Board may
from time to time determine. The time and place of a meeting may be fixed
by the party making the call.
SECTION 8. Rules and Regulations. The Board of Directors may adopt
such rules and regulations for the conduct of their meetings and the
management of the affairs of the Corporation as they may deem proper and
not inconsistent with the laws of the State of Maryland or these bylaws or
the Charter.
SECTION 9. Compensation. The directors may receive a stated salary
for their services or a fixed sum and expenses of attendance may be allowed
for attendance at each regular or special meeting of the Board of
Directors. Such stated salary or attendance fee shall be determined by
resolution of the Board unless the stockholders have adopted a resolution
relating thereto. Nothing herein contained shall be construed to preclude
a director from serving in any other capacity and receiving compensation
therefor.
ARTICLE III
COMMITTEES.
SECTION 1. Executive Committee. There shall be an Executive
Committee of such number not more than fourteen nor less than seven as the
Board of Directors may determine. The Chairman of the Board, the
Vice-Chairman of the Board, the President and the chief executive officer
if an officer other than the officers stated above, shall be members ex
officio. The remaining members shall be elected annually by the Board of
Directors from among its members, preferably at the first meeting after the
annual meeting of stockholders, and shall serve during the pleasure of the
Board. The chief executive officer or such other person as shall be
designated by the Board shall act as chairman of the committee. Additional
or substitute members may be elected by the Board at any time. In
addition, the chief executive officer shall have power to make temporary
appointments to the committee of members of the
Page 8 3/97
Board of Directors to serve as additional members or to act in the place
and stead of members of the committee who temporarily cannot attend its
meetings. The Executive Committee shall have and may exercise, so far as
may be permitted by law, all of the powers of the Board of Directors during
intervals between meetings thereof.
SECTION 2. Other Committees. The Board of Directors may also
appoint from their number other committees and, to the extent permitted by
law, may delegate to any such committee the exercise of powers of the Board
of Directors during intervals between meetings thereof. The Chairman of
the Board, the Vice-Chairman of the Board, the President and the chief
executive officer if an officer other than the officers stated above, shall
be members ex officio of all such committees, but no officer shall be a
member of any committee designated by the Board of Directors as an Audit
Committee or Compensation Committee.
SECTION 3. Committee Meetings. All actions of any committee shall
be recorded in minutes of its meetings and all such actions shall be
reported to the next succeeding meeting of the Board of Directors.
Meetings of any committee may be held at any time and place upon the call
of the Chairman of the Board, the Vice-Chairman of the Board, the
President, the chief executive officer if an officer other than the
officers stated above, or any other member of the committee called to meet.
Notice of the time and place of any special meeting of any committee shall
be given in the manner provided in Section 2 of Article X of these bylaws
not less than twelve hours before the meeting. Six members of the
Executive Committee and four members of any other committee shall
constitute a quorum unless otherwise provided by the Board of Directors for
any particular committee.
ARTICLE IV
OFFICERS.
SECTION 1. Officers and their Duties. The officers of the
Corporation shall consist of the Chairman of the Board, the Vice-Chairman
of the Board, the President, the Secretary, the
Page 9 3/97
Treasurer and whenever deemed advisable by the Board one or more executive
vice presidents, one or more vice presidents, assistant secretaries,
assistant treasurers or other officers. All of said officers shall be
chosen by the Board of Directors and shall hold office only during the
pleasure of the Board or until their successors are chosen and qualify.
The Chairman of the Board, the Vice-Chairman of the Board and the President
shall be chosen from among the directors. Any two offices except those of
Chairman of the Board and Vice-Chairman of the Board, and President and
Vice President may be held by the same person, but no officer shall
execute, acknowledge or verify any instrument in more than one capacity,
when such instrument is required to be executed, acknowledged, or verified
by any two or more officers. The Board of Directors may from time to time
appoint such other agents and employees, with such powers and duties as
they may deem proper.
The Board of Directors shall, from time to time, designate from among
the officers, a chief executive officer who shall direct the management of
the Corporation under the supervision of the Board of Directors or the
appropriate committees thereof and, subject to the same supervision, may
also assign to the other officers of the Corporation duties in addition to
those prescribed by these bylaws or assigned to them by the Board of
Directors. The Board of Directors may, from time to time, designate from
among the officers, the officer or officers who shall act as chief
executive officer in case of the absence or inability to act of the then
designated chief executive officer.
SECTION 2. Chairman of the Board. The Chairman of the Board shall
preside at all meetings of stockholders and of the Board of Directors and
shall perform such other duties as may be assigned to him by the Board of
Directors.
SECTION 3. Vice-Chairman of the Board. In the absence of the
Chairman of the Board, the Vice-Chairman of the Board shall act in the
place of the Chairman of the Board and assume
Page 10 3/97
his duties and be vested with all his powers and authorities. He shall
perform such other duties as may be assigned to him by the Board of
Directors.
SECTION 4. President. In the absence of the Chairman of the Board
and the Vice-Chairman of the Board, the President shall act in the place of
the Chairman of the Board and assume his duties and be vested with all his
powers and authorities. He shall perform such other duties as may be
assigned to him by the Board of Directors.
SECTION 5. Vice-Presidents. The executive vice-presidents and
vice-presidents shall perform such duties as the Board of Directors may
direct.
SECTION 6. Treasurer. The Treasurer shall perform such duties as
may be assigned to him by the Board of Directors.
SECTION 7. Secretary. The Secretary shall keep the minutes of the
meetings of the stockholders and of the Board of Directors, and shall
attend to the giving and serving of all notices of the Corporation required
by law or these bylaws. He shall maintain at all times in the principal
office of the Corporation at least one copy of the bylaws with all
amendments to date and shall make the same, together with the minutes of
the meetings of the stockholders, the annual statement of the affairs of
the Corporation and any voting trust agreement on file at the office of the
Corporation, available for inspection by any officer, director or
stockholder during reasonable business hours. He shall perform such other
duties as may be assigned to him by the Board of Directors.
SECTION 8. Assistant Treasurer and Assistant Secretary. The
assistant treasurers and assistant secretaries shall perform such duties as
may from time to time be assigned to them by the Board of Directors.
SECTION 9. Substitutes. The Board of Directors may from time to
time in the absence of any one of said officers or at any other time
designate any other person or persons, on behalf of the Corporation, to
sign any contracts, deeds, notes, or other instruments in the place or
Page 11 3/97
stead of any of said officers, and may designate any person to fill any
one of said offices, temporarily or for any particular purpose; and any
instruments so signed in accordance with a resolution of the Board shall be
the valid act of this Corporation as fully as if executed by any regular
officer.
ARTICLE V
RESIGNATION OF DIRECTOR OR OFFICER.
Any director or officer may resign his office at any time. Such
resignation shall be made in writing and shall take effect from the time of
its receipt by the Corporation unless some other time be fixed in the
resignation, and then from that time. The acceptance of a resignation
shall not be required to make it effective unless the resignation so
provides.
ARTICLE VI
COMMERCIAL PAPER, ETC.
All bills, notes, checks, drafts and commercial paper of all kinds to
be executed by the Corporation as maker, acceptor, endorser, or otherwise,
and all assignments and transfers of stock, contracts or written
obligations of the Corporation, and all negotiable instruments shall be
made in the name of the Corporation and shall be signed by the President,
the Treasurer or such other person or persons as the Board of Directors may
from time to time designate.
ARTICLE VII
FISCAL YEAR.
The fiscal year of the Corporation shall cover such period of twelve
months as the Board of Directors may determine. In the absence of any such
determination the accounts of the Corporation shall be kept on a calendar
year basis.
Page 12 3/97
ARTICLE VIII
SEAL.
The seal of the Corporation shall be a circle inscribed with the name
of the Corporation and the year and State in which it is incorporated.
ARTICLE IX
MISCELLANEOUS PROVISIONS - STOCK.
SECTION 1. Issue. All certificates of stock shall be signed by the
Chairman of the Board, the Vice-Chairman of the Board, the President, or
any Vice-President and countersigned by the Treasurer or Assistant
Treasurer or Secretary or Assistant Secretary, any of which may be
facsimile signatures if the certificate is countersigned by the Transfer
Agent, and sealed with the seal of the Corporation.
SECTION 2. Transfers. No transfers of stock shall be recognized or
binding upon the Corporation until recorded on the books of the Corporation
upon surrender and cancellation of certificates for a like number of
shares.
SECTION 3. Form of Certificates; Procedure. The Board of Directors
shall have power and authority to determine the form of stock certificates
(except in so far as prescribed by law), and to make all such rules and
regulations, as they may deem expedient concerning the issue, transfer and
registration of said certificates, and to appoint one or more transfer
agents or registrars to countersign and register the same.
SECTION 4. Record Dates for Dividends and Stockholders' Meetings.
The Board of Directors may fix the time, not exceeding twenty days
preceding the date of any meeting of stockholders, any dividend payment
date or any date for the allotment of rights, during which the books of the
Corporation shall be closed against transfers of stock, or the Board of
Directors may fix a date not exceeding ninety days preceding the date of
any meeting of
Page 13 3/97
stockholders, any dividend payment date or any date for the allotment of
rights, as a record date for the determination of the stockholders entitled
to notice of and to vote at such meeting, or entitled to receive such
dividends or rights, as the case may be, and only stockholders of record on
such date shall be entitled to notice of and to vote at such meeting or to
receive such dividends or rights, as the case may be. In the case of a
meeting of stockholders the record date shall be fixed not less than ten
days prior to the date of the meeting.
SECTION 5. Lost and Destroyed Certificates. The holder of any
shares of this Corporation shall immediately notify it of any loss or
destruction of the stock certificate representing such shares. A new
certificate may be issued upon satisfactory proof of the loss, or
destruction, and delivery to this Corporation of a bond which shall be in
such form, contain such terms and provisions, and have such surety or
sureties as the officers of this Corporation may direct.
ARTICLE X
NOTICE.
SECTION 1. Notice to Stockholders. Whenever by law or these bylaws
notice is required to be given to any stockholder, such notice may be given
to each stockholder by leaving the same with him or at his residence or
usual place of business, or by mailing it, postage prepaid, and addressed
to him at his address as it appears on the books of the Corporation. Such
leaving or mailing of notice shall be deemed the time of giving such
notice.
SECTION 2. Notice to Directors and Officers. Whenever by law or
these bylaws notice is required to be given to any director or officer,
such notice may be given in any one of the following ways: by personal
notice to such director or officer, by telephone communication with such
director or officer personally, by wire addressed to such director or
officer at his then address or at his address as it appears on the books of
the Corporation, or by depositing the same in writing in the post office or
in a letter box in a post-paid, sealed wrapper addressed
Page 14 3/97
to such director or officer at his then address or at his address as it
appears on the books of the Corporation; and the time when such notice
shall be mailed or consigned to a telegraph company for delivery shall be
deemed to be the time of the giving of such notice.
SECTION 3. Waiver of Notice. Notice to any stockholder or director
of the time, place and purpose of any meeting of stockholders or directors
required by these bylaws may be dispensed with if such stockholder shall
either attend in person or by proxy, or if such director shall attend in
person, or if such absent stockholder or director shall, in writing filed
with the records of the meeting either before or after the holding thereof,
waive such notice.
ARTICLE XI
VOTING OF STOCK IN OTHER CORPORATIONS.
Any stock in other corporations, which may from time to time be held
by the Corporation may be represented and voted at any meeting of
stockholders of such other corporations by the Chairman of the Board,
Vice-Chairman of the Board, President, or a Vice President or by proxy or
proxies appointed by any one of said officers or otherwise pursuant to
authorization thereunto given by a resolution of the Board of Directors
adopted by a vote of the majority of the Directors.
ARTICLE XII
AMENDMENTS.
These bylaws may be added to, altered, amended, repealed or suspended
by a majority vote of the entire Board of Directors at any regular meeting
of the Board or at any special meeting called for that purpose. Any action
of the Board of Directors in adding to, altering, amending, repealing or
suspending these bylaws shall be reported to the stockholders at the next
annual meeting and may be changed or rescinded by majority vote of all of
the stock then outstanding and entitled to vote. In no event shall the
Board of Directors have any power to amend this Article.
Page 15 3/97
EXHIBIT (10) C
THIRD AMENDMENT TO
EXECUTIVE EMPLOYMENT AGREEMENT
THIS THIRD AMENDMENT to EXECUTIVE EMPLOYMENT AGREEMENT is made
this 29th day of January, 1997, by and between MERCANTILE BANKSHARES
CORPORATION and MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY, both
Corporations of the State of Maryland, 2 Hopkins Plaza, Baltimore,
Maryland 21201 (collectively, the "Employer"), and H. FURLONG BALDWIN,
of Baltimore, Maryland (the "Executive").
WHEREAS, Employer and Executive entered into an Executive
Employment Agreement dated March 24, 1982, which was amended by a First
Amendment on March 13, 1984 and by Second Amendment on December 13, 1988
(collectively, the "Agreement"); and
WHEREAS, this Agreement is scheduled to terminate on February 1,
1997, Executive's normal retirement date; and
WHEREAS, Employer has determined to retain Executive in his
current capacity beyond his normal retirement date, and Executive has
agreed to do so.
NOW, THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, receipt of which is hereby
acknowledged, and in further consideration of the mutual covenants
contained in the Agreement, the parties do hereby agree that the
Agreement is hereby amended as follows:
FIRST AND ONLY CHANGE
---------------------
Paragraph 2 shall be deleted in its entirety and the following
substituted in lieu thereof:
"2. Term. The current term of Executive's employment, now
scheduled to terminate on February 1, 1997, shall be
extended to and shall terminate on February 1, 1999;
provided, however, that at the request of Employer, such
termination date shall be extended to February 1, 2000."
Page 1
In all other respects, the provisions of the Agreement, as
heretofore amended, remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Third Amendment
to Executive Employment Agreement the day and year first written above.
WITNESS OR ATTEST: MERCANTILE BANKSHARES
CORPORATION
/s/ Alan D. Yarbro /s/ Edward K. Dunn, Jr.
________________________ By:_________________________
Alan D. Yarbro, Secretary Edward K. Dunn, Jr., President
MERCANTILE-SAFE DEPOSIT
AND TRUST COMPANY
Alan D. Yarbro, Secretary /s/ Edward K. Dunn, Jr.
________________________ By:__________________________
Alan D. Yarbro, Secretary Edward K. Dunn, Jr., President
Alan D. Yarbro, Secretary /s/ H. Furlong Baldwin
________________________ _____________________________
H. FURLONG BALDWIN
Page 2
EXHIBIT (10) D
SIXTH AMENDMENT TO
DEFERRED COMPENSATION AGREEMENT
THIS SIXTH AMENDMENT to DEFERRED COMPENSATION AGREEMENT is made
effective as of February 1, 1997, by and between MERCANTILE-SAFE DEPOSIT
& TRUST COMPANY (the "Corporation") and H. FURLONG BALDWIN (the
"Employee").
WHEREAS, Corporation and Employee entered into a Deferred
Compensation Agreement dated September 30, 1982, and a First Amendment
thereto dated October 24, 1983, and a Second Amendment thereto dated
March 13, 1984, and a Third Amendment thereto dated January 1, 1987, and
a Fourth Amendment thereto dated December 8, 1987, and a Fifth Amendment
thereto dated January 1, 1989 (the "Agreement"); and
WHEREAS, the Agreement specifies in part that Employee is entitled
to certain supplemental retirement benefits at his normal retirement
date or age sixty-five (65), as the case may be; and
WHEREAS, the term of Employee's employment with Corporation is
being extended beyond his normal retirement date pursuant to an
amendment to his executive employment agreement; and
WHEREAS, Corporation and Employee wish to clarify the terms of
such supplemental retirement benefits in light of Employee's
continuation of employment.
NOW, THEREFORE, in order to carry out the purposes of the
Agreement, in consideration of the foregoing and for other good and
valuable consideration, receipt of which is hereby acknowledged,
Corporation and Employee hereby agree as follows:
FIRST CHANGE
------------
The last line of the table contained in Section 5 shall be deleted
in its entirety and the following substituted in lieu thereof:
"65 or older 168,000 15 years"
SECOND CHANGE
-------------
Section 6 shall be deleted in its entirety and the following
substituted in lieu thereof:
"6. Disability Prior to Termination of Employee. In
the event Employee becomes disabled as provided for
under the `Group Accident and Sickness Benefits'
provisions, and any Long Term Disability Insurance
Policy issued thereunder, of the Mercantile
Page 1
Bankshares Corporation Employee Benefit Plan in effect at that
time (the `Mercshares Disability Plan'), prior to
February 1, 1999, or such later date as shall be
provided for cessation of employment by extension of
the stated term of Employee's Executive Employment
Agreement with Mercantile Bankshares Corporation and
Mercantile-Safe Deposit and Trust Company, dated March
24, 1982, as the same has been and may be from time to
time amended (the `Executive Employment Agreement'),
and thereby ceases to be actively employed, Employee
will receive disability benefits under the Mercshares
Disability Plan (i) until he is no longer disabled, or
(ii) until February 1, 1999 (or such later date as may
be provided for cessation of employment by extension
of the stated term of the Executive Employment
Agreement), whichever is sooner. If Employee remains
disabled until February 1, 1999 (or such later date as
may be provided for cessation of employment by
extension of the stated term of the Executive
Employment Agreement), he will receive a benefit at
that time, in lieu of the benefit provided under
Section 5. The benefit is expressed on an annual
basis but shall be payable monthly for the longer of
(i) Employee's lifetime or (ii) a period of fifteen
(15) years. The amount of the benefit will vary
depending upon Employee's age at the time of
disablement, as set forth below:
Age at Disablement Annual Benefit Payable
- - ------------------ ----------------------
51 70,000
52 77,000
53 84,000
54 91,000
55 98,000
56 105,000
57 112,000
58 119,000
59 126,000
60 133,000
61 140,000
62 147,000
63 154,000
64 161,000
65 or older 168,000
If Employee's disability ends and Employee returns to
the active employ of Corporation, then his benefits
under this Agreement shall be equal to the product of
the benefit otherwise provided for in Section 5
multiplied by a fraction. The applicable fraction
shall have as its numerator the sum of all salary
reductions actually taken by
Page 2
Employee. The denominator shall be the sum of all salary reductions
which would have been taken by Employee had he not
been disabled."
THIRD CHANGE
------------
The first sentence of Section 7 shall be deleted in its entirety
and the following substituted in lieu thereof:
"If Employee shall die prior to February 1, 1999 (or
such later date as may be provided for cessation of
employment by extension of the stated term of the
Executive Employment Agreement), Corporation shall
provide his beneficiary (as determined under Section
11 hereof) with monthly payments for a period of
thirty (30) years, equal to $100,000 per annum."
FOURTH CHANGE
-------------
The first sentence of the second paragraph of Section 7
shall be deleted in its entirety and the following substituted in
lieu thereof:
"If Employee shall die subsequent to being disabled
(as that term is used in Section 6 above) and prior to
February 1, 1999 (or such later date as may be
provided for cessation of employment by extension of
the stated term of the Executive Employment
Agreement), then the beneficiary shall receive a
lesser benefit."
In all other respects, the provisions of the Agreement, as
heretofore amended, remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Sixth
Amendment to the Agreement as of the day and year first above written.
ATTEST: MERCANTILE-SAFE DEPOSIT
AND TRUST COMPANY
/s/ Alan D. Yarbro /s/ Edward K. Dunn, Jr.
________________________ By:_________________________
Alan D. Yarbro, Secretary Edward K. Dunn, Jr., President
WITNESS:
/s/ Alan D. Yarbro /s/ H. FURLONG BALDWIN
________________________ __________________________
H. FURLONG BALDWIN
Page 3
EXHIBIT (10) J
FIRST AMENDMENT TO
EXECUTIVE SEVERANCE AGREEMENT
THIS FIRST AMENDMENT to EXECUTIVE SEVERANCE AGREEMENT is made this
29th day of January, 1997, by and between MERCANTILE BANKSHARES
CORPORATION and MERCANTILE-SAFE-DEPOSIT & TRUST COMPANY (collectively,
the "Company"), and H. FURLONG BALDWIN (the "Employee").
WHEREAS, Employee and Company entered into an Executive Severance
Agreement dated December 31, 1989 (the "Agreement"); and
WHEREAS, this Agreement is schedule to terminate on February 1,
1997, Employee's normal retirement date; and
WHEREAS, Company has determined to retain Employee in his current
capacity beyond his normal retirement date, and Employee has agreed to
do so; and
WHEREAS, the parties wish to amend this Agreement to clarify its
application to Employee subsequent to February 1, 1997.
NOW, THEREFORE, in consideration of the foregoing and for other
good and valuable consideration, receipt of which is hereby
acknowledged, and in further consideration of the mutual covenants
contained in the Agreement, the parties do hereby agree that the
Agreement is hereby amended as follows:
FIRST CHANGE
------------
A new sentence shall be added at the end of Section 1(c) to read
as follows:
"From and after February 1, 1997, the Change of Control
Period shall mean the period commencing on that date and
ending on February 1, 1999, or on such later date as shall
be provided for cessation of employment by extension of the
stated term of the Employee's Executive Employment Agreement
with Mercantile Bankshares Corporation and Mercantile-Safe
Deposit and Trust Company, dated March 24, 1982, as the same
has been and may be from time to time amended (the
`Executive Employment Agreement')."
SECOND CHANGE
-------------
Section 2(d) shall be deleted in its entirety and the following
substituted in lieu thereof:
"(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) February 1, 1999 (or such
later date as
Page 1
may be provided for cessation of employment by
extension of the stated term of the Executive Employment
Agreement), 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 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)."
In all other respects, the provisions of the Agreement remain
unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment to the Agreement as of the day and year first above written.
ATTEST: MERCANTILE BANKSHARES
CORPORATION
/s/ Alan D. Yarbro /s/ Edward K. Dunn, Jr.
________________________ By:_________________________
Alan D. Yarbro, Secretary Edward K. Dunn, Jr., President
MERCANTILE-SAFE DEPOSIT
AND TRUST COMPANY
/s/ Alan D. Yarbro /s/ Edward K. Dunn, Jr.
________________________ By:________________________
Alan D. Yarbro, Secretary Edward K. Dunn, Jr., President
WITNESS:
/s/ Alan D. Yarbro /s/ H. FURLONG BALDWIN
________________________ ___________________________
H. FURLONG BALDWIN
Page 2
ANNUAL REPORT
1996
MERCANTILE
BANKSHARES
CORPORATION
THE ANNAPOLIS BANKING AND TRUST COMPANY
BALTIMORE TRUST COMPANY
BANK OF SOUTHERN MARYLAND
CALVERT BANK AND TRUST COMPANY
THE CHESTERTOWN BANK OF MARYLAND
THE CITIZENS NATIONAL BANK
COUNTY BANKING & TRUST COMPANY
THE EASTVILLE BANK
FARMERS & MERCHANTS BANK--EASTERN SHORE
THE FIDELITY BANK
THE FIRST NATIONAL BANK OF ST. MARY'S
THE FOREST HILL STATE BANK
FREDERICKTOWN BANK & TRUST COMPANY
MERCANTILE-SAFE DEPOSIT & TRUST COMPANY
THE NATIONAL BANK OF FREDERICKSBURG
PENINSULA BANK
THE PEOPLES BANK OF MARYLAND
POTOMAC VALLEY BANK
ST. MICHAELS BANK
THE SPARKS STATE BANK
WESTMINSTER BANK AND TRUST COMPANY OF
CARROLL COUNTY
MERCANTILE MORTGAGE CORPORATION
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION
<PAGE>
MERCANTILE BANKSHARES CORPORATION
A FAMILY OF COMMUNITY BANKS, EACH WITH
ITS OWN NAME, MANAGEMENT, BOARD OF DIRECTORS
AND HISTORIC TIES TO ITS COMMUNITY
COUNT ON US FOR
CONTINUITY
We value the stability that allows our banks to nurture long-term
customer relationships, through good times and bad.
FOCUS
The person responsible for making customer-related
decisions is a local person, focused on the citizens
of the community in which the bank operates.
STRENGTH
As part of Mercantile Bankshares Corporation, affiliate banks
benefit from the Corporation's outstanding financial
strength and the services available through the largest affiliate,
Mercantile-Safe Deposit & Trust.
PRIDE
We work to staff our banks with
well-trained people who are proud of the job they do,
their bank and its association
with Mercantile Bankshares Corporation.
INTEGRITY
An enduring banking relationship is based on trust. We cherish
the community's confidence in us as people of integrity.
COMMITMENT TO THE COMMUNITY
A strong community depends upon on-going volunteer
and charitable support. The staff and boards of our affiliates have
established and will maintain those civic relationships.
<PAGE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Increase
(Dollars in thousands, except per share data) 1996 1995 (Decrease)
===============================================================================================
<S> <C> <C> <C>
FOR THE YEAR
Net interest income............................ $ 310,581 $ 286,788 8.3%
Net income..................................... 117,400 104,432 12.4
Cash dividends paid............................ 46,579 41,013 13.6
Net income per share........................... 2.46 2.19 12.3
Dividend paid per common share................. .98 .86 14.0
Average deposits............................... 5,218,300 4,866,600 7.2
Average loans.................................. 4,411,500 4,079,300 8.1
Average investment securities.................. 1,596,900 1,515,600 5.4
========== ========== ====
AT YEAR END
Assets......................................... $6,642,681 $6,349,103 4.6%
Deposits....................................... 5,339,655 5,169,381 3.3
Loans, net..................................... 4,484,994 4,209,872 6.5
Investment securities.......................... 1,622,966 1,572,254 3.2
Stockholders' equity........................... 836,036 793,826 5.3
Book value per common share.................... 17.62 16.44 7.2
========== ========== ====
RATIOS
Return on average assets....................... 1.82% 1.74% 4.6%
Return on average stockholders' equity......... 14.48 13.86 4.5
Average stockholders' equity/average assets.... 12.59 12.56 .2
========== ========== ====
STATISTICS
Banking offices................................ 164 162 2
Employees...................................... 2,813 2,810 3
Shareholders................................... 8,717 8,850 (133)
Average number of common shares
outstanding.................................. 47,651,120 47,768,479 (117,359)
Common shares outstanding...................... 47,435,322 48,272,451 (837,129)
========== ========== =======
</TABLE>
CONTENTS
Consolidated Financial Highlights............................. 1
To Our Shareholders........................................... 2
Review of Services............................................ 4
Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................... 6
Report of Independent Accountants............................. 23
Consolidated Balance Sheets................................... 24
Statement of Consolidated Income.............................. 25
Statement of Consolidated Cash Flows.......................... 26
Statement of Changes in Consolidated Stockholders' Equity..... 28
Notes to Consolidated Financial Statements.................... 29
Five Year Selected Financial Data............................. 45
Five Year Statistical Summary................................. 46
Five Year Summary of Consolidated Income...................... 48
Principal Affiliates.......................................... 49
Mercantile Bankshares Corporation............................. 56
Corporate Information......................................... 57
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
TO OUR SHAREHOLDERS
For the 21st consecutive year, Mercantile Bankshares Corporation reported an
increase in consolidated net income. Net income per share was $2.46 in 1996, a
12% increase over the $2.19 per share in 1995. Total consolidated net income was
$117,400,000 compared to $104,432,000 in 1995, an increase of 12%. Per share
amounts are based on the weighted average number of common shares outstanding,
47,651,120 for 1996 and 47,768,479 for 1995.
Our history of profitability and capital strength has allowed us to increase
total cash dividends paid per share for 20 consecutive years. In 1996, total
dividends paid per share were $.98, a 14% increase over 1995.
While maintaining great capital strength and financing the growth of your
company, Mercantile Bankshares Corporation has been pursuing a share repurchase
program. In December 1996, the Board of Directors authorized repurchase of
1,000,000 shares of Mercantile Bankshares common stock. This is in addition to a
total of 5,000,000 shares authorized since 1993. The buy-backs have supported
your management's strategy to enhance shareholder value by using capital to
finance growth, both internal and external, and, when capital is not needed for
that purpose, returning it to shareholders in dividends and repurchase of
shares. From December 1993 to year end 1996, 3,486,000 shares of common stock
were repurchased under the programs.
The proposed mergers of two banks into the Mercantile Bankshares system were
announced in 1996. Both banks are on the Eastern Shore of Maryland and are to be
merged into our affiliate, Peninsula Bank. They are Home Bank, with $45,000,000
in assets, and The Farmers Bank of Mardela Springs, with $28,000,000 in assets.
Both are tax-free transactions to be effected with an exchange of shares. They
have received the approval of the stockholders of the respective institutions
and are subject to the approval of regulatory authorities and the customary
closing conditions.
In 1996, return on average assets, a measure of profitability, was 1.82%, up
from 1.74% in 1995, continuing to place us in the top tier of U.S. banks.
Average shareholders' equity increased by 8% to $810,500,000. The return on
average equity, which is constrained by our large equity base, benefited from
the share repurchase program and increased to 14.48% in 1996 from 13.86% in
1995. The ratio of average equity to average assets, a measure of capital
strength, is among the strongest of the nation's largest banking organizations
at 12.59%.
At December 31, 1996, total assets at Mercantile Bankshares Corporation were
$6,642,681,000 compared to $6,349,103,000 at December 31, 1995. On a daily
average basis, total assets rose 7% to $6,436,300,000; average total loans rose
8% to $4,411,500,000. Total average investment securities remained relatively
constant at $1,596,900,000.
Average total loans increased 8% over 1995. The increase reflected an 11%
increase in average total mortgage and construction loans, which were 56% of the
total loan portfolio. Average commercial loans, which were 33% of the entire
loan portfolio, increased 6%. Average consumer loans increased 1%.
Asset quality at Mercantile Bankshares, as measured by commonly used
statistics, was restored to our more traditional levels in 1995 and continued to
improve in 1996. At year end 1996, total non-performing loans were down 4% from
1995 to $20,457,000. Total non-performing loans were .45% of total loans at year
end 1996, down from .49% at year end 1995. Total non-performing assets, which
include other real estate owned as well as non-performing loans, were
$23,773,000 at year end 1996, down 1% from 1995. Non-performing assets as a
percentage of year end loans plus other real estate owned was down from the
prior year to .52%.
As new loans and relationships are developed, it is prudent to add to the
provision for loan losses. The provision for loan losses in 1996 was increased
to $14,666,000 from $7,988,000 in 1995. In 1996, loans charged off, net of
recoveries, totaled $8,346,000, down 22% from $10,665,000 charged off in 1995.
The allowance for loan losses at December 31, 1996 was $97,718,000 versus
$91,398,000 in the prior year. At year end 1996, the allowance for loan losses
as a percentage of non-performing loans had increased to 478% compared to 430%
at year end 1995. The allowance was 2.13% of total year end loans compared to
2.12% at year end 1995.
Average total deposits for the year ended December 31, 1996 were
$5,218,300,000, a 7% increase over 1995. The marked shift in the composition of
the deposit mix to more expensive interest-bearing instruments slowed in 1996.
Certificates of deposit rose in 1996 from 37% to 39% of average total deposits
and the combination of savings, checking plus interest and money market accounts
declined from 45% to 42%. Demand deposits, which do not bear interest, increased
slightly to 19% of average total deposits.
Net interest income for 1996 increased 8% over 1995 to $310,581,000. There
was a 7% increase in average earning assets to $6,094,100,000. Net interest
margin on earning assets was 5.17% compared to 5.12% in 1995. Net interest rate
spread, the difference between the yield realized on average earning assets and
interest rate paid for average interest-bearing funds, was 4.13% compared to
4.09% in 1995.
Total noninterest income increased 11% in 1996 to $89,428,000. A gain on
securities of $74,000 in 1996, compared to losses of $1,715,000 in 1995,
contributed to the increase as did rev-
2 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
enues from mortgage banking and general bank services. The largest component of
noninterest income is trust revenues which were up 4% to $46,244,000.
Total noninterest expense, excluding the provision for loan losses,
increased 2% in 1996 to $198,415,000. Salary and employee benefit expenses,
combined, are the largest part of noninterest expense and were $120,783,000, up
3% over 1995. Increases in total noninterest expense were offset in part by
reduced FDIC insurance premiums. Noninterest expenses related to significant
technological improvements are reflected in 1995 and 1996 numbers and we expect
those expenses to continue into 1997. A largely completed investment in Trust
Division technology is being followed by conversion to an upgraded bank
operating system. While preparing, well ahead of time, to be compliant with the
requirements of data processing in the year 2000, we are positioning ourselves
to upgrade procedures and processing across the board.
Because we stress efficient operations, we were pleased to be listed near
the top in a ranking of efficiency ratios in the nation's 100 largest banking
organizations conducted by a nationally recognized bank data base analyst. For
the year ended December 31, 1996, Mercantile Bankshares achieved an efficiency
ratio of 49%.
Elsewhere in this report, we remark on having undertaken significant
enhancements to our data processing systems. As we prepare for the technological
requirements of the next millennium, we bear in mind the on-going values which
distinguish our history.
Long-term institutional memory is increasingly rare in corporate America and
especially in the banking business. Bank consolidations regularly result in new
names, new managements, and severing of historic ties to the community. At
Mercantile Bankshares Corporation, our distinctive multi-bank structure--each
member bank operates as a separately chartered corporate entity--allows
affiliates to build on a continuum of local managements and client
relationships. We have chosen to affiliate with banks which are respected in
their communities and are institutions with well established roots. Six of our
twenty-one banks were chartered more than 100 years ago. In addition,
affiliating banks share a tradition of value-added service. The tradition
continues.
Value is added to a banking relationship when the community banker is
empowered to make customer-related decisions based on local knowledge, when
customers have access to management and confidence that their banker will be
there over the long haul. Adding value means building services around the
particular needs of individuals or businesses and taking personal pride in the
way the job is done. Some years ago, the first Chairman of Mercantile Bankshares
Corporation, William E. McGuirk, Jr., commented on our approach to banking when
he talked about craftsmanship: "Whether building a piece of furniture or
crafting a loan, try to do it so that you will be proud of the finished product.
Financial rewards will follow." We believe that our record confirms the wisdom
of his words.
/s/ H. Furlong Baldwin
H. Furlong Baldwin, Chairman
February 28, 1997
BOARD OF DIRECTORS
In 1996, Mercantile Bankshares Corporation welcomed three new directors: William
R. Brody, M.D. is President of The Johns Hopkins University; Freeman A.
Hrabowski, III is President of The University of Maryland--Baltimore County;
Robert A. Kinsley is Chairman of the Board and Chief Executive Officer of
Kinsley Construction, Inc.
Brian B. Topping retired from the Board of Mercantile Bankshares in 1996. Mr.
Topping will remain as Vice Chairman of the Board of Mercantile-Safe Deposit &
Trust Company.
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 3
REVIEW OF SERVICES
Traditional banking is a local, relationship oriented business. Twenty-one
community banks provide banking services to the individuals, families,
businesses and institutions that make up their communities. At the same time,
affiliate banks are able to offer the more specialized services and lending
capacity provided by the largest affiliate, Mercantile-Safe Deposit & Trust
Company, and by Mercantile Mortgage Corporation. It is a combination that allows
us to respond to people who value on-going banking relationships that are based
on selected services performed well.
COMMUNITY BANKING
Because modern technology can expedite the delivery of banking services, we are
at work installing new systems to improve our customers' access to information
and ability to perform financial transactions. However, in our view, a computer
will never be a substitute for the banker who knows the customers and
understands their banking needs. At Mercantile Bankshares affiliates,
customer-related decisions are made at the community bank level, based on local
knowledge, by people who can be counted upon to take a continuing interest in
the individuals they serve.
Each affiliate has responsibility for its own day-to-day operations, budget
and marketing plans, creating an entrepreneurial environment that encourages
initiative. Affiliate back-office functions, such as operations, auditing and
loan review, are consolidated at the holding company level.
Traditional deposit and credit services meet the on-going needs of people in
the community bank's market area. New services are developed through the
coordinated efforts of community bank personnel and a centralized corporate
marketing staff. In 1996, fixed income annuities were introduced at selected
affiliates and, by the end of 1997, this competitive savings vehicle will be
offered by trained and licensed people in most of our banks.
A telephone system giving customers access to account information
twenty-four hours a day, and allowing them to effect transfers, was made
available in 1996. A Banking Twenty-Four(TM) Check Card was introduced also,
giving customers the convenience of paying for goods and services from their
checking accounts without a check. Affiliate banks are developing Web Pages on
the Internet to deliver banking information to customers and prospects. Finally,
P.C. banking and electronic bill paying systems are due to come on line in late
1997 or early 1998.
A change in interstate banking laws allowed a subsidiary of Mercantile-Safe
Deposit & Trust, located in York, Pennsylvania, to become a Mercantile branch
office. With a move to a better location and the ability now to take deposits,
we will be expanding our commercial banking efforts in southern Pennsylvania, a
marketplace we have served since 1984.
Community banking at Mercantile Bankshares affiliates is well suited to
serving small businesses. A survey by "American Banker" for June 30, 1996,
ranked Mercantile Bankshares among the top 50 in the nation for total loans to
small business and industry, where the original amount loaned was less than
$1,000,000. Again, access to management, a staff that knows the business and its
owners, credit arrangements that are not out of the manual but tailored to the
individual situation--these are the attributes that have contributed to our
ability to respond to the credit needs of professionals and small business
owners.
CORPORATE BANKING
Each affiliate bank provides commercial banking services to businesses in its
own market area. When the business requires a credit that exceeds the
affiliate's lending limit, or has a specialized financing requirement or other
specialized commercial banking need, Corporate Banking at Mercantile-Safe
Deposit & Trust cooperates with the affiliate to supply that service.
Mercantile-Safe Deposit & Trust corporate lenders extend credit both in
their own market area and in collaboration with affiliates. These loans are for
general business purposes such as working capital, plant expansion or buying
equipment and for financing owner/user commercial real estate.
Several corporate banking units supply specialized services. They include
asset based lending, cash management, and real estate construction and
development lending.
The Asset Based Lending Group provides financing and leasing services to
businesses with special needs. Loans secured by working assets allow a business
to convert the value of its accounts receivable and inventory into cash for
daily operations. The Group also provides financing for acquisitions, management
buyouts and equipment purchases. The Dealer Finance Unit, enlarged in 1996,
helps automotive and equipment dealers finance new and used vehicles and
equipment. MBC Leasing Corporation, which began operations in 1996, provides tax
oriented and finance leases of equipment to businesses in the mid-Atlantic
region.
Cash Management Services assists the business customer in collecting,
transferring and investing cash. In 1996, we created a small business personal
computer service, MercAccess Express, to complement the existing MercAccess.
Both of these services connect the customer's personal computer to the bank in
order to receive account balance information and initiate certain transactions.
In addition, Mercantile continues to expand its Cash Management services. In
1997, we are enhancing our Overnight Sweep Investment service to accommodate
end-of-day processing for Repurchase Agreements and Commercial Paper.
The Real Estate Industries Group provides construction, acquisition and
interim lending to investors and developers of income-producing real estate. The
real estate market showed continued improvement in 1996 and we had an excellent
year for loan closings. The growth in loans outstanding, although ahead of 1995,
was tempered by aggressive capital markets which provided permanent funding for
our construction loans earlier in the process than previous years. The credit
quality in the real estate lending portfolio continues to improve. At year end
1996, we had a large backlog of loans remaining to be closed.
4 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
TRUST AND INVESTMENT SERVICES
Trust and investment management services are provided by our largest affiliate,
Mercantile-Safe Deposit & Trust Company. At December 31, 1996, total assets
under administration were $27 billion.
Mercantile-Safe Deposit & Trust has long been preeminent in the region for
trust and investment services for individuals and families. At year end 1996, we
were managing approximately $6 billion in personal trust assets and held a total
of $8 billion under administration. There is potential for substantial growth.
Many prospective clients for personal trust services are contained in the
demographic bulge of the post World War II baby boom generation. These people
are moving into their 50s and beginning to focus on retirement. They are also
among the most sophisticated consumers of financial services the industry has
known; Mercantile is in an especially attractive position as it competes for
their business. As local financial institutions are absorbed by out-of-area
companies, and they and others focus increasingly on transaction oriented,
volume driven products, there is a growing appreciation among trust and
investment clients for traditional relationship oriented service. Mercantile is
several years into a program aimed at underpinning that advantage with
additional resources committed to improved service delivery and an expanded
array of services.
In 1997, the Trust Division will introduce Personal Pathways, a service
designed for clients who want the benefits of investment diversification but do
not yet have sufficient assets to diversify effectively. This service gives them
access to a variety of selected mutual funds, both those managed by Mercantile
and by other "brand name" mutual fund families. Personal Pathways, which is
delivered on a client-by-client basis, according to investment goals fixed by
the client, will enable us to establish relation-ships with individuals and
institutions much earlier in their process of wealth accumulation.
Institutions, such as corporations, labor unions and not-for-profit
organizations, are another important client base. At year end 1996,
Institutional Services managed approximately $5 billion in assets and had $19
billion under administration. Areas of special interest are Retirement Plan
Services and the Planned Giving Unit.
Retirement Plan Services provides self-directed 401 (k) and profit sharing
plan administration, participant record-keeping, employee education, and trustee
services. Plan participants have the flexibility of investment selection from
some of the nation's highest rated mutual fund families. Additional growth is
expected in the 401 (k) plans market due to recent legislation that simplifies
plan compliance requirements. Our Simple 401 (k) Plan will offer lower cost
limited option plans for companies with 25 to 50 employees.
Not-for-profit organizations are increasing their planned or deferred giving
programs as a way of encouraging donations through bequests. Pooled income
funds, gift annuities and charitable remainder trusts are useful tools for
organizations as they raise money to ensure their futures. Our Planned Giving
Unit helps these organizations with the time-consuming and technical aspects of
life-income gift administration, providing a tailor-made approach for each
planned giving program and a sensitivity to the needs of the donor/beneficiary.
PRIVATE BANKING
One full year has passed since the Private Banking Group was established and the
response from the marketplace has been very gratifying. Clearly, there is a real
demand for a coordinated approach to managing the financial affairs of high net
worth individuals. Private Banking clients, such as business owners,
professional people and senior corporate executives, benefit from the positive
synergy created by consolidating the delivery of a range of deposit, credit,
investment and trust services from a single source.
The benefits of Private Banking include accountability, objectivity and the
timely, personalized response to client needs. An example of the flexibility
inherent in Private Banking is a successful Jumbo Mortgage program in which
credit terms are tailored to suit the individual.
Located at Mercantile-Safe Deposit & Trust, Private Banking services are
marketed throughout the affiliate network of banks.
MORTGAGE BANKING
Mercantile Mortgage Corporation provides a variety of mortgage banking services
including conventional thirty and fifteen year fixed rate loans, adjustable rate
loans, jumbo mortgages, single settlement construction/permanent loans and an
array of FHA and VA loans. Mercantile Mortgage makes these services available
through the affiliate bank system as well as directly to the public through its
own branch network which stretches from Wilmington, Delaware to southern
Maryland.
The volume of residential mortgage loans that were closed in 1996 rose 44%
over the prior year to $137,000,000, a result due more to investments in
personnel and systems than any improvement in the Maryland home market. Our
fully integrated computer software for mortgage origination, processing and
closing provides the capacity to handle greater volumes of business without
adding significantly to overhead.
At year end 1996, Mercantile Mortgage was servicing for others loans of
$572,000,000. Although the bulk of this portfolio is not reflected on the
balance sheet, it produces fee income which makes an important contribution to
the Company's bottom line. The quality of residential mortgages serviced remains
strong, with overall delinquencies running more than 280 basis points below
industry averages in our marketplace as reported recently by the Mortgage
Bankers Association of America.
In addition to mortgage banking, the Company continues to play a large role
in financing the construction of residential subdivisions for mid-Atlantic
home-builders and land developers. We find ourselves with an increasing
competitive advantage as a result of our reputation for fast, knowledgeable
responses to construction financing requests.
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 5
<PAGE>
[Chart appears here]
Presented below is the table of data points used to prepare a line graph
depicting the increase in year end total assets of Mercantile Bankshares
Corporation from December 31, 1992 to December 31, 1996
TOTAL ASSETS
(Dollars in millions) December 31
1992 1993 1994 1995 1996
Total Assets........$5,460 $5,790 $5,938 $6,349 $6,643
[Chart appears here]
Presented below is the table of data points used to prepare a line graph
depicting the increase in annual net income of Mercantile Bankshares
Corporation from 1992 to 1996:
NET INCOME
(Dollars in millions)
5 Year Compound Growth Rate: 10.7%
1992 1993 1994 1995 1996
Net Income.......... $76.3 $83.5 $90.4 $104.4 $117.4
[Chart appears here]
Presented below is the table of data points used to prepare a line graph
depicting the increase in annual earnings per share of Mercantile Bankshares
Corporation from 1992 to 1996:
EARNINGS PER SHARE
(In dollars)
5 Year Compound Growth Rate: 9.5%
1992 1993 1994 1995 1996
Earnings per share.......... $1.67 $1.73 $1.88 $2.19 $2.46
MANAGEMENT'S DISCUSSION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
I. PERFORMANCE SUMMARY
Mercantile Bankshares Corporation ("Mercshares") achieved a 12.4% increase in
net income for 1996, representing the 21st consecutive year of increased net
income. Net income for Mercshares was $117,400,000 for the year ended December
31, 1996, as compared to $104,432,000 and $90,441,000 for the years ended
December 31, 1995 and 1994, respectively. Net income per common share for 1996
was $2.46, as compared to $2.19 reported for 1995, an increase of 12.3%. Net
income per share reported for 1994 was $1.88. The earnings results for 1996
include a full year of operations for The Sparks State Bank, which was
affiliated with Mercshares on October 31, 1995. The affiliation was accounted
for using the purchase method of accounting. Net of goodwill amortization, The
Sparks State Bank accounted for $2,372,000 of the increase in net income for the
current year.
The strong earnings growth for 1996 was achieved without reduction in the
relative quality of such earnings, as expressed in terms of return on average
assets and return on average stockholders' equity. The return on average assets
was 1.82% for the year ended December 31, 1996, as compared to 1.74% and 1.56%
for the years ended December 31, 1995 and 1994, respectively. Mercshares' return
on average stockholders' equity increased to 14.48% for 1996, as compared to the
13.86% reported for 1995 and 12.84% reported for 1994. This improved return on
average stockholders' equity was attained without increased leverage. The ratio
of average stockholders' equity to average assets remained a very strong 12.59%,
up slightly from the average of 12.56% reported for 1995.
Average assets increased by 7.3% to $6,436,300,000, average deposits
increased by 7.2% to $5,218,300,000 and average loans increased by 8.1% to
$4,411,500,000 for the year ended December 31, 1996, as compared to the prior
year. Overall balance sheet growth was positively impacted by the Sparks
affiliation. The Sparks affiliation accounted for 38% of the growth in average
assets, 40% of the growth in average deposits and 31% of the growth in average
loans.
The remaining sections of Management's Discussion and Analysis of Financial
Condition and Results of Operations will provide a more detailed explanation of
the important trends and material changes in components of our financial
statements. The discussion suggests that sustained future earnings growth,
comparable to our experience in recent years, will require, among other things,
efficient generation of loan growth in a competitive market, while maintaining
an adequate spread between yields on earning assets and our cost of funds. This
can depend, in turn, on unpredictable factors such as possible changes in
prevailing interest rates, the mix of deposits and general economic conditions.
This discussion and analysis should be read in conjunction with the consolidated
financial statements and other financial information presented in this report.
II. ANALYSIS OF OPERATING RESULTS
Net Interest Income
Net interest income represents the largest source of Mercshares' revenue. Net
interest income is affected by both changes in the level of interest rates and
changes in the amount and composition of interest-earning assets and
interest-bearing liabilities. The Analysis of Interest Rates and Interest
Differentials on pages 8 and 9 and the Rate/Volume Analysis on page 10 provide
further details supporting this discussion.
6 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
Net interest income on a fully taxable equivalent basis was $314,818,000 for
1996, an increase of $23,929,000 or 8.2% over the prior year's $290,889,000.
Fully taxable equivalent net interest income increased by $24,412,000 or 9.2% in
1995 over 1994. As reflected in the volume variance column of the Rate/Volume
Analysis, the 7.3% growth in average earning assets accounted for 84.4% of the
improvement in net interest income for 1996. The 5 basis point improvement in
the net interest margin to 5.17% in 1996 from 5.12% in 1995 accounted for the
remainder of the increase. The increase in 1995 was more equally attributable to
both improvement in the net interest margin, which increased by 5.3% from 4.86%
in 1994, and a 3.6% increase in average earning assets.
Interest Income
Fully taxable equivalent interest income amounted to $502,376,000 in 1996
representing an increase of $31,000,000 or 6.6% over $471,376,000 in 1995. The
increase in 1995 over 1994 was $64,466,000 or 15.8%. Although, as previously
mentioned, the growth in average earning assets was greater in 1996 than 1995, a
decline in the yield on average earning assets to 8.24% in 1996 from 8.30% in
1995 partially offset this increase. The yield on average earning assets in 1994
was 7.43%. The change in the yield on average earning assets is reflective of
the change in the average prime rate. The average prime rate in 1996 was 8 1/4%,
down from an average of 8 3/4% for 1995. The average prime rate for 1994 was
7 1/8%.
The lower average prime rate in 1996 was the primary factor in the decline
in the yield on average loans to 9.17% from 9.40% in the prior year. The growth
in the average loan portfolio was comparable in both periods, with 1996
reflecting an increase of 8.1%, as compared to 8.3% in 1995. As previously
noted, the current year's loan growth favorably benefited from the Sparks
affiliation.
Partially offsetting the decline in the yield on the average loan portfolio
was an improvement in the yield on the investment securities portfolio. The 35
basis point improvement in the yield from 5.49% in 1995 to 5.84% in 1996 was
partially related to a slight lengthening of the average maturity of the
securities available-for-sale portfolio to 1.9 years from 1.4 years. The average
yield on the portfolio was 5.19% in 1994.
Interest Expense
Total interest expense in 1996 was $187,558,000, an increase of $7,071,000 from
$180,487,000 in 1995. The increase in interest expense for 1996 was primarily
attributable to the increase in average interest-bearing deposits, which grew by
6.5%. The average rate paid on interest-bearing deposits declined to 4.03%
during 1996 from 4.11% in 1995. Overall, the rate paid on total interest-bearing
funds declined to 4.11% in 1996 from 4.21% in 1995. This 10 basis point decline
in the cost of interest-bearing funds more than offset the 6 basis point decline
in the yield on earning assets. This ability to manage the cost of funding
resulted in a net improvement in the net interest rate spread in 1996. Total
interest expense in 1995 was $40,054,000 higher than in 1994 due primarily to an
increase in the rate paid on average total interest-bearing funds to 4.21% for
1995 from 3.39% for 1994.
The combination of Mercshares' strong capital base and noninterest-bearing
deposits has consistently led to a lower dependence on interest-bearing funds
than that experienced by its peer group as reported in data furnished by our
regulators. During each of the past three years, the benefit derived from
lowering the overall cost of funding earning assets through these sources has
steadily increased from .82% in 1994 to 1.03% in 1995 and 1.04% in 1996 as shown
in the Analysis of Interest Rates and Interest Differentials on pages 8 and 9.
Such benefit is influenced by the relative levels of interest rates as well as
the volume of such funds.
[Chart appears here]
Presented below is the table of data points used to prepare a line graph
depicting the changes in both the average annual yield earned on earning
assets and the average annual rate paid on interest-bearing funds by
Mercantile Bankshares Corporation from 1992 to 1996:
INTEREST YIELDS AND RATES
(Tax equivalent basis)
1992 1993 1994 1995 1996
Average yield earned on
earning assets..................... 8.07% 7.34% 7.43% 8.30% 8.24%
Average rate paid on
interest-bearing funds............. 4.28% 3.41% 3.38% 4.21% 4.11%
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 7
<PAGE>
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.
<TABLE>
<CAPTION>
1996
--------------------------------------------------------
Average Income*/ Yield*/
(Dollars in thousands) Balance** Expense Rate
============================================================================================================================
<S> <C> <C> <C>
Earning assets
Loans:
Commercial.................................................. $1,438,900 $132,920 9.24%
Mortgage and construction................................... 2,484,500 226,277 9.11
Consumer.................................................... 488,100 45,333 9.29
---------- --------
Total loans........................................... 4,411,500 404,530 9.17
---------- --------
Federal funds sold............................................. 80,300 4,195 5.22
Securities purchased under resale agreements................... 5,300 325 6.13
Securities:
Taxable securities
U.S. Treasury securities................................. 1,546,900 89,977 5.82
U.S. Agency securities................................... 17,700 957 5.40
Other stocks and bonds................................... 17,600 1,270 7.21
Tax-exempt securities
States and political subdivisions........................ 14,700 1,115 7.59
--------- -------
Total securities...................................... 1,596,900 93,319 5.84
--------- -------
Interest-bearing deposits in other banks....................... 100 7 4.64
--------- -------
Total earning assets.................................. 6,094,100 502,376 8.24
-------
Cash and due from banks........................................... 206,900
Bank premises and equipment, net.................................. 79,800
Other assets...................................................... 151,900
Less: allowance for loan losses................................... (96,400)
----------
Total assets.......................................... $6,436,300
==========
Interest-bearing liabilities
Deposits:
Savings deposits............................................ $2,214,700 58,187 2.63
Certificates of deposit and other time deposits--
less than $100,000....................................... 1,403,200 79,202 5.64
Certificates of deposit--$100,000 and over.................. 618,200 33,374 5.40
---------- --------
Total interest-bearing deposits....................... 4,236,100 170,763 4.03
Short-term borrowings.......................................... 292,900 14,199 4.85
Long-term debt................................................. 39,600 2,596 6.55
---------- --------
Total interest-bearing funds.......................... 4,568,600 187,558 4.11
--------
Noninterest-bearing deposits...................................... 982,200
Other liabilities and accrued expenses............................ 75,000
----------
Total liabilities..................................... 5,625,800
Stockholders' equity.............................................. 810,500
----------
Total liabilities and stockholders' equity............ $6,436,300
==========
Net interest income............................................... $314,818
========
Net interest rate spread.......................................... 4.13%
Effect of noninterest-bearing funds............................... 1.04
----
Net interest margin on earning assets............................. 5.17%
====
Taxable-equivalent adjustment included in:
Loan income.................................................... $ 3,730
Investment securities income................................... 507
--------
Total................................................. $ 4,237
========
</TABLE>
*Presented on a tax equivalent basis using the statutory federal corporate
income tax rate of 35%.
**Investment securities average balances reported at amortized cost; excludes
pretax unrealized gains (losses) on securities available-for-sale.
8 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
<TABLE>
<CAPTION>
1995
- - ----------------------------------------------------------------------------------------------------------------------------
Average Income*/ Yield*/
(Dollars in thousands) Balance** Expense Rate
============================================================================================================================
<S> <C> <C> <C>
Earning assets
Loans:
Commercial.................................................. $1,351,600 $130,960 9.69%
Mortgage and construction................................... 2,244,700 206,248 9.19
Consumer.................................................... 483,000 46,315 9.59
---------- --------
Total loans........................................... 4,079,300 383,523 9.40
---------- --------
Federal funds sold............................................. 62,700 3,587 5.72
Securities purchased under resale agreements................... 20,000 1,126 5.63
Securities:
Taxable securities
U.S. Treasury securities................................. 1,466,400 79,915 5.45
U.S. Agency securities................................... 25,500 1,354 5.31
Other stocks and bonds................................... 10,200 821 8.05
Tax-exempt securities
States and political subdivisions........................ 13,500 1,046 7.75
---------- --------
Total securities...................................... 1,515,600 83,136 5.49
---------- --------
Interest-bearing deposits in other banks....................... 100 4 4.00
---------- --------
Total earning assets.................................. 5,677,700 471,376 8.30
--------
Cash and due from banks........................................... 196,700
Bank premises and equipment, net.................................. 75,800
Other assets...................................................... 141,600
Less: allowance for loan losses................................... (91,400)
----------
Total assets.......................................... $6,000,400
==========
Interest-bearing liabilities
Deposits:
Savings deposits............................................ $2,200,200 64,732 2.94
Certificates of deposit and other time deposits--
less than $100,000....................................... 1,228,000 69,857 5.69
Certificates of deposit--$100,000 and over.................. 549,500 28,967 5.27
---------- --------
Total interest-bearing deposits....................... 3,977,700 163,556 4.11
Short-term borrowings.......................................... 280,900 15,123 5.38
Long-term debt................................................. 27,900 1,808 6.48
---------- --------
Total interest-bearing funds.......................... 4,286,500 180,487 4.21
--------
Noninterest-bearing deposits...................................... 888,900
Other liabilities and accrued expenses............................ 71,500
----------
Total liabilities..................................... 5,246,900
Stockholders' equity.............................................. 753,500
----------
Total liabilities and stockholders' equity............ $6,000,400
==========
Net interest income............................................... $290,889
========
Net interest rate spread.......................................... 4.09%
Effect of noninterest-bearing funds............................... 1.03
----
Net interest margin on earning assets............................. 5.12%
====
Taxable-equivalent adjustment included in:
Loan income.................................................... $ 3,635
Investment securities income................................... 466
--------
Total................................................. $ 4,101
========
</TABLE>
<TABLE>
<CAPTION>
1994
- - ----------------------------------------------------------------------------------------------------------------------------
Average Income*/ Yield*/
(Dollars in thousands) Balance** Expense Rate
============================================================================================================================
<S> <C> <C> <C>
Earning assets
Loans:
Commercial.................................................. $1,235,800 $102,175 8.27%
Mortgage and construction................................... 2,061,900 175,435 8.51
Consumer.................................................... 467,500 40,522 8.67
---------- --------
Total loans........................................... 3,765,200 318,132 8.45
---------- --------
Federal funds sold............................................. 12,200 479 3.93
Securities purchased under resale agreements...................
Securities:
Taxable securities
U.S. Treasury securities................................. 1,647,100 84,902 5.15
U.S. Agency securities................................... 28,800 1,530 5.31
Other stocks and bonds................................... 10,100 718 7.11
Tax-exempt securities
States and political subdivisions........................ 14,100 1,099 7.79
---------- --------
Total securities...................................... 1,700,100 88,249 5.19
---------- --------
Interest-bearing deposits in other banks....................... 500 50 10.00
---------- --------
Total earning assets.................................. 5,478,000 406,910 7.43
--------
Cash and due from banks........................................... 196,500
Bank premises and equipment, net.................................. 74,000
Other assets...................................................... 147,300
Less: allowance for loan losses................................... (94,200)
----------
Total assets.......................................... $5,801,600
==========
Interest-bearing liabilities
Deposits:
Savings deposits............................................ $2,410,400 65,488 2.72
Certificates of deposit and other time deposits--
less than $100,000....................................... 1,052,100 46,261 4.40
Certificates of deposit--$100,000 and over.................. 339,900 14,448 4.25
---------- --------
Total interest-bearing deposits....................... 3,802,400 126,197 3.32
Short-term borrowings.......................................... 314,400 12,111 3.85
Long-term debt................................................. 31,900 2,125 6.66
---------- --------
Total interest-bearing funds.......................... 4,148,700 140,433 3.39
--------
Noninterest-bearing deposits...................................... 890,100
Other liabilities and accrued expenses............................ 58,400
----------
Total liabilities..................................... 5,097,200
Stockholders' equity.............................................. 704,400
----------
Total liabilities and stockholders' equity............ $5,801,600
==========
Net interest income............................................... $266,477
========
Net interest rate spread.......................................... 4.04%
Effect of noninterest-bearing funds............................... .82
----
Net interest margin on earning assets............................. 4.86%
====
Taxable-equivalent adjustment included in:
Loan income.................................................... $ 3,038
Investment securities income................................... 483
--------
Total................................................. $ 3,521
========
</TABLE>
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 9
<PAGE>
RATE/VOLUME ANALYSIS
A rate/volume analysis, which demonstrates changes in taxable equivalent
interest income and expense for significant assets and liabilities, appears
below:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1996 vs. 1995 1995 vs. 1994
Due to variances in Due to variances in
------------------------------- -------------------------------
(Dollars in thousands) Rates Volumes Total Rates Volumes Total
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans:
Commercial (1)................................. $(6,499) $ 8,459 $ 1,960 $19,211 $ 9,574 $28,785
Mortgage & construction (2).................... (2,004) 22,033 20,029 15,260 15,553 30,813
Consumer....................................... (1,471) 489 (982) 4,449 1,344 5,793
------- ------- ------- ------- ------- -------
Total loans.............................. (9,974) 30,981 21,007 38,920 26,471 65,391
Taxable securities (3)............................... 5,737 4,377 10,114 4,446 (9,506) (5,060)
Tax-exempt securities (3)............................ (24) 93 69 (6) (47) (53)
Federal funds sold/repos............................. (358) 165 (193) 1,466 2,768 4,234
Interest-bearing deposits in other banks............. 3 3 (6) (40) (46)
------- ------- ------- ------- ------- -------
Total interest income.................... (4,616) 35,616 31,000 44,820 19,646 64,466
Interest paid on: ------- ------- ------- ------- ------- -------
Savings deposits.................................. (6,972) 427 (6,545) 4,955 (5,711) (756)
Certificates of deposit and other time deposits
less than $100,000............................. (622) 9,967 9,345 15,862 7,734 23,596
Certificates of deposit--$100,000 and over......... 785 3,622 4,407 5,610 8,909 14,519
Short-term borrowings............................. (1,570) 646 (924) 4,302 (1,290) 3,012
Long-term debt.................................... 30 758 788 (51) (266) (317)
------- ------- ------- ------- ------- -------
Total interest expense................... (8,349) 15,420 7,071 30,678 9,376 40,054
------- ------- ------- ------- ------- -------
Net interest earned.................................. $ 3,733 $20,196 $23,929 $14,142 $10,270 $24,412
======= ======= ======= ======= ======= =======
</TABLE>
(1) Tax equivalent adjustments of $1,569,000 for 1996, $1,328,000 for 1995 and
$961,000 for 1994 are included in the calculation of commercial loan rate
variances.
(2) Tax equivalent adjustments of $2,161,000 for 1996, $2,307,000 for 1995 and
$2,077,000 for 1994 are included in the calculation of mortgage and
construction loan rate variances.
(3) Tax equivalent adjustments of $507,000 for 1996, $466,000 for 1995 and
$483,000 for 1994 are included in the calculation of investment securities
rate variances.
NONINTEREST INCOME
A schedule of noninterest income over the past three years is presented below:
<TABLE>
<CAPTION>
Year Ended December 31, % Change
------------------------------------------ -------------------------
(Dollars in thousands) 1996 1995 1994 1996/1995 1995/1994
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust division services............................. $46,244 $44,273 $43,360 4.5% 2.1%
Service charges on deposit accounts................. 16,234 15,764 15,655 3.0 .7
Other fees ......................................... 24,178 19,975 21,342 21.0 (6.4)
Investment securities gains and (losses)............ 74 (1,715) (1,399) (22.6)
Other income........................................ 2,698 2,609 5,849 3.4 (55.4)
------- ------- -------
Total................................... $89,428 $80,906 $84,807 10.5% (4.6)%
======= ======= ======= ==== =====
</TABLE>
NONINTEREST EXPENSES
A schedule of noninterest expenses over the past three years is presented below:
<TABLE>
<CAPTION>
Year Ended December 31, % Change
------------------------------------------ -------------------------
(Dollars in thousands) 1996 1995 1994 1996/1995 1995/1994
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits...................... $120,783 $117,512 $110,870 2.8% 6.0%
Net occupancy expense of bank premises.............. 11,846 11,106 10,871 6.7 2.2
Furniture and equipment expenses.................... 17,645 16,893 13,977 4.5 20.9
Communications and supplies......................... 10,809 9,778 9,182 10.5 6.5
FDIC insurance premium expense...................... 288 6,346 10,911 (95.5) (41.8)
Other expenses...................................... 37,044 32,062 38,010 15.5 (15.6)
-------- -------- --------
Total................................... $198,415 $193,697 $193,821 2.4% (.1)%
======== ======== ======== ===== =====
</TABLE>
10 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
Noninterest Income
Total noninterest income, including investment securities gains or losses, was
$89,428,000 in 1996, $8,522,000 or 10.5% above 1995, which was $3,901,000 or
4.6% below 1994. The decrease in other income for 1995 was due primarily to a
non-recurring gain of $3,137,000 on the sale of an asset in 1994.
Revenues from trust services represents the largest source of noninterest
income and amounted to $46,244,000 for 1996, an increase of 4.5% or $1,971,000
over 1995. Revenues of $44,273,000 for 1995 represented an increase of $913,000
or 2.1% over 1994. At December 31, 1996, assets under administration were $27
billion, of which Mercshares had investment management responsibility for $11
billion. Net income after the provision for income taxes for the Trust Division
of Mercantile-Safe Deposit & Trust Company, Mercshares' affiliate through which
trust and investment management services are provided, was $11,063,000 in 1996
compared to $10,412,000 and $10,772,000 in 1995 and 1994, respectively.
Other fees increased by $4,203,000 or 21.0% to $24,178,000 for 1996. During
1995, other fees had declined by $1,367,000 or 6.4% to $19,975,000 from
$21,342,000 in 1994. The most significant factor relative to the change in the
level of other fees income has been mortgage banking fees. Mortgage banking fees
accounted for $1,719,000 or over 40% of the total increase in other fees between
1996 and 1995. Likewise in 1995, a decline in the level of residential mortgage
refinancing contributed to a decline of $2,018,000 or 43% in mortgage banking
fees, which more than offset slight increases in other types of fee income.
Mercshares adopted Statement of Financial Accounting Standards (SFAS) No. 122,
Accounting for Mortgage Servicing Rights in 1996. The adoption of this SFAS did
not have a material effect on the financial statements of Mercshares.
Investment securities gains and (losses) was the only other category of
noninterest income to reflect a significant change in 1996, as compared to the
prior year. Net investment securities gains of $74,000 compared favorably to net
investment securities (losses) of $(1,715,000) and $(1,399,000) for 1995 and
1994, respectively.
Noninterest Expenses
Total noninterest expenses were $198,415,000, representing an increase of
$4,718,000 or 2.4% over the prior year's level of $193,697,000. In comparison to
1994, 1995 total noninterest expenses were essentially unchanged. These modest
changes in noninterest expenses are reflective of management's continuous focus
on expense control and the efficiency of operations. A key measure that
management monitors is the overall efficiency ratio of Mercshares, computed by
dividing noninterest expenses by the sum of interest income on a taxable
equivalent basis and noninterest income. Mercshares' efficiency ratio was 49.0%,
52.4% and 54.7% for each of the years ended December 31, 1996, 1995, and 1994,
respectively. A ratio of 50.0% or less is regarded as outstanding within the
industry. For the purposes of this calculation the provision for loan losses and
significant non-recurring income and expenses, such as securities gains and
losses, are excluded.
Salaries and employee benefits totaled $120,783,000 in 1996, $3,271,000 or
2.8% over the $117,512,000 expense level for 1995. The Sparks affiliation
accounted for $2,273,000 or 69% of this increase. The combined salaries and
employee benefits expenses for 1995 were up $6,642,000 or 6.0% over the
$110,870,000 reported for 1994. Salaries and wages increased in 1996 by
$4,607,000 or 5.0% over 1995 which, in turn, were up $5,990,000 or 6.9% over
1994's expense level. Mercshares' staffing level on a full time equivalent basis
was 2,813 at December 31, 1996, relatively unchanged from 2,810 at December 31,
1995, which was down from 2,845 at December 31, 1994. Employee benefits expense
declined by $1,336,000 or 5.4% during 1996. This decline from the prior year is
largely attributable to the expenses associated with Mercshares' Omnibus Stock
Plan. Mercshares adopted the cost recognition provisions of SFAS No. 123,
Accounting for Stock-Based Compensation in 1995. Benefit expense related to this
Plan amounted to $1,114,000 in 1996, as com-
[Bar graph appears here]
Presented below is the table of data points used to prepare a bar graph
depicting the annual sources of revenues for Mercantile Bankshares Corporation
from 1992 to 1996:
SOURCES OF INCOME
(Dollars in millions)
1992 1993 1994 1995 1996
Interest and fees on loans......... 60% 63% 65% 69% 68%
Other interest and dividend income. 20% 19% 18% 16% 17%
Trust division..................... 8% 9% 9% 8% 8%
Other income....................... 12% 9% 8% 7% 7%
Total.............................. 100% 100% 100% 100% 100%
Total of all sources of income..... $496.4 $466.6 $488.2 $548.2 $587.6
USES OF INCOME
(Dollars in millions)
[Bar graph appears here]
Presented below is the table of data points used to prepare a bar graph
depicting the annual uses of income for Mercantile Bankshares Corporation
from 1992 to 1996:
USES OF INCOME
(Dollars in millions)
1992 1993 1994 1995 1996
Interest expense................... 34% 30% 29% 33% 32%
Provision for loan losses.......... 9% 3% 1% 1% 2%
Salaries and employee benefits..... 19% 23% 23% 22% 21%
Other expenses..................... 14% 15% 17% 14% 13%
Applicable income taxes............ 9% 11% 12% 11% 12%
Net income......................... 15% 18% 18% 19% 20%
Total.............................. 100% 100% 100% 100% 100%
Total of all uses of income........ $496.4 $466.6 $488.2 $548.2 $587.6
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 11
<PAGE>
pared to $2,106,000 for 1995. The increase in employee benefits expense in 1995,
as compared to 1994, was related to the adoption of SFAS No. 123. See Footnote
No. 13 to the financial statements for further information.
Net occupancy expense increased $740,000 or 6.7% during 1996 to $11,846,000.
The Sparks affiliation, which added 5 branches to the Mercshares system,
accounted for 43% of the total increase. Net occupancy expense remained
relatively unchanged between 1995 and 1994. Prior year data has been restated to
reflect occupancy expense net of third party rentals, which is the presentation
most commonly followed within the industry. Such rental income amounted to
$7,283,000, $7,248,000 and $7,379,000 for each of the years ended December 31,
1996, 1995, and 1994, respectively. Total furniture and equipment expenses were
$17,645,000, up slightly from 1995 expenses of $16,893,000. In comparison, 1995
expenses were up $2,916,000 or 20.9% over the $13,977,000 reported for 1994. The
primary reason for the increase in 1995 was the start of "Project Add Value," a
comprehensive upgrade of the data processing system supporting Mercshares'
banking operations. Among the benefits to be obtained from this project is the
solution to the challenge the banking industry faces with the much publicized
year 2000 issue. Actual conversion to the new system is scheduled to occur
during 1997. Through the two year period ended December 31, 1996, the external
costs incurred relative to this project amounted to approximately $5 million,
the most significant component of which related to the furniture and equipment
expense category.
During the two year period ended December 31, 1996, the Federal Deposit
Insurance Corporation (FDIC) significantly lowered its deposit insurance
premiums for well capitalized banks. As a result, insurance premiums paid by
Mercshares' bank affiliates to the FDIC declined substantially. Such a decrease
amounted to $6,058,000 in 1996 and $4,565,000 in 1995. It is possible that this
trend will reverse itself in future years.
Other expenses for 1996 totaled $37,044,000, representing an increase of
$4,982,000 or 15.5% from the $32,062,000 for 1995. Conversely, other expenses
for 1995 decreased $5,948,000 or 15.6% from the $38,010,000 for 1994. Other
expenses include foreclosed property related expenses. Total foreclosed property
expenses were minimal in 1996 compared to the net recovery of $1,911,000 in
1995. This change accounted for over 44% of the increase in other expenses
between the two years. The net recovery in 1995 was the result of the sale of
foreclosed property. With the decreased level of non-performing assets that has
occurred over the three year period ended December 31, 1996, costs associated
with carrying and liquidating non-performing assets (such as writedowns,
professional fees and operating expenses of foreclosed properties) have also
declined. Total foreclosed property related expenses amounted to $6,551,000 for
1994. The largest of these costs, the provision for decline in market value of
other real estate owned, declined steadily over the three year period amounting
to $230,000 for 1996, $1,401,000 in 1995 and $5,945,000 in 1994. The balance of
the increase in other expenses is primarily attributable to increased
amortization of intangibles resulting from the Sparks affiliation and increased
professional fees related to "Project Add Value."
III. ANALYSIS OF FINANCIAL CONDITION
Investment Securities
Mercshares' investment securities portfolio is structured to serve as a source
of liquidity and a key component in the overall management of interest rate
risk. In November 1995, the FASB released a special report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities." This report allowed institutions to reconsider the
designations of their securities portfolio and to redesignate securities between
held-to-maturity and available-for-sale categories. In keeping with the intended
purpose of the portfolio, all U.S. Treasury securities and certain other
investments were reclassified as available-for-sale during the fourth quarter of
1995.
At December 31, 1996, the total investment securities portfolio was
$1,622,966,000, reflecting an increase of $50,712,000 or 3.2% above the prior
year's $1,572,254,000. As in the past, the
12 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
BOND INVESTMENT PORTFOLIO
The following summary shows the maturity distribution, average maturity and
average yields for the bond investment portfolio at December 31, 1996, 1995 and
1994.
<TABLE>
<CAPTION>
DECEMBER 31, 1996 December 31, 1995
-------------------------------------- ----------------------------------------
Tax Tax
Equivalent Equivalent
Amortized Market Yield To Amortized Market Yield To
(Dollars in thousands) Cost Value Maturity Cost Value Maturity
- - -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities held-to-maturity
U.S. Treasury and other
U.S. government agencies:
Within 1 year.................
1-5 years.....................
5-10 years....................
After 10 years................
Total.......................
Average maturity (years)....
States and political subdivisions:
Within 1 year................. $ 2,904 $ 2,915 7.63% $ 1,593 $ 1,592 6.78%
1-5 years..................... 10,240 10,306 7.40 12,465 12,564 7.48
5-10 years.................... 407 421 8.73 1,175 1,197 7.88
After 10 years................
---------- ---------- ---------- ----------
Total....................... $ 13,551 $ 13,642 7.49% $ 15,233 $ 15,353 7.44%
========== ========== ==== ========== ========== =====
Average maturity (years).... 2.2 2.9
=== ===
Other bonds, notes and debentures:
Within 1 year.................
1-5 years.....................
5-10 years....................
After 10 years................ $ 7 $ 7 9.05% $ 6 $ 6 9.06%
---------- ---------- ---------- ----------
Total....................... $ 7 $ 7 9.05% $ 6 $ 6 9.06%
========== ========== ==== ========== ========== =====
Average maturity (years).... 20.8 21.8
==== ====
Totals:
Within 1 year................. $ 2,904 $ 2,915 7.63% $ 1,593 $ 1,592 6.78%
1-5 years..................... 10,240 10,306 7.40 12,465 12,564 7.48
5-10 years.................... 407 421 8.73 1,175 1,197 7.88
After 10 years................ 7 7 9.05 6 6 9.06
---------- ---------- ---------- ----------
Total ...................... $ 13,558 $ 13,649 7.49% $ 15,239 $ 15,359 7.45%
========== ========== ==== ========== ========== =====
Average maturity (years).... 2.3 3.0
=== ===
Securities available-for-sale
U.S. Treasury and other
U.S. government agencies:
Within 1 year................. $ 516,940 $ 517,209 5.82% $ 684,269 $ 685,346 5.42%
1-5 years..................... 1,066,351 1,064,308 5.95 839,428 850,072 5.89
5-10 years....................
After 10 years................
---------- ---------- ---------- ----------
Total....................... $1,583,291 $1,581,517 5.91% $1,523,697 $1,535,418 5.68%
========== ========== ==== ========== ========== =====
Average maturity (years).... 1.8 1.4
=== ===
States and political subdivisions:
After 10 years................ $ 35 $ 36 11.92% $ 45 $ 45 11.92%
---------- ---------- ---------- ----------
Total....................... $ 35 $ 36 11.92% $ 45 $ 45 11.92%
========== ========== ===== ========== ========== =====
Average maturity (years).... 19.5 20.5
==== ====
Other bonds, notes and debentures:
Within 1 year................. $ 573 $ 574 6.35% $ 900 $ 899 6.89%
1-5 years..................... 1,998 1,953 6.04 3,087 3,069 5.71
5-10 years.................... 3,156 3,119 5.85 2,304 2,277 5.21
After 10 years................ 1,989 1,980 6.63 3,512 3,488 6.09
---------- ---------- ---------- ----------
Total....................... $ 7,716 $ 7,626 6.14% $ 9,803 $ 9,733 5.84%
========== ========== ==== ========== ========== =====
Average maturity (years).... 6.8 6.8
=== ===
Totals:
Within 1 year................. $ 517,513 $ 517,783 5.82% $ 685,169 $ 686,245 5.42%
1-5 years..................... 1,068,349 1,066,261 5.95 842,515 853,141 5.89
5-10 years.................... 3,156 3,119 5.85 2,304 2,277 5.21
After 10 years................ 2,024 2,016 6.72 3,557 3,533 6.16
---------- ---------- ---------- ----------
Total....................... $1,591,042 $1,589,179 5.91% $1,533,545 $1,545,196 5.68%
========== ========== ==== ========== ========== ====
Average maturity (years).... 1.9 1.4
=== ===
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994
-----------------------------------------
Tax
Equivalent
Amortized Market Yield To
(Dollars in thousands) Cost Value Maturity
- - -------------------------------------------------------------------------------
<S> <C> <C> <C>
Securities held-to-maturity
U.S. Treasury and other
U.S. government agencies:
Within 1 year................. $ 209,330 $ 207,073 5.20%
1-5 years..................... 1,035,085 997,072 5.60
5-10 years.................... 6,214 5,786 6.44
After 10 years................ 885 868 7.45
---------- ----------
Total....................... $1,251,514 $1,210,799 5.53%
========== ========== =====
Average maturity (years).... 1.5
===
States and political subdivisions:
Within 1 year................. $ 616 $ 615 8.31%
1-5 years..................... 10,767 10,381 7.52
5-10 years.................... 2,143 2,003 7.76
After 10 years................ 55 55 11.92
---------- ----------
Total....................... $ 13,581 $ 13,054 7.59%
========== ========== =====
Average maturity (years).... 3.7
===
Other bonds, notes and debentures:
Within 1 year................. $ 1,800 $ 1,796 7.06%
1-5 years..................... 1,398 1,354 6.74
5-10 years....................
After 10 years................ 6 6 9.06
---------- ----------
Total....................... $ 3,204 $ 3,156 6.93%
========== ========== =====
Average maturity (years).... 1.6
===
Totals:
Within 1 year................. $ 211,746 $ 209,484 5.23%
1-5 years..................... 1,047,250 1,008,807 5.61
5-10 years.................... 8,357 7,789 6.45
After 10 years................ 946 929 7.72
---------- ----------
Total ...................... $1,268,299 $1,227,009 5.56%
========== ========== =====
Average maturity (years).... 1.5
===
Securities available-for-sale
U.S. Treasury and other
U.S. government agencies:
Within 1 year................. $ 269,092 $ 265,167 4.12%
1-5 years..................... 65,094 63,048 5.47
5-10 years.................... 1,500 1,337 5.30
After 10 years................
---------- ----------
Total....................... $ 335,686 $ 329,552 4.39%
========== ========== =====
Average maturity (years).... .6
===
States and political subdivisions:
After 10 years................
Total.......................
Average maturity (years)....
Other bonds, notes and debentures:
Within 1 year.................
1-5 years.....................
5-10 years....................
After 10 years................ $ 9 $ 9 6.41%
---------- ----------
Total....................... $ 9 $ 9 6.41%
========== ========== ====
Average maturity (years).... 18.8
====
Totals:
Within 1 year................. $ 269,092 $ 265,167 4.13%
1-5 years..................... 65,094 63,048 5.47
5-10 years.................... 1,500 1,337 5.30
After 10 years................ 9 9 6.41
---------- ----------
Total....................... $ 335,695 $ 329,561 4.39%
========== ========== =====
Average maturity (years).... .6
===
</TABLE>
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 13
<PAGE>
portfolio is almost exclusively comprised of short and intermediate term U.S.
Treasury securities and, accordingly, over 98% of the total investment portfolio
is classified as available-for-sale. At year end 1996, the average maturity of
the bond component of the available-for-sale portfolio was 1.9 years,
representing a slight lengthening from 1.4 years at December 31, 1995. The
market value of the bond investment portfolio as of December 31, 1996, was 99.9%
of adjusted cost compared to 100.8% at December 31, 1995. At December 31, 1996,
$747,011,000 of these investments had unrealized gains of $4,021,000 and the
remaining $857,589,000 of these investment securities had unrealized losses of
$5,793,000. More information on the investment portfolio is shown in the table
on page 13 and in Footnote No. 2 to the financial statements.
Loans
Continuing the trend of the prior two years, average total loans increased by
$332,200,000 or 8.1% to $4,411,500,000 for the year ended December 31, 1996. As
previously noted, almost a third of this growth is attributable to the Sparks
affiliation.
During 1996, average loans increased in all three categories: commercial
(including industrial, financial and agricultural); real estate loans
(residential and commercial mortgages and construction loans); and consumer.
Average commercial loans grew 6.5% in 1996 to an average balance of
$1,438,900,000, which was down from the 9.4% growth rate in 1995. Real estate
loans grew 10.7% to an average balance of $2,484,500,000 in 1996, representing
an increase from the 8.9% growth rate reported in 1995. Growth in both the
commercial and real estate loan portfolios has resulted from, among other
things, increased business opportunities due to the banking acquisitions and
consolidations occurring within Mercshares' market area and is not a result of
relaxation of the Company's historically sound underwriting standards.
Reflective of management's decision not to compete in the mass market consumer
lending arena, consumer loans continued the trend of modest growth.
While on average the real estate loan portfolio represented over 56% of the
average total loan portfolio, a large portion of this portfolio consists of
loans to individuals on their residences. At December 31, 1996, 38% of total
real estate loans were one to four family residential mortgages and 5% were home
equity loans. Commercial mortgages made up 42% and construction loans, at 15%,
accounted for the balance of the real estate loan portfolio. These percentages
remained relatively unchanged from the prior year. A large percentage of the
commercial mortgages and construction loan balances outstanding at December 31,
1996, were for owner occupied properties. Ever mindful of the risks associated
with some types of real estate loans, Mercshares believes it is consistent with
sound banking practices to continue to extend real estate credits to carefully
selected customers. Mercshares' historical charge-off experience for real estate
loans, as reflected in the analysis of the allowance for loan losses on page 15,
has been better than the commercial and consumer portfolio charge-off
experience.
For further comparative information on the components of the loan portfolio,
see the Five Year Selected Financial Data table on page 45.
Credit Risk Analysis
Mercshares' loans and commitments are substantially to borrowers located in our
immediate region. We have limited our participation in multi-bank credits where
we are not the managing or agent bank.
Central to the operation of a sound and successful financial institution is
the balanced management of asset growth and credit quality. Responsibility for
loan underwriting and monitoring is clearly fixed on key management personnel in
each of our affiliates and ultimately upon the board of directors of each
affiliate. These responsibilities are supported at the holding company level by
appropriate underwriting guidelines and effective ongoing loan review. In
addition, each affiliate bank has set an internal limit, that is well below the
regulatory maximum, on the maximum amount of credit that may be extended to a
single borrower.
14 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance balance--beginning................................. $ 91,398 $ 91,257 $ 92,567 $ 88,261 $ 65,932
Allowance of acquired bank................................... 2,818 2,803
Charge-offs:
Commercial, financial and agricultural.................... 7,282 7,867 4,262 7,845 21,258
Real estate--construction................................. 325 1,134 2,405 1,258 240
Real estate--mortgage..................................... 712 1,540 2,000 2,491 697
Consumer.................................................. 3,891 2,304 1,862 2,676 3,019
---------- ---------- ---------- ---------- ----------
Totals............................................... 12,210 12,845 10,529 14,270 25,214
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial, financial and agricultural.................... 1,666 917 729 1,500 637
Real estate--construction................................. 4 52 224
Real estate--mortgage..................................... 953 264 185 148 131
Consumer.................................................. 1,241 947 1,025 1,156 1,429
---------- ---------- ---------- ---------- ----------
Totals............................................... 3,864 2,180 2,163 2,804 2,197
---------- ---------- ---------- ---------- ----------
Net charge-offs.............................................. 8,346 10,665 8,366 11,466 23,017
Provision for loan losses.................................... 14,666 7,988 7,056 12,969 45,346
---------- ---------- ---------- ---------- ----------
Allowance balance--ending.................................... $ 97,718 $ 91,398 $ 91,257 $ 92,567 $ 88,261
========== ========== ========== ========== ==========
Average loans outstanding during year........................ $4,411,500 $4,079,300 $3,765,200 $3,647,000 $3,438,000
========== ========== ========== ========== ==========
Percent of net charge-offs to average loans outstanding
during year............................................... .19% .26% .22% .31% .67%
==== ==== ==== ==== ====
Percent of allowance for loan losses at year-end to
average loans............................................. 2.22% 2.24% 2.42% 2.54% 2.57%
==== ==== ==== ==== ====
</TABLE>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The allowance for possible loan losses has been allocated to the various
categories of loans, as required by the Securities and Exchange Commission. This
allocation does not limit the amount of the allowance available to absorb losses
from any type of loan and should not be viewed as an indicator of the specific
amount or specific loan categories in which future charge-offs may ultimately
occur. The tables below present this allocation, along with the percentage
distribution of loan amounts in each category, at the dates shown. For a
historical analysis of the allowance for loan losses, see the paragraph on page
16 for Allowance for Loan Losses.
<TABLE>
<CAPTION>
Allowance amount allocated as of December 31,
-----------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance amount allocated to:
Commercial, financial and agricultural..... $27,200 $25,400 $25,600 $26,200 $24,500
Real estate--construction.................. 11,700 11,000 10,900 11,700 12,000
Real estate--mortgage...................... 5,100 5,200 5,100 5,000 4,400
Consumer................................... 5,200 5,300 5,500 5,600 7,900
Allowance amount not allocated................ 48,518 44,498 44,157 44,067 39,461
------- ------- ------- ------- -------
Total................................... $97,718 $91,398 $91,257 $92,567 $88,261
======= ======= ======= ======= =======
</TABLE>
COMPOSITION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
December 31,
-------------------------------------------------------------------
1996 1995 1994 1993 1992
- - ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural........ 32.9% 32.4% 33.3% 33.3% 32.3%
Real estate--construction...................... 8.3 8.5 8.1 8.6 9.1
Real estate--mortgage.......................... 48.6 48.0 46.5 45.6 44.4
Consumer...................................... 10.2 11.1 12.1 12.5 14.2
----- ----- ----- ----- -----
Total................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 15
<PAGE>
[Chart appears here]
Presented below is the table of data points used to prepare a line graph
depicting the annual changes in the ratio of year end loan loss allowance
as a % of average loans and the ratio of net charge-offs as a % of average
loans of Mercantile Bankshares Corporation from 1992 to 1996:
ALLOWANCE AS A % OF AVERAGE LOANS;
CHARGE-OFFS (Net of Recoveries)
AS A % OF AVERAGE LOANS
1992 1993 1994 1995 1996
Loan loss allowance as a % of
average loans..................... 2.57% 2.54% 2.42% 2.24% 2.22%
Net charge-offs as a % of
average loans..................... .67% .31% .22% .26% .19%
Allowance for Loan Losses
Each Mercshares affiliate is required to maintain an adequate allowance for loan
losses and Corporate management and the boards of directors maintain a regular
overview to assure that adequacy. Periodic examinations of significant credit
exposures, non-accrual and other non-performing assets and various statistical
measurements of asset quality are conducted to assure the adequacy of the
allowance for loan losses.
The allowance for loan losses, as a percentage of average loans, was 2.22%
at December 31, 1996, virtually unchanged from the percentage at December 31,
1995. The percentage at December 31, 1994 was 2.42%. However, due to continued
reductions in the level of non-performing loans, the allowance for loan losses
as a percentage of non-performing loans was 478% at December 31, 1996, up from
430% at December 31, 1995 and 271% at December 31, 1994.
During 1996, the provision for loan loss expense increased to $14,666,000
from the 1995 expense incurred of $7,988,000. Management's decision to increase
the provision was influenced by, among other factors, the growth in the
commercial, mortgage and construction loan portfolios. The 1995 provision was up
slightly from the 1994 provision of $7,056,000.
Net charge-offs declined to $8,346,000 during 1996 from a total of
$10,665,000 in 1995, which in turn were up from $8,366,000 in 1994. Net
charge-offs as a percentage of average loans were .19%, .26% and .22% for the
years ended December 31, 1996, 1995 and 1994, respectively. Intensive collection
efforts continue after a loan is charged off in order to maximize the recovery
of amounts previously charged off. Recoveries as a percentage of loans charged
off were 32% in 1996, 17% in 1995 and 21% in 1994. Recoveries in a given year
may not relate to loans charged off in that year. Further details related to the
allowance for loan losses are shown in the tables on page 15 and in Footnote
No. 3 to the financial statements.
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, our 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 judgment, such action is warranted.
Non-performing assets, as a percentage of period end loans and other real
estate owned, improved to .52% at December 31, 1996, from .56% and 1.11% in the
two preceding years. At year end 1996, non-performing assets were $23,773,000
compared with $24,093,000 and $43,813,000 in 1995 and 1994, respectively.
Non-performing assets reached their peak in the third quarter of 1992 and have
steadily decreased since that time.
Non-performing loans decreased slightly to $20,457,000 at December 31, 1996,
compared with $21,235,000 one year earlier. Mercshares did not have any
renegotiated loans outstanding during or at the close of either of these years.
Other real estate owned had increased by $458,000 to $3,316,000 at December 31,
1996. At December 31, 1995, other real estate owned decreased 71.9% to
$2,858,000 from $10,165,000 one year earlier. This decrease was primarily
attributable to the sale of a foreclosed property (other real estate owned) and
to charges of $1,401,000 for reserves against the carrying value of other real
estate owned.
Attention is directed to the data in Non-Performing Assets on page 17 which
shows the changes in the amounts of various categories of non-performing assets
over the last five years and sets forth the relationship between non-performing
loans and total loans and total allowance for loan losses.
16 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
NON-PERFORMING ASSETS
A five-year comparison of non-performing assets is presented below:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994 1993 1992
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans (1)......................... $20,457 $21,235 $33,645 $66,063 $70,602
Renegotiated loans (1)........................ 3 3,105
Loans contractually past due 90 days or more
and still accruing interest................
------- ------- ------- ------- -------
Total non-performing loans................. 20,457 21,235 33,648 66,063 73,707
Other real estate owned....................... 3,316 2,858 10,165 22,658 20,460
------- ------- ------- ------- -------
Total non-performing assets................ $23,773 $24,093 $43,813 $88,721 $94,167
======= ======= ======= ======= =======
Non-performing loans as a percentage of
period end loans........................... .45% .49% .85% 1.78% 2.11%
Non-performing assets as a percentage of
period end loans and other real estate
owned...................................... .52% .56% 1.11% 2.37% 2.68%
Allowance for loan losses as a percentage
of non-performing loans.................... 477.68% 430.41% 271.21% 140.12% 119.75%
</TABLE>
(1) Total interest on these loans is not considered to be material in any of the
years reported herein. Aggregate gross interest income of $1,982,000 and
$1,946,000 in 1996 and 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 totaled $875,000 and $1,086,000 in 1996
and 1995, respectively.
Note: As of December 31, 1996, the Corporation was monitoring loans estimated to
aggregate $4,645,000 not currently classified as non-accrual or renegotiated
loans. These loans have characteristics which indicate they may result in such
classification in the future.
Sources of Funds
Mercshares' primary source of funding comes from deposits gathered by the 164
branches of its affiliate banks. Average total deposits were $5,218,300,000
representing an increase of $351,700,000 or 7.2% over the prior year average of
$4,866,600,000. The Sparks affiliation accounted for $141,200,000 or 40.1% of
the 1996 growth in average total deposits. Average total deposits for 1994
amounted to $4,692,500,000. For the year ended December 31, 1996, 85.6% of the
funding for average earning assets was derived from deposits. This ratio is
comparable to the ratio of 85.7% for both 1995 and 1994.
Strong growth for 1996 was recorded in the noninterest-bearing deposit
category. Averaging $982,200,000 for the year and representing 18.8% of average
total deposits, this key source of funds grew by 10.5% over the prior year's
average. The average for 1995 was down slightly from the 1994 average, with
these funds representing 18.3% of total average deposits. The company continues
to focus on its cash management services to its commercial customers in order to
maintain and expand this key source of funding.
Total interest-bearing deposits grew on average by a more modest 6.5% or
$258,400,000. Average interest-bearing deposits amounted to $4,236,100,000, up
from the 1995 average of $3,977,700,000. The average for 1995 represented an
increase of 4.6% over 1994's average of $3,802,400,000. With a decline in
interest rates paid on savings deposits, which averaged $2,214,700,000 for 1996,
growth in this category was minimal. Savings deposits are comprised of checking
plus interest, money market and savings accounts. However, this growth did
reflect a reversal of the outflow from this funding source which occurred during
1995. In comparison, the average for 1995 of $2,200,200,000 represented a
decrease of $210,200,000 or 8.7% from the 1994 average balance of
$2,410,400,000.
Certificates of deposit and other time deposits have increased steadily over
the past two years as depositors have shifted to this deposit category in order
to maintain their return on funds. Averaging $2,021,400,000 for the year ended
December 31, 1996, certificates of
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 17
<PAGE>
COMPOSITION OF EARNING ASSETS
<TABLE>
<CAPTION>
Average Balances
--------------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994
- - --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Loans....................... $4,411,500 72.4% $4,079,300 71.8% $3,765,200 68.7%
Investment securities*...... 1,597,000 26.2 1,515,700 26.7 1,700,600 31.1
Federal funds sold.......... 80,300 1.3 62,700 1.1 12,200 .2
Securities purchased under
resale agreements........ 5,300 .1 20,000 .4
---------- ----- ---------- ----- ---------- -----
Total............... $6,094,100 100.0% $5,677,700 100.0% $5,478,000 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
<TABLE>
<CAPTION>
---------------------------------------------
(Dollars in thousands) 1993 1992
- - ----------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans....................... $3,647,000 68.7% $3,438,000 69.6%
Investment securities*...... 1,612,200 30.3 1,449,600 29.3
Federal funds sold.......... 37,600 .7 42,400 .9
Securities purchased under
resale agreements........ 15,700 .3 8,700 .2
---------- ----- ---------- -----
Total............... $5,312,500 100.0% $4,938,700 100.0%
========== ===== ========== =====
</TABLE>
*Includes interest-bearing deposits in other banks.
DEPOSIT MIX
<TABLE>
<CAPTION>
Average Balances
---------------------------------------------------------------
(Dollars in thousands) 1996 1995 1994
- - -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing deposits.. $ 982,200 18.8% $ 888,900 18.3% $ 890,100 19.0%
Interest-bearing deposits:
Savings, checking plus
interest................. 1,451,000 27.8 1,421,000 29.2 1,577,100 33.6
Money market............... 763,700 14.6 779,200 16.0 833,300 17.8
CDs and other time deposits
less than $100,000....... 1,403,200 26.9 1,228,000 25.2 1,052,100 22.4
CDs $100,000
and over................. 618,200 11.9 549,500 11.3 339,900 7.2
---------- ----- ---------- ----- ---------- -----
Total................. $5,218,300 100.0% $4,866,600 100.0% $4,692,500 100.0%
========== ===== ========== ===== ========== =====
</TABLE>
<TABLE>
<CAPTION>
----------------------------------------
(Dollars in thousands) 1993 1992
- - ------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Noninterest-bearing deposits.. $ 845,500 18.3% $ 746,200 17.4%
Interest-bearing deposits:
Savings, checking plus
interest................. 1,505,000 32.5 1,178,100 27.4
Money market............... 885,600 19.1 847,100 19.7
CDs and other time deposits
less than $100,000....... 1,086,600 23.5 1,201,300 27.9
CDs $100,000
and over................. 302,500 6.6 327,000 7.6
---------- ----- ---------- -----
Total................. $4,625,200 100.0% $4,299,700 100.0%
========== ===== ========== =====
</TABLE>
LOAN MATURITY SCHEDULE
The following table illustrates loan diversity by maturity distribution for
commercial, financial and agricultural and real estate--construction loans as of
December 31, 1996.
<TABLE>
<CAPTION>
Maturing
------------------------------------------------------------------------------
Over 1
1 year through Over 5
(Dollars in thousands) or less 5 years years Total
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural.......... $538,552 $562,599 $405,511 $1,506,662
Real estate--construction........................ 125,048 192,236 62,723 380,007
-------- -------- -------- ----------
Total................................... $663,600 $754,835 $468,234 $1,886,669
======== ======== ======== ==========
</TABLE>
Of the $1,223,069,000 loans maturing after one year, $367,181,000 or 30% have
predetermined interest rates and $855,888,000 or 70% have floating interest
rates.
18 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
deposit grew by 13.7% from the average of $1,777,500,000 for 1995. The 1995
average was up 27.7% over the 1994 average of $1,392,000,000, reflecting the
shift by depositors out of noninterest-bearing and savings deposit accounts into
the higher rate interest-bearing accounts. Certificates of deposit -- $100,000
and over averaged $618,200,000, $549,500,000 and $339,900,000 for the years
ended December 31, 1996, 1995 and 1994, respectively. While growth in this
category remained strong at 12.5%, such growth was down significantly from the
61.7% growth recorded during 1995.
Due to the fact that Mercshares' overall growth in average deposits was more
than adequate to fund its growth in average total loans, average short-term
borrowings remained relatively unchanged. Such funds averaged $292,900,000, an
increase of $12,000,000 over the prior year's average of $280,900,000. The 1994
average balance for this source of funds was $314,400,000.
Another key source of funding is stockholders' equity. Mercshares has
consistently maintained a level that is greater than its peers as reported in
data furnished by our regulators. Averaging $810,500,000 in 1996, total
stockholders' equity increased by 7.6% over 1995's average of $753,500,000. With
the growth in average total assets for 1996 being 7.3%, the company was able to
maintain its ratio of average total stockholders' equity to overall average
total assets at 12.6% for both 1996 and 1995. For a more in-depth discussion of
stockholders' equity and capital adequacy, see page 21 of Management's
Discussion and Footnote No. 9 to the financial statements.
Asset/Liability and Liquidity Management
Asset/liability management involves the funding and investment strategies
necessary to maintain an appropriate balance between interest sensitive assets
and liabilities. It also involves providing adequate liquidity while sustaining
stable growth in net interest income. Regular review and analysis of deposit and
loan trends, cash flows in various categories of loans and monitoring of
interest spread relationships are vital to this process.
Mercshares seeks to contain the risks associated with interest rate
fluctuations by managing the balance between interest sensitive assets and
liabilities. Managing to mitigate interest rate risk is, however, an inexact
science. Not only does the interval until repricing of interest rates of assets
and liabilities change from day to day as the assets and liabilities change but,
for some assets and liabilities, contractual maturity and the actual maturity
experienced are not the same. For example, residential mortgages may have
contractual maturities well in excess of five years but, depending upon the
interest rate carried by the specific mortgages and the then currently
prevailing rate of interest, such mortgages may be prepaid much more rapidly.
Similarly, demand deposits by contract may be withdrawn in their entirety upon
demand and savings deposits may be withdrawn on seven days notice. While these
contracts are extremely short, it has been Mercshares' experience that these
pools of funds, when considered as a whole, have a multi-year duration. As seen
in the Interest Rate Sensitivity Analysis on page 20, asset sensitivity
indicates that, given the composition of assets and liabilities at December 31,
1996, more interest-earning assets than interest-bearing liabilities are subject
to repricing within the next 12 months. The data in this table suggests that net
interest income should tend to increase somewhat in a rising interest rate
environment and decrease in a declining rate environment.
At times, our efforts to mitigate our exposure to changes in interest rates
have resulted in loan pricing policies that have not coincided with our
commercial customers' preferences. As a result, during 1995, our lead bank,
Mercantile-Safe Deposit & Trust Company (MSD&T), entered into a master agreement
with another leading financial institution for the purpose of making interest
rate swap and similar interest rate protection arrangements in connection with
commercial loans made to MSD&T's
[Bar graph appears here]
Presented below is the table of data points used to prepare a bar graph
depicting the composition of average total loans of Mercantile Bankshares
Corporation from 1992 to 1996:
LOAN COMPOSITION AND GROWTH
Average Loans (Dollars in millions)
5 Year Compound Growth Rate: 5.9%
1992 1993 1994 1995 1996
Commercial, financial
and agricultural.......... 33% 33% 33% 33% 33%
Real estate - construction
and mortgage.............. 52% 54% 55% 55% 56%
Consumer................... 15% 13% 12% 12% 11%
Total...................... 100% 100% 100% 100% 100%
Total average loans....... $3,438.0 $3,647.0 $3,765.2 $4,079.3 $4,411.5
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 19
<PAGE>
customers to enable its customers to manage the volatility of interest rates and
associated risks. MSD&T will only enter into specific interest rate protection
arrangements under the master agreement with respect to which it has approved a
corresponding credit facility with the customer, and as to which the customer is
entering into a corresponding interest rate protection arrangement with MSD&T.
MSD&T does not anticipate that these arrangements will expose the Corporation to
any risk beyond the normal credit risks undertaken with any lending arrangement.
As of December 31, 1996, no customer had entered into any such arrangement.
Beyond establishing this specific facility, Mercshares has not had to utilize
interest rate swaps or other derivative instruments to manage its overall
interest sensitivity.
The conduct of our banking business requires that we maintain adequate
liquidity to meet changes in composition and volume of assets and liabilities
due to seasonal, cyclical or other reasons. Normally, this requires maintaining
a prospective liquidity sufficient to meet our clients' demand for loans. In
1996, growth of average total deposits exceeded average total loan growth,
contributing to the increase in investment securities. The reverse situation
occurred in 1995. By limiting the maturity and maintaining a conservative
investment posture, management can look to the investment portfolio to help meet
any short-term funding needs. In addition, Mercshares has access to the national
markets for certificates of deposit and commercial paper should it need to
further supplement its liquidity needs.
INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
At December 31, 1996
------------------------------------------------------------------------------------
Over Over Over
3 months 6 months 1 year Non-
Within thru thru thru After sensitive
(Dollars in millions) 3 months 6 months 1 year 5 years 5 years funds Total
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Securities (1)........................ $ 159.9 $151.3 $209.2 $1,078.6 $ 5.6 $ 18.5 $1,623.1
Federal funds/repos................... 27.9 27.9
Loans................................. 2,540.5 124.2 270.8 1,266.6 380.6 4,582.7
Other assets.......................... 409.0 409.0
-------- ------ ------ -------- --------- ------- --------
Total......................... 2,728.3 275.5 480.0 2,345.2 386.2 427.5 6,642.7
-------- ------ ------ -------- --------- ------- --------
LIABILITIES & EQUITY
Money market deposit accounts......... 739.2 739.2
Time deposits......................... 624.9 332.6 369.7 716.9 1.0 2,045.1
Other deposits (2).................... 427.7 2,127.7 2,555.4
Short-term borrowings................. 336.7 336.7
Long-term debt........................ 32.7 16.7 49.4
Other liabilities..................... 80.9 80.9
Stockholders' equity.................. 836.0 836.0
-------- ------ ------ -------- --------- ------- --------
Total......................... 2,128.5 332.6 369.7 749.6 2,145.4 916.9 $6,642.7
-------- ------ ------ -------- --------- ------- --------
Excess................................ $ 599.8 $(57.1) $110.3 $1,595.6 $(1,759.2) $(489.4)
======== ====== ====== ======== ========= =======
Accumulated excess.................... $ 599.8 $542.7 $653.0 $2,248.6 $ 489.4
======== ====== ====== ======== =========
Accumulated excess as a percent
of total........................... 9.0% 8.2% 9.8% 33.9% 7.4%
</TABLE>
(1) Includes interest-bearing deposits in other banks.
(2) Reflects behavior experience which often differs from legal withdrawal
provisions.
20 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
Capital Resources and Adequacy
Maintenance of exceptional capital strength has long been a guiding principle of
Mercshares. Ample capital is necessary to sustain growth, to provide a measure
of protection against unanticipated declines in asset values and to safeguard
the funds of depositors. Capital also provides a source of funds to meet loan
demand and enables the company to manage its assets and liabilities effectively.
Stockholders' equity increased 5.3% to $836,036,000 at year end 1996 from
$793,826,000 at year end 1995 which, in turn, represented a 9.7% increase from
$723,917,000 at year end 1994. These increases are primarily attributable to
growth in earnings. Book value per share was $17.62, $16.44 and $15.05 at
December 31, 1996, 1995 and 1994, respectively. The ratio of average equity to
average assets was 12.6% in 1996 and 1995 and 12.1% in 1994, ranking Mercshares
among the very strongest in the industry each year.
Various bank regulatory agencies have implemented stringent capital
guidelines which are directly related to a bank's risk-based capital ratios. By
regulatory definition, a "well-capitalized" institution, such as Mercshares,
faces fewer regulatory hindrances in its operations than institutions which are
classified at the other end of the spectrum as "critically undercapitalized."
For instance, only "well-capitalized" banks can accept brokered deposits without
regulatory approval in advance. In addition, FDIC deposit insurance premium
rates are significantly lower for banks with higher capital levels, as compared
to poorly capitalized banks. The risk-based capital ratios graph on this page
shows that Mercshares has maintained capital levels well in excess of the
regulatory minimum over each of the last five years. For a further discussion of
the regulatory capital requirements which apply to Mercshares see Footnote No. 9
which begins on page 35.
Bank regulatory agencies also impose certain restrictions on the payment of
dividends, extensions of credit and transfer of assets from subsidiaries to bank
holding companies. Historically, these restrictions have not limited dividend
payments at Mercshares and it is not anticipated that they will have a
constraining effect in the future. In addition to dividend restrictions, capital
requirements are also affected by off-balance sheet risks. These include such
items as letters of credit and commitments to extend credit. Refer to Footnote
No. 8 on page 35 for information regarding Mercshares' commitments.
While maintaining exceptional capital strength and financing growth of the
company, Mercshares has also been pursuing a share repurchase program. In
December 1996, the Board of Directors authorized repurchase of up to 1,000,000
shares of Mercshares common stock. This followed prior authorization for the
repurchase of 5,000,000 shares. Through December 1996, 3,486,000 shares of
common stock were repurchased under these programs. At December 31, 1996,
remaining authorization to repurchase common stock was 2,514,000 shares. The
buybacks have supported management's strategy to enhance shareholder value by
returning capital to shareholders in the form of dividends and repurchase of
shares during periods when capital accumulates at a rate in excess of the rate
required to support the growth of earning assets.
Dividends
For the 20th consecutive year, the annual dividend paid on common stock exceeded
the prior year's level. Effective with the September 1996 dividend, the
quarterly dividend rate was raised 13% from $.23 to $.26 per share. Management
will periodically evaluate the dividend rate in light of Mercshares' capital
strength, profitability and conditions prevailing in the economy in general and
the banking industry in particular. The annual dividends paid per common share
were $.98 in 1996, $.86 in 1995, and $.74 in 1994. Total cash dividends paid
were $46,579,000 in 1996, $41,013,000 in 1995 and $34,982,000 in 1994. The chart
appearing on page 22 presents quarterly dividends paid over the last two years.
[Bar graph appears here]
Presented below is the table of data points used to prepare a bar graph
depicting the year end levels of tier one and tier two risk-based capital
ratios of Mercantile Bankshares Corporation from 1992 to 1996:
RISK-BASED CAPITAL RATIOS*
1992 1993 1994 1995 1996
Tier two........................... 1.4% 1.4% 1.3% 1.3% 1.3%
Tier one........................... 17.0% 18.2% 18.3% 17.9% 17.9%
(Regulatory tier one minimum is 4%.)
* Tier one and tier two equity as percentages of risk-adjusted total assets
at December 31.
[Bar graph appears here]
Presented below is the table of data points used to prepare a bar graph
depicting the increase in annual dividends paid per share by Mercantile
Bankshares Corporation from 1992 to 1996:
DIVIDENDS PER SHARE
5 Year Compound Growth Rate: 11.3%
1992 1993 1994 1995 1996
Dividends per share........ $.58 $.64 $.74 $.86 $.98
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 21
<PAGE>
DIVIDENDS
<TABLE>
<CAPTION>
1996 1995
- - -----------------------------------------------------------------------------------------------------------------------------------
Quarter 4th 3rd 2nd 1st 4th 3rd 2nd 1st
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common dividends.......................................... .26 .26 .23 .23 .23 .23 .20 .20
</TABLE>
Mercantile Bankshares has paid quarterly cash dividends on its Common Stock
since September 1970 when such stock was first issued. Mercantile Bankshares
intends to consider quarterly payment of dividends on its Common Stock, but such
payment is necessarily dependent upon many factors, including the future
earnings and financial requirements of Mercantile Bankshares and its affiliates.
RECENT COMMON STOCK PRICES
MARKET PRICES*
<TABLE>
<CAPTION>
1996 1995
- - -----------------------------------------------------------------------------------------------------------------------------------
Quarter 4th 3rd 2nd 1st 4th 3rd 2nd 1st
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High...................................................... 33-3/4 30-1/2 26-5/8 28-1/4 29-1/2 27-3/4 24-1/8 22-3/8
Low....................................................... 29-1/2 24-3/4 25 25-1/4 26-5/8 22-3/8 21-1/8 19-1/2
</TABLE>
*The stock of Mercantile Bankshares Corporation is traded on the Nasdaq National
Market under the symbol MRBK. The quotations represent actual transactions.
As of February 28, 1997, there were 8,730 stockholders of record.
Acquisitions and Commitments
In October 1996, Mercshares entered into an agreement to acquire all the
outstanding shares of Home Bank, Newark, Maryland. Under terms of the agreement,
Mercshares will issue up to 475,218 shares representing an exchange of 2.6
shares for each outstanding share of the common stock of Home Bank. The
affiliation has been approved by the shareholders of Home Bank and approval by
various regulatory agencies is pending. It is anticipated that this affiliation
will be completed during 1997.
In December 1996, Mercshares entered into an agreement to acquire all the
outstanding shares of Farmers Bank of Mardela Springs, Mardela Springs,
Maryland. Under terms of the agreement, Mercshares will issue up to 115,035
shares representing an exchange of 1.25 shares for each outstanding share of the
common stock of Farmers Bank. The affiliation has been approved by the
shareholders of Farmers Bank and approval by various regulatory agencies is
pending. It is anticipated that this affiliation will be completed during 1997.
In accordance with the terms of each respective Agreement and Plan of
Affiliation and Merger, upon consummation of the affiliation, each of the above
banks will be merged into an existing Mercshares affiliate. It is anticipated
that these acquisitions will be accounted for as purchases.
Further information regarding these affiliations is presented in Footnote
No. 14 on page 41.
Commitments for 1997 include plans for approximately $8,000,000 of capital
expenditures, consisting primarily of construction and improvements of new and
existing banking offices of affiliate banks. For further information on
commitments, see Footnotes No. 4 and 8 on pages 33 and 35, respectively.
Recent FASB Pronouncements
Statement of Financial Accounting Standards (SFAS) No. 125, Accounting for
Transfers and Servicing of Financial Assets and Extinguishment of Liabilities,
was issued in June 1996. This statement establishes, among other things, new
criteria for determining whether a transfer of financial assets in exchange for
cash or other consideration should be accounted for as a sale or as a pledge of
collateral in a secured borrowing. Statement No. 125 also establishes new
accounting requirements for pledged collateral.
This statement is effective for transfers and servicing of financial assets
and extinguishments of liabilities occurring after December 31, 1996. As of
December 30, 1996, implementation of certain provisions were deferred as a
result of the issuance of SFAS No. 127, "Deferral of the Effective Date of
Certain Provisions of FASB Statement No. 125". These pronouncements will not
have a material effect on the financial statements of Mercshares.
22 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Stockholders and The Board of Directors,
Mercantile Bankshares Corporation:
We have audited the accompanying consolidated balance sheets of Mercantile
Bankshares Corporation and Affiliates as of December 31, 1996 and 1995, and the
related statements of consolidated income, changes in consolidated stockholders'
equity, and consolidated cash flows for each of the three years in the period
ended December 31, 1996. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
Mercantile Bankshares Corporation and Affiliates as of December 31, 1996 and
1995, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
- - ----------------------------
Baltimore, Maryland
January 22, 1997
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 23
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(Dollars in thousands, except per share data) 1996 1995
===========================================================================================================================
<S> <C> <C>
ASSETS
Cash and due from banks................................................................ $ 257,337 $ 247,301
Interest-bearing deposits in other banks............................................... 100 100
Investment securities held-to-maturity (1),(2)......................................... 26,279 20,585
Investment securities available-for-sale (1),(2)....................................... 1,596,687 1,551,669
Federal funds sold..................................................................... 27,942 26,081
Securities purchased under resale agreements........................................... 49,982
Loans (3).............................................................................. 4,582,712 4,301,270
Less: allowance for loan losses (1),(3)................................................ (97,718) (91,398)
---------- ----------
Loans, net..................................................................... 4,484,994 4,209,872
---------- ----------
Bank premises and equipment, net (1),(4)............................................... 80,738 78,363
Other real estate owned, net (1)....................................................... 3,316 2,858
Excess cost over equity in affiliated banks, net (1)................................... 28,276 30,251
Other assets........................................................................... 137,012 132,041
---------- ----------
Total.......................................................................... $6,642,681 $6,349,103
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing deposits...................................................... $1,090,347 $ 983,021
Interest-bearing deposits......................................................... 4,249,308 4,186,360
---------- ----------
Total deposits................................................................. 5,339,655 5,169,381
Short-term borrowings (6).............................................................. 336,655 281,642
Accrued expenses and other liabilities................................................. 80,940 78,631
Long-term debt (7)..................................................................... 49,395 25,623
---------- ----------
Total liabilities.............................................................. 5,806,645 5,555,277
---------- ----------
COMMITMENTS AND CONTINGENCIES (4),(8)
STOCKHOLDERS' EQUITY (9)
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 47,435,322 shares in
1996 and 48,272,451 shares in 1995.................................................. 94,872 96,545
Capital surplus........................................................................ 97,154 66,107
Retained earnings...................................................................... 641,212 620,391
Unrealized gains (losses) on securities, net........................................... 2,798 10,783
---------- ----------
Total stockholders' equity..................................................... 836,036 793,826
---------- ----------
Total....................................................................... $6,642,681 $6,349,103
========== ==========
</TABLE>
See notes to consolidated financial statements
24 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(Dollars in thousands, except per share data) 1996 1995 1994
============================================================================================================================
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans (1)........................................... $400,800 $379,888 $315,094
-------- -------- --------
Interest and dividends on investment securities:
Taxable interest income............................................... 90,934 81,269 86,432
Tax-exempt interest income............................................ 706 663 696
Dividends............................................................. 609 467 365
Other investment income............................................... 563 271 273
-------- -------- --------
92,812 82,670 87,766
-------- -------- --------
Other interest income.................................................... 4,527 4,717 529
-------- -------- --------
Total interest income.............................................. 498,139 467,275 403,389
-------- -------- --------
INTEREST EXPENSE
Interest on deposits (5)................................................. 170,763 163,556 126,197
Interest on short-term borrowings........................................ 14,199 15,123 12,111
Interest on long-term debt............................................... 2,596 1,808 2,125
-------- -------- --------
Total interest expense............................................. 187,558 180,487 140,433
-------- -------- --------
NET INTEREST INCOME...................................................... 310,581 286,788 262,956
Provision for loan losses (1),(3)........................................ 14,666 7,988 7,056
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES...................... 295,915 278,800 255,900
-------- -------- --------
NONINTEREST INCOME
Trust division services (1).............................................. 46,244 44,273 43,360
Service charges on deposit accounts...................................... 16,234 15,764 15,655
Other fees............................................................... 24,178 19,975 21,342
Investment securities gains and (losses) (2),(10)........................ 74 (1,715) (1,399)
Other income............................................................. 2,698 2,609 5,849
-------- -------- --------
Total noninterest income........................................... 89,428 80,906 84,807
-------- -------- --------
NONINTEREST EXPENSES
Salaries................................................................. 97,538 92,931 86,941
Employee benefits (12)................................................... 23,245 24,581 23,929
Net occupancy expense of bank premises (1),(4)........................... 11,846 11,106 10,871
Furniture and equipment expenses (1),(4)................................. 17,645 16,893 13,977
Communications and supplies.............................................. 10,809 9,778 9,182
FDIC insurance premium expense........................................... 288 6,346 10,911
Other expenses........................................................... 37,044 32,062 38,010
-------- -------- --------
Total noninterest expenses......................................... 198,415 193,697 193,821
-------- -------- --------
Income before income taxes...................................... 186,928 166,009 146,886
Applicable income taxes (1),(10)................................ 69,528 61,577 56,445
-------- -------- --------
NET INCOME................................................... $117,400 $104,432 $ 90,441
======== ======== ========
NET INCOME PER SHARE OF COMMON STOCK (9)................................. $2.46 $2.19 $1.88
</TABLE>
See notes to consolidated financial statements
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 25
<PAGE>
STATEMENT OF CONSOLIDATED CASH FLOWS
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(Dollars in thousands) 1996 1995 1994
============================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fees on loans............................................... $ 401,081 $ 377,105 $ 309,072
Interest and dividends on investment securities.......................... 92,986 82,931 89,990
Other interest income.................................................... 4,581 4,672 614
Noninterest income....................................................... 85,841 83,102 86,621
Interest paid............................................................ (188,272) (174,929) (139,535)
Noninterest expenses paid................................................ (174,884) (182,741) (177,528)
Income taxes paid........................................................ (74,719) (62,168) (56,554)
--------- --------- ---------
Net cash provided by operating activities.......................... 146,614 127,972 112,680
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held-to-maturity....... 1,490 188,948 280,527
Proceeds from sales of investment securities available-for-sale.......... 65,434 78,232 191,151
Proceeds from maturities of investment securities available-for-sale..... 630,120 268,819 82,829
Purchases of investment securities held-to-maturity...................... (7,391) (40,953) (270,545)
Purchases of investment securities available-for-sale.................... (753,013) (384,740) (141,383)
Net increase in customer loans........................................... (293,819) (243,034) (225,114)
Capital expenditures..................................................... (10,611) (9,657) (8,566)
Proceeds from sales of other real estate owned........................... 3,343 10,629 6,548
--------- --------- ---------
Net cash used in investing activities.............................. (364,447) (131,756) (84,553)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in noninterest-bearing deposits.................. 107,326 3,710 (6,247)
Net decrease in checking plus interest and savings accounts.............. (17,911) (184,309) (109,455)
Net increase in certificates of deposit.................................. 80,859 405,705 143,852
Net increase (decrease) in short-term borrowings......................... 55,013 (74,626) 64,172
Proceeds from issuance of long-term debt................................. 25,000
Repayment of long-term debt.............................................. (1,228) (5,937) (880)
Proceeds from issuance of shares......................................... 5,846 4,486 7,087
Repurchase of common shares.............................................. (28,578) (45,685) (11,299)
Dividends paid........................................................... (46,579) (41,013) (34,982)
--------- --------- ---------
Net cash provided by financing activities.......................... 179,748 62,331 52,248
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (1)................. (38,085) 58,547 80,375
Cash and cash equivalents at beginning of year........................... 323,464 257,146 176,771
Adjustment for affiliation............................................... 7,771
--------- --------- ---------
Cash and cash equivalents at end of year................................. $ 285,379 $ 323,464 $ 257,146
========= ========= =========
</TABLE>
See notes to consolidated financial statements
26 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
Reconciliation of net income to net cash provided by operating activities
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(Dollars in thousands) 1996 1995 1994
============================================================================================================================
<S> <C> <C> <C>
Net income............................................................... $117,400 $104,432 $ 90,441
-------- -------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization...................................... 8,236 7,912 7,657
Provision for loan losses.......................................... 14,666 7,988 7,056
Write-down of other real estate owned.............................. 230 1,401 5,945
Investment securities (gains) and losses........................... (74) 1,715 1,399
Provision for deferred taxes (benefit)............................. (5,369) 672 (1,141)
Amortization of excess cost over equity in affiliates.............. 1,975 1,276 1,131
(Increase) decrease in interest receivable......................... 509 (2,567) (3,713)
(Increase) decrease in other receivables........................... (3,513) 481 415
(Increase) decrease in other assets................................ 3,402 (4,195) (6,158)
Increase (decrease) in interest payable............................ (714) 5,558 898
Increase in accrued expenses....................................... 9,688 4,562 7,718
Increase (decrease) in taxes payable............................... 178 (1,263) 1,032
-------- -------- --------
Total adjustments............................................... 29,214 23,540 22,239
-------- -------- --------
Net cash provided by operating activities................................ $146,614 $127,972 $112,680
======== ======== ========
</TABLE>
See notes to consolidated financial statements
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 27
<PAGE>
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED
DECEMBER 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
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, 1993 ............................................... $96,470 $ 26,958 $551,513
Unrealized gains (losses) on securities at January 1, 1994................ $ 1,059
Net income................................................................ 90,441
Cash dividends paid:
Common stock ($.74 per share).......................................... (34,387)
By affiliated bank prior to affiliation................................ (595)
Issuance of 122,718 shares for dividend
reinvestment and stock purchase plan................................... 245 2,093
Issuance of 22,019 shares for employee stock
purchase dividend reinvestment plan.................................... 44 392
Issuance of 301,690 shares for employee stock option plan................. 604 3,709
Purchase of 567,500 shares under stock repurchase plan.................... (1,135) (10,164)
Change in unrealized gains (losses) on securities......................... (3,330)
------- -------- -------- -------
BALANCE, DECEMBER 31, 1994 ............................................... 96,228 22,988 606,972 (2,271)
Net income................................................................ 104,432
Cash dividends paid:
Common stock ($.86 per share).......................................... (41,013)
Issuance of 123,671 shares for dividend
reinvestment and stock purchase plan................................... 247 2,676
Issuance of 30,395 shares under exercise of stock
appreciation rights.................................................... 61 678
Issuance of 24,344 shares for employee stock
purchase dividend reinvestment plan.................................... 49 533
Issuance of 11,578 shares for employee stock option plan.................. 23 219
Purchase of 1,830,864 shares under stock repurchase plan.................. (3,662) (42,023)
Issuance of 1,799,313 shares for acquisition
of new affiliate bank.................................................. 3,599 31,036
Transfer to capital surplus............................................... 50,000 (50,000)
Change in unrealized gains (losses) on securities......................... 13,054
------- -------- -------- -------
BALANCE, DECEMBER 31, 1995................................................ 96,545 66,107 620,391 10,783
Net income................................................................ 117,400
Cash dividends paid:
Common stock ($.98 per share).......................................... (46,579)
Issuance of 142,929 shares for dividend
reinvestment and stock purchase plan................................... 287 3,526
Issuance of 24,941 shares for employee stock
purchase dividend reinvestment plan.................................... 50 650
Issuance of 61,052 shares for employee stock option plan.................. 122 1,211
Purchase of 1,066,051 shares under stock repurchase plan.................. (2,132) (26,446)
Vested stock options (13)................................................. 2,106
Transfer to capital surplus............................................... 50,000 (50,000)
Change in unrealized gains (losses) on securities......................... (7,985)
------- -------- -------- -------
BALANCE, DECEMBER 31, 1996 (9)............................................ $94,872 $ 97,154 $641,212 $ 2,798
======= ======== ======== =======
</TABLE>
See notes to consolidated financial statements
28 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
A. Basis of Presentation
The consolidated financial statements include the accounts of Mercantile
Bankshares Corporation ("Mercshares") and all of its affiliates, with all
significant intercompany transactions eliminated. The investment in affiliates
is recorded on the books of the holding company on the basis of its equity in
the net assets of the affiliates. The excess of the cost of Mercshares'
investment over its equity in the net assets of purchased banks is being
amortized on a straight-line basis over a period of 15 to 40 years from the
respective dates of affiliation. Accumulated amortization amounted to
$15,873,000 and $13,898,000 at December 31, 1996 and 1995, respectively.
Mercshares and its affiliates use the accrual basis of accounting, except
for trust income which is recorded on the modified accrual basis. Assets (other
than cash deposits) held for others under fiduciary and agency relationships are
not included in the accompanying balance sheets since they are not assets of
Mercshares or its affiliates.
Certain previously reported amounts have been restated to conform to the
1996 presentation.
B. Securities
Investment securities consist mainly of U.S. Government securities. Investments
are classified as either "held-to-maturity" or "available-for-sale." Investment
securities classified as "held-to-maturity" are acquired with the intent and
ability to hold until maturity and are carried at cost, adjusted for
amortization of premiums and accretion of discounts. Investment securities
classified as "available-for-sale" are acquired to be held for indefinite
periods of time and may be sold in response to changes in interest rates and/or
prepayment risk or for liquidity management purposes. These securities are
carried at fair value and any unrealized appreciation or depreciation in the
market value of available-for-sale securities is reported as a separate
component of stockholders' equity net of applicable taxes. Adjusted cost is used
to compute gains or losses on the sales of securities which are reported in the
Statement of Consolidated Income.
In December 1995, Mercshares reclassified all of its U.S. Government
securities and certain other investments as available-for-sale.
C. Loans
Interest income is accrued at the contractual rate on the principal amount
outstanding. When scheduled principal or interest payments are past due 90 days
or more on any loan, the accrual of interest income is discontinued and
recognized only as collected. Previously accrued but uncollected interest on
these loans is charged against interest income. Generally, the loan is restored
to an accruing status when all amounts past due have been paid.
Mercshares adopted the provisions of Statements of Financial Accounting
Standards ("SFAS") No. 114 and 118, "Accounting by Creditors for Impairment of a
Loan" on January 1, 1995. Implementation of this pronouncement did not have a
material effect on Mercshares' financial statements. Under these standards, a
loan is considered impaired, based upon current information and events, if it is
probable that Mercshares 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. 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. 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. A majority of Mercshares' impaired
loans are measured by reference to the fair value of the collateral. Interest
income on impaired loans is recognized on the cash basis.
D. Allowance for Loan Losses
The allowance for loan losses is estimated to provide adequately for possible
future losses on existing loans. The allowance is increased by the loan loss
provision charged to operating expenses and reduced by loan charge-offs, net of
recoveries. The provision for loan losses is based on a continuing review of the
loan portfolios, past loss experience and current economic conditions which may
affect the borrower's ability to pay.
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 29
<PAGE>
E. Bank Premises and Equipment
Bank premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using both the
straight-line and accelerated methods over the estimated useful lives of the
properties. Expenditures for repairs and maintenance are charged to operating
expenses as incurred. Expenditures for improvements which extend the life of an
asset are capitalized and depreciated over the asset's remaining useful life.
Gains or losses realized on the disposition of properties are reflected in
consolidated income.
F. Other Real Estate Owned
Other real estate owned consists primarily of real estate obtained through
foreclosure or acceptance of deeds in lieu of foreclosure. Other real estate
owned is held for sale and is stated at lower of cost or market.
G. Income Taxes
Deferred income taxes are calculated by applying enacted statutory tax rates to
temporary differences consisting of all significant items which are reported for
tax purposes in different years than for accounting purposes.
H. Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash and
due from banks, interest-bearing deposits in other banks, federal funds sold and
securities purchased under resale agreements. Generally, federal funds are
purchased and sold for one-day periods; securities purchased/sold under resale
agreements are purchased/sold for periods of one to sixty days.
I. Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results could differ
from those estimates.
2. INVESTMENT SECURITIES
The amortized cost and market values of investment securities at December 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
----------------------------------------------- --------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value Cost Gains Losses Value
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held-to-maturity
U.S. Treasury......................
U.S. government agencies...........
States and political subdivisions.. $ 13,551 $ 128 $ 37 $ 13,642 $ 15,233 $ 187 $ 67 $ 15,353
Other bonds, notes
and debentures.................... 7 7 6 6
---------- ------- ------ ---------- ---------- ------- ---- ----------
Total bonds....................... 13,558 128 37 13,649 15,239 187 67 15,359
Other investments.................. 12,721 6 12,727 5,346 7 5,353
---------- ------- ------ ---------- ---------- ------- ---- ----------
Total .......................... $ 26,279 $ 134 $ 37 $ 26,376 $ 20,585 $ 194 $ 67 $ 20,712
========== ======= ====== ========== ========== ======= ==== ==========
Securities available-for-sale
U.S. Treasury...................... $1,567,754 $ 3,881 $5,455 $1,566,180 $1,501,255 $12,565 $726 $1,513,094
U.S. government agencies........... 15,537 10 210 15,337 22,442 57 175 22,324
States and political subdivisions.. 35 1 36 45 45
Other bonds, notes
and debentures.................... 7,716 1 91 7,626 9,803 17 87 9,733
---------- ------- ------ ---------- ---------- ------- ---- ----------
Total bonds....................... 1,591,042 3,893 5,756 1,589,179 1,533,545 12,639 988 1,545,196
Other investments.................. 1,286 6,222 7,508 1,042 5,431 6,473
---------- ------- ------ ---------- ---------- ------- ---- ----------
Total........................... $1,592,328 $10,115 $5,756 $1,596,687 $1,534,587 $18,070 $988 $1,551,669
========== ======= ====== ========== ========== ======= ==== ==========
</TABLE>
In accordance with the terms of a special report issued by the Financial
Accounting Standards Board regarding SFAS No. 115, U.S. treasury securities
formerly classified as held-to-maturity were reclassified as available-for-sale
in 1995. This action was taken as a result of management's determination that
there was a need to maintain flexibility in managing the investment portfolio to
meet liquidity needs and to manage interest rate risk.
30 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
The amortized cost and market values of the bond investment portfolio by
contractual maturity at December 31, 1996 and 1995 are shown below:
<TABLE>
<CAPTION>
1996 1995
------------------------ ------------------------
Amortized Market Amortized Market
(Dollars in thousands) Cost Value Cost Value
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities held-to-maturity
Within 1 year........................................................ $ 2,904 $ 2,915 $ 1,593 $ 1,592
1-5 years............................................................ 10,240 10,306 12,465 12,564
5-10 years........................................................... 407 421 1,175 1,197
After 10 years....................................................... 7 7 6 6
---------- ---------- ---------- ----------
Total ............................................................ $ 13,558 $ 13,649 $ 15,239 $ 15,359
========== ========== ========== ==========
Securities available-for-sale
Within 1 year........................................................ $ 517,513 $ 517,783 $ 685,169 $ 686,245
1-5 years............................................................ 1,068,349 1,066,261 842,515 853,141
5-10 years........................................................... 3,156 3,119 2,304 2,277
After 10 years....................................................... 2,024 2,016 3,557 3,533
---------- ---------- ---------- ----------
Total ............................................................ $1,591,042 $1,589,179 $1,533,545 $1,545,196
========== ========== ========== ==========
</TABLE>
At December 31, 1996 and 1995, no single issue of investment securities exceeded
ten percent of stockholders' equity.
At December 31, 1996 and 1995, securities with an amortized cost of
$470,914,000 and $447,287,000, respectively, were pledged as collateral for
certain deposits as required or permitted by law.
The gross realized gains and losses on debt and non-debt securities for
1996, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------------------- ---------------------- ---------------------
Gross Gross Gross Gross Gross Gross
Realized Realized Realized Realized Realized Realized
(Dollars in thousands) Gains Losses Gains Losses Gains Losses
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Debt securities
Available-for-sale............. $ 2 $14 $ 910 $261 $1,102
Non-debt securities
Held-to-maturity............... 422 557
Available-for-sale............. 86 $83 466 12 13
--- --- --- ------ ---- ------
Total......................... $88 $14 $83 $1,798 $273 $1,672
=== === === ====== ==== ======
</TABLE>
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 31
<PAGE>
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Bank affiliates:
Commercial...................................................................................... $1,506,358 $1,392,845
Construction.................................................................................... 372,467 356,652
Mortgage........................................................................................ 2,210,469 2,053,620
Consumer........................................................................................ 470,372 478,746
---------- ----------
Total......................................................................................... 4,559,666 4,281,863
---------- ----------
Bank-related affiliates:
Commercial...................................................................................... 304 300
Construction.................................................................................... 7,540 6,918
Mortgage........................................................................................ 15,202 12,189
---------- ----------
Total......................................................................................... 23,046 19,407
---------- ----------
Total loans................................................................................. $4,582,712 $4,301,270
========== ==========
</TABLE>
At December 31, 1996 and 1995, $20,457,000 and $21,235,000 respectively, are
considered non-accrual loans (loans in which interest income is recognized only
as collected). See Note 1C for an explanation of the non-accrual loan policy.
The changes in the allowance for loan losses follow:
<TABLE>
<CAPTION>
Bank-
(Dollars in thousands) Banks Related Total
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, December 31, 1993............................................................. $ 91,388 $1,179 $ 92,567
Provision charged to operating expense............................................... 7,016 40 7,056
Recoveries........................................................................... 2,163 2,163
Charge-offs.......................................................................... (10,529) (10,529)
-------- ------ --------
Balance, December 31, 1994............................................................. 90,038 1,219 91,257
Allowance of acquired bank........................................................... 2,818 2,818
Provision charged to operating expense............................................... 7,988 7,988
Recoveries........................................................................... 2,180 2,180
Charge-offs.......................................................................... (12,845) (12,845)
-------- ------ --------
Balance, December 31, 1995............................................................. 90,179 1,219 91,398
Provision charged to operating expense............................................... 14,626 40 14,666
Recoveries........................................................................... 3,864 3,864
Charge-offs.......................................................................... (11,961) (249) (12,210)
-------- ------ --------
Balance, December 31, 1996............................................................. $ 96,708 $1,010 $ 97,718
======== ====== ========
</TABLE>
Information with respect to impaired loans and the related valuation allowance
(if the measure of the impaired loan is less than the recorded investment) as of
December 31, 1996 and 1995 is shown below. Refer to Note 1C for an expanded
discussion on impaired loans.
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with a valuation allowance.............................................................. $ 2,649 $ 4,628
Impaired loans with no valuation allowance............................................................. 13,128 13,661
------- -------
Total impaired loans................................................................................. $15,777 $18,289
======= =======
Allowance for loan losses applicable to impaired loans................................................. $ 1,194 $ 1,907
Allowance for loan losses applicable to other than impaired loans...................................... 96,524 89,491
------- -------
Total allowance for loan losses...................................................................... $97,718 $91,398
======= =======
Year-to-date interest income on impaired loans recorded on the cash basis.............................. $ 672 $ 471
======= =======
Year-to-date average recorded investment in impaired loans during the period........................... $19,300 $23,300
======= =======
Quarter-to-date interest income on impaired loans recorded on the cash basis........................... $ 34 $ 190
======= =======
Quarter-to-date average recorded investment in impaired loans during the period........................ $18,400 $18,500
======= =======
</TABLE>
32 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land................................................................................................... $ 18,402 $ 17,017
Buildings and leasehold improvements................................................................... 94,826 92,688
Equipment.............................................................................................. 50,893 46,400
-------- --------
164,121 156,105
Accumulated depreciation and amortization.............................................................. (83,383) (77,742)
-------- --------
Bank premises and equipment, net....................................................................... $ 80,738 $ 78,363
======== ========
</TABLE>
Mercshares' bank affiliates conduct a major part of their branch banking
operations from leased facilities. Generally, the initial terms of the leases
range from a period of 1 to 15 years. Most of the leases contain options which
enable the affiliates to renew the lease at the fair rental value for periods of
1 to 20 years. In addition to minimum rentals, certain leases have escalation
clauses based upon various price indices and include provisions for additional
payments to cover taxes, insurance and maintenance.
Total rental expense for 1996, 1995 and 1994 was:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bank premises*............................................................................. $4,108 $4,114 $4,015
Equipment/software expense................................................................. 4,465 3,999 4,069
------ ------ ------
Total rental expense..................................................................... $8,573 $8,113 $8,084
====== ====== ======
</TABLE>
*Amounts do not reflect offset for rental income.
At December 31, 1996, the aggregate minimum rental commitments under
noncancelable operating leases are as follows: 1997-$7,559,000; 1998-$7,057,000;
1999-$5,056,000; 2000-$3,945,000; 2001-$3,256,000; thereafter-$10,503,000.
5. DEPOSITS
Included in time deposits are certificates of deposit issued in denominations of
$100,000 or more which totaled $636,951,000 and $587,953,000 at December 31,
1996 and 1995, respectively. Other time deposits issued in denominations of
$100,000 or more totaled $1,335,000 at December 31, 1996 and 1995.
At December 31, 1996, the amount outstanding and maturity distribution of
time certificates of deposit issued in amounts of $100,000 or more and other
time deposits of $100,000 or more are presented in the following table:
<TABLE>
<CAPTION>
Maturing
-------------------------------------------------------
Over 3 Over 6
TOTAL 3 months through through Over 12
(Dollars in thousands) DECEMBER 31, 1996 or less 6 months 12 months months
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Time certificates of deposit--
$100,000 or more.............................. $636,951 $327,821 $82,211 $71,148 $155,771
======== ======== ======= ======= ========
Other time deposits--
$100,000 or more.............................. $ 1,335 $ 1,335
======== ========
</TABLE>
Interest on deposits for the years ended December 31, 1996, 1995 and 1994
consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Savings deposits..................................................................... $ 58,187 $ 64,732 $ 65,488
Certificates of deposit ($100,000 or more)........................................... 33,374 28,967 14,448
Other time deposits.................................................................. 79,202 69,857 46,261
-------- -------- --------
Total interest on deposits......................................................... $170,763 $163,556 $126,197
======== ======== ========
</TABLE>
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 33
<PAGE>
6. SHORT-TERM BORROWINGS
The following table summarizes Mercshares' short-term borrowings and their
weighted average interest rates at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
Year-end During year
------------------- --------------------------------
1996 (Dollars in thousands) Amount Rate Highest Average Rate
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal funds purchased and securities
sold under repurchase agreements............................ $216,149 5.32% $216,149 $163,347 4.73%
Commercial paper.............................................. 116,679 4.80 135,994 127,742 5.00
Other short-term borrowings................................... 3,827 5.44 4,130 1,811 4.89
-------- --------
Total..................................................... $336,655 5.14% $292,900 4.85%
======== ==== ======== ====
1995 (Dollars in thousands)
- - ---------------------------
Federal funds purchased and securities
sold under repurchase agreements............................ $155,090 4.83% $373,370 $188,680 5.41%
Commercial paper.............................................. 125,480 5.25 125,480 87,472 5.29
Other short-term borrowings................................... 1,072 5.10 10,337 4,748 6.18
-------- --------
Total..................................................... $281,642 5.02% $280,900 5.38%
======== ==== ======== ====
</TABLE>
Other short-term borrowings include notes payable to the U.S. Treasury and
borrowings from the Federal Home Loan Bank. During 1996 and 1995, commercial
paper borrowings were partially supported by back-up lines of credit of
$39,500,000. Unused lines of credit at December 31, 1996 were $39,500,000. These
lines of credit are paid for on a fee basis ranging from .09% to .10% annually.
7. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3% Unsecured debenture............................................................................ $ 237 $ 263
6% Mortgage note.................................................................................. 1,174
6.13% Unsecured senior notes...................................................................... 9,000 9,000
6.45% Unsecured senior notes...................................................................... 7,500 7,500
6.64% Unsecured senior notes...................................................................... 7,500 7,500
6.94% Unsecured senior notes...................................................................... 25,000
Other............................................................................................. 158 186
------- -------
Total long-term debt.......................................................................... $49,395 $25,623
======= =======
</TABLE>
The 3% debenture is payable $15,000 quarterly until July 1, 1996, and the
remaining balance in five equal annual payments with maturity on July 1, 2001.
All payments include principal and interest, and Mercshares has the option to
prepay any or all of the remaining principal balance on any payment date.
The 6.13% senior notes are due on July 15, 1998. Interest is payable
semi-annually, on January 15 and July 15, until maturity.
The 6.45% senior notes are due on July 15, 1999. Interest is payable
semi-annually, on January 15 and July 15, until maturity.
The 6.64% senior notes are due on July 15, 2000. Interest is payable
semi-annually, on January 15 and July 15, until maturity.
The 6.94% senior notes are due on June 30, 2003. Interest is payable
semi-annually, on June 30 and December 30, until maturity. Mercshares has agreed
to prepay the lesser of $8,300,000 or the principal amount of the notes
outstanding on June 30, 2001 and June 30, 2002.
The annual maturities on all long-term debt over the next five years are:
1997-$79,000; 1998-$9,082,000; 1999-$7,551,000; 2000-$7,552,000;
2001-$8,431,000.
34 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
8. COMMITMENTS
Various commitments to extend credit (lines of credit) are made in the normal
course of banking business. Letters of credit are also issued for the benefit of
customers by affiliated banks. These commitments are subject to loan
underwriting standards and geographic boundaries consistent with Mercshares'
loans outstanding. Mercshares' lending activities are concentrated in Maryland,
Delaware and Virginia.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Total commitments to extend credit at
December 31, 1996, include $1,942,475,000 in adjustable rate loan commitments
and $98,247,000 in fixed rate loan commitments. Fixed rate commitments are at
current market rates with $88,762,000 expiring within one year and the remaining
$9,485,000 expiring on various dates through January 2007. Total commitments to
extend credit at December 31, 1995, included $1,699,736,000 in adjustable rate
loan commitments and $76,214,000 in fixed rate loan commitments. Fixed rate
commitments, at December 31, 1995, were at current market rates with $69,328,000
expiring within one year and the remaining $6,886,000 expiring on various dates
through May 2000.
Standby letters of credit are commitments issued to guarantee the
performance of a customer to a third party. Outstanding letters of credit were
$129,081,000 at December 31, 1996 and $111,173,000 at December 31, 1995.
9. STOCKHOLDERS' EQUITY
Year-to-date per share amounts are based on the weighted average number of
common shares outstanding during the period or 47,651,120 shares for 1996,
47,768,479 shares for 1995 and 48,165,833 shares for 1994.
The Board of Directors has the authority to classify and reclassify any
unissued shares of preferred stock by fixing the preferences, rights, voting
powers (which may include separate class voting on certain matters),
restrictions and qualifications, dividends, times and prices of redemption and
conversion rights.
The Company has a Dividend Reinvestment and Stock Purchase Plan. The Plan
allows shareholders to automatically invest their cash dividends in Company
stock at a price which is 5% less than the market price on the dividend payment
date. Plan participants may also make additional cash payments to purchase stock
through the Plan at the market price. The number of shares of common stock which
remain available for issuance under the Plan is 890,092 shares. The Company
reserves the right to amend, modify, suspend or terminate the Plan at any time
at its discretion.
The Company has an Employee Stock Purchase Plan. The Plan allows employees
(other than executive officers of the Company) to purchase stock through payroll
deduction and dividend reinvestment at the then current market price for
employee purchases and at 95% of market for dividend reinvestment. The number of
shares of common stock which remain available for issuance under the Plan is
630,290 shares. The Company reserves the right to amend, modify, suspend or
terminate the Plan at any time at its discretion.
The Company had an Executive Stock Appreciation Rights Plan which gave the
holder of a right, subject to the terms and conditions of the Plan, the right to
receive an amount of stock, cash or a combination of stock and cash, equal to
any appreciation (between the time of the grant and the time of exercise of the
right) in the fair market value of one share of the Company's common stock. At
December 31, 1996 and 1995, no rights remained under the Plan. Compensation
expense recognized in connection with the Plan was $0, $66,000 and $0 in 1996,
1995 and 1994, respectively.
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 35
<PAGE>
Pursuant to a Shareholders Protection Rights Agreement adopted in September
1989, each share of outstanding common stock carries a right, initially for the
purchase of 1/200 of a share of preferred stock at an exercise price of $60
(subject to adjustment). The rights, which do not carry voting or dividend
rights, may be redeemed by Mercshares at $.0033 per right. The rights expire on
September 29, 1999 unless sooner exercised, exchanged or redeemed. The rights
will not become exercisable and will not trade separately from the common stock
until the tenth day (or such other date as the Board of Directors selects) after
commencement of a tender or exchange offer for, or acquisition by a person or
group of, 10% or more of the outstanding common stock. Upon exercisability of
the rights after acquisition by a person or group ("acquiring person") of 10% or
more of the outstanding common stock or upon certain business combinations or
other defined transactions involving Mercshares, each right (except rights of
the acquiring person, which become void) will entitle its holder to acquire
common stock (or in Mercshares' discretion, preferred stock) of Mercshares, or
common stock of the acquiring entity in a business combination or other defined
transaction, with a value of twice the then current exercise price of the right.
In certain such cases, Mercshares may exchange one share of common stock (or in
Mercshares' discretion, 1/200 of a share of preferred stock) for each right
which has not become void. The Board of Directors has classified 1,600,000
shares of preferred stock as Class A Preferred Stock for potential issuance on
exercise of rights.
Since December 1993, the Board of Directors has approved plans authorizing
the Corporation to purchase up to 6,000,000 shares of its common stock.
Purchases may be made from time to time in the open market or in privately
negotiated transactions. Purchased shares will be used from time to time for
corporate purposes including issuance under the Corporation's dividend
reinvestment plans and stock-based compensation plans. The number of shares
remaining available for purchase under the plans was 2,513,685 shares at
December 31, 1996.
Cash dividends paid to the holding company (Mercantile Bankshares
Corporation) by its consolidated subsidiaries for the years ended 1996, 1995,
and 1994 were $85,362,000, $50,291,000 and $36,069,000, respectively.
The amount of dividends that Mercshares' affiliates could have paid to the
holding company without approval from bank regulators at December 31, 1996 was
$529,855,000.
Mercshares and its bank affiliates are subject to various regulatory capital
requirements administered by the federal and state banking agencies. Failure to
meet minimum capital requirements can initiate certain mandatory--and possibly
additional discretionary--actions by regulators that, if undertaken, could have
a direct material effect on Mercshares' financial statements. Under capital
adequacy guidelines and the regulatory framework for prompt corrective action,
Mercshares, and its bank affiliates, must meet specific capital guidelines that
involve quantitative measures of Mercshares' assets, liabilities, and certain
off-balance sheet items as calculated under regulatory accounting practices.
Mercshares' capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings, and other
factors.
Quantitative measures established by regulation to ensure capital adequacy
require Mercshares and its bank affiliates to maintain at least the minimum
amounts and ratios (set forth in the table on page 37) of total Tier I capital
(as defined in the regulations) to risk-weighted assets (as defined). Management
believes, as of December 31, 1996, that Mercshares and its bank affiliates
exceed all capital adequacy requirements to which they are subject.
As of December 31, 1996, the most recent notification from the primary
regulators for each of Mercshares' affiliate banking institutions categorized
them as well capitalized under the prompt corrective action regulations. To be
categorized as well capitalized a bank must maintain minimum total risk-based,
Tier I risk-based and Tier I leverage ratios as set forth in the table on page
37. There are no conditions or events since the last notifications that
management believes have changed the affiliate banks' category.
36 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
Actual capital amounts and ratios are also presented in the table below for
Mercshares and Mercantile-Safe Deposit & Trust Co. (the lead bank). No deduction
from capital is required for interest rate risk.
<TABLE>
<CAPTION>
Minimum Level to be
Minimum Level Well Capitalized Under
for Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- ----------------- ----------------------
(Dollars in thousands) Amount Ratio Ratio Ratio
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
AS OF DECEMBER 31, 1996:
Total Capital
(as percentage of Risk Weighted Assets):
MERCSHARES CONSOLIDATED........................ $859,673 19.21% 8.00% (1)
Mercantile-Safe Deposit & Trust Co............. $302,905 16.29% 8.00% 10.00%
Tier I Capital
(as percentage of Risk Weighted Assets):
MERCSHARES CONSOLIDATED........................ $803,227 17.95% 4.00% (1)
Mercantile-Safe Deposit & Trust Co............. $279,502 15.04% 4.00% 6.00%
Tier I Capital
(as percentage of Quarter-to-Date Average Assets):
MERCSHARES CONSOLIDATED........................ $803,227 12.37% 4.00% (1)
Mercantile-Safe Deposit & Trust Co............. $279,502 11.77% 4.00% 5.00%
As of December 31, 1995:
Total Capital
(as percentage of Risk Weighted Assets):
Mercshares Consolidated........................ $803,783 19.19% 8.00% (1)
Mercantile-Safe Deposit & Trust Co............. $286,706 16.73% 8.00% 10.00%
Tier I Capital
(as percentage of Risk Weighted Assets):
Mercshares Consolidated........................ $750,948 17.93% 4.00% (1)
Mercantile-Safe Deposit & Trust Co............. $265,105 15.47% 4.00% 6.00%
Tier I Capital
(as percentage of Quarter-to-Date Average Assets):
Mercshares Consolidated........................ $750,948 12.13% 4.00% (1)
Mercantile-Safe Deposit & Trust Co............. $265,105 11.38% 4.00% 5.00%
</TABLE>
(1) Mercshares is not subject to this requirement.
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 37
<PAGE>
10. INCOME TAXES
Applicable income taxes on net income for 1996, 1995 and 1994 consist of the
following:
<TABLE>
<CAPTION>
1996 1995 1994
--------------------------- ------------------------- --------------------------
(Dollars in thousands) Federal State Total Federal State Total Federal State Total
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current:
Provision exclusive of security
transactions......................... $66,481 $8,395 $74,876 $53,459 $7,955 $61,414 $48,841 $9,239 $58,080
Provision (benefit) related to security
transactions......................... 17 4 21 (424) (85) (509) (407) (87) (494)
Deferred (benefit)....................... (4,338) (1,031) (5,369) 486 186 672 (916) (225) (1,141)
------- ------ ------- ------- ------ ------- ------- ------ -------
Total.................................. $62,160 $7,368 $69,528 $53,521 $8,056 $61,577 $47,518 $8,927 $56,445
======= ====== ======= ======= ====== ======= ======= ====== =======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses........................................................................ $36,902 $34,275
Accrued employee benefits........................................................................ 11,657 9,692
Accrued other expenses........................................................................... 2,118 1,646
Write-downs of other real estate owned........................................................... 351 548
Depreciation..................................................................................... 80
Other........................................................................................... 648 451
------- -------
Total deferred tax assets...................................................................... 51,756 46,612
------- -------
Deferred tax liabilities:
Net unrealized gains on available-for-sale securities............................................ 1,561 6,299
Depreciation..................................................................................... 221
Prepaid items.................................................................................... 177 174
Other............................................................................................ 12 19
------- -------
Total deferred tax liabilities................................................................. 1,750 6,713
------- -------
Net deferred tax assets........................................................................ $50,006 $39,899
======= =======
</TABLE>
A reconciliation between actual tax expense and taxes computed at the statutory
federal rate of 35% for the three years ended December 31, 1996 follows:
<TABLE>
<CAPTION>
1996 1995 1994
------------------- ------------------- --------------------
% of % of % of
Pretax Pretax Pretax
(Dollars in thousands) Amount Income Amount Income Amount Income
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax computed at statutory rate....................... $65,425 35.0% $58,103 35.0% $51,410 35.0%
Increases (decreases) in tax resulting from:
Tax-exempt interest income......................... (2,500) (1.3) (2,426) (1.5) (2,073) (1.4)
State income taxes, net of Federal
income tax benefit............................... 4,748 2.5 5,233 3.2 5,735 3.9
Other, net......................................... 1,855 1.0 667 .4 1,373 .9
------- ---- ------- ---- ------- ----
Actual tax expense............................... $69,528 37.2% $61,577 37.1% $56,445 38.4%
======= ==== ======= ==== ======= ====
</TABLE>
11. RELATED PARTY TRANSACTIONS
In the normal course of banking business, loans are made to officers and
directors of Mercshares and its affiliates, as well as to their related
interests. In the opinion of management, these loans are consistent with sound
banking practices, are within regulatory lending limitations and do not involve
more than the normal risk of collectibility. At December 31, 1996 and 1995,
loans to executive officers and directors of Mercshares and its principal
affiliates, including loans to their related interests, totalled $101,985,000
and $77,542,000, respectively. During 1996, loan additions and loan deletions
were $40,650,000 and $16,207,000, respectively.
38 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
12. EMPLOYEE BENEFITS
Mercshares is sponsor of an employees' cash balance pension plan which a
majority of its affiliates have adopted. Each plan participant who was employed
on January 1, 1991, was credited under the cash balance plan with a frozen
accrued benefit representing the benefit he had earned under the plan,
determined as of December 31, 1990, and based generally on past service and
career average annual compensation. For service on and after January 1, 1991,
the cash balance plan is designed to maintain separate participant accounts for
each eligible employee. These cash balance accounts are credited with annual
contribution allocations equal to various percentages of compensation based on
years of credited service and age. Mercshares' policy is to fund the pension
plan annually under the Projected Unit Credit Actuarial Cost Method.
Mercshares is also sponsor of an unfunded, nonqualified, supplemental cash
balance pension plan. All employees of Mercshares and its affiliates having
compensation for a calendar year in excess of $150,000 (as adjusted under the
Internal Revenue Code) and who are approved for participation by the Employee
Benefit Committee of Mercshares are eligible participants under this plan except
individuals who, on or prior to January 1, 1994, entered into individual
deferred compensation agreements under which they may elect to defer a portion
of their current compensation. At the end of a calendar year, the account of
each participant is credited with an amount equal to the difference between the
amount with which the participant's account under the cash balance pension plan
would have been credited but for the compensation limitation imposed by the
Internal Revenue Code and the amount actually credited to the participant's
account under the cash balance pension plan.
Interest allocations, tied to a Treasury Bill rate, are credited annually to
the cash balance accounts under both pension plans. Assets of both plans are
held in trusteed accounts which invest primarily in equity and fixed income
securities.
Total net pension expense for the cash balance pension plan for the years
ended December 31, 1996, 1995 and 1994 was $1,767,000, $2,782,000 and
$2,585,000, respectively. The following tables set forth the financial status of
the cash balance pension plan at December 31, 1996 and 1995 and the composition
of total net pension expense for 1996, 1995 and 1994.
<TABLE>
<CAPTION>
At December 31,
--------------------------
(Dollars in thousands) 1996 1995
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Accumulated benefit obligation:
Vested............................................................................................. $ 80,197 $ 72,426
Nonvested.......................................................................................... 597 659
-------- --------
Total............................................................................................ $ 80,794 $ 73,085
======== ========
Plan assets at fair value............................................................................ $ 90,691 $ 77,799
Less: Projected benefit obligation................................................................... (90,039) (81,914)
-------- --------
Plan assets greater (less) than projected benefit obligation......................................... 652 (4,115)
Plus: Unrecognized net loss.......................................................................... 637 4,163
Unrecognized prior service cost................................................................ (277) 1,521
Less: Unamortized net asset from adoption of SFAS No. 87............................................. (3,472) (4,167)
-------- --------
Pension expense accrued........................................................................ $ (2,460) $ (2,598)
======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------
(Dollars in thousands) 1996 1995 1994
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total net pension expense:
Service cost.................................................................... $ 2,906 $ 2,441 $ 2,732
Interest cost................................................................... 6,002 5,652 5,085
Actual return on assets......................................................... (10,498) (13,867) (663)
Net amortization and deferral................................................... 3,357 8,556 (4,569)
-------- -------- -------
Total......................................................................... $ 1,767 $ 2,782 $ 2,585
======== ======== =======
Assumptions:
Discount rate................................................................... 7.0% 7.0% 8.5%
Average increase in future compensation levels.................................. 4.5% 4.5% 5.5%
Expected long-term rate of return on assets..................................... 8.0% 8.0% 8.0%
</TABLE>
In addition to providing pension benefits, the Company and its affiliates
provide certain health care and life insurance benefits for retired employees.
The Company's employees were eligible for company paid health care benefits if
their age plus length of service was equal to at least 65 as of December 31,
1990. The Company's employees may become eligible for company paid life
insurance benefits if they qualify for retirement while working for the
Company.
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 39
<PAGE>
Mercshares has a contributory thrift plan under the provisions of Section
401(k) of the Internal Revenue Code. Generally, employees with a minimum of one
year of service are eligible for participation in the plan. Mercshares also
sponsors an unfunded, nonqualified supplemental thrift plan. All vice presidents
and above who participate in the thrift plan, who have compensation for a
calendar year in excess of $150,000 (as adjusted under the Internal Revenue
Code) and who are approved for participation by the Employee Benefit Committee
of Mercshares are eligible participants under this plan except individuals who,
on or prior to January 1, 1994, entered into individual deferred compensation
agreements under which they may elect to defer a portion of their current
compensation. The total expense for these plans in 1996, 1995 and 1994 was
$4,135,000, $3,935,000 and $3,586,000, respectively.
As of January 1, 1993, Mercshares adopted the provisions of Statement of
Financial Accounting Standards No. 106, "Employer's Accounting for
Postretirement Benefits Other than Pensions." The following tables set forth the
plan's funding status and the expense recognized for the periods reported:
<TABLE>
<CAPTION>
At December 31,
-----------------
(Dollars in thousands) 1996 1995
- - ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of accumulated postretirement benefits obligation (APBO):
Retirees.......................................................................................... $6,039 $5,397
Active fully eligible plan participants........................................................... 1,210 1,540
Other active plan participants.................................................................... 1,630 1,097
------ ------
Total APBO.................................................................................... 8,879 8,034
Plan assets....................................................................................... 0 0
------ ------
APBO in excess of plan assets..................................................................... 8,879 8,034
Unrecognized net loss............................................................................. (146) (46)
Unrecognized net obligation from the adoption of SFAS No. 106..................................... (110)
------ ------
Postretirement benefits accrued................................................................... $8,733 $7,878
====== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
(Dollars in thousands) 1996 1995
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Total postretirement benefits expense:
Service cost--benefits earned during the year...................................................... $121 $ 74
Interest cost--projected benefits obligation....................................................... 628 600
Amortization of unrecognized loss.................................................................. 46
Amortization of transition obligation.............................................................. 110 110
---- ----
Total.......................................................................................... $905 $784
==== ====
Discount rate used in determining the actual present value of APBO................................. 7.0% 7.0%
</TABLE>
13. OMNIBUS STOCK PLAN
The Omnibus Stock Plan permits the grant of stock options and other stock
incentives to key employees of Mercshares and its affiliates. The Omnibus Stock
Plan provides for the issuance of up to 1,935,000 shares of Mercshares
authorized but unissued common stock. Options outstanding were granted at market
value and include both stock options which become exercisable cumulatively at
the rate of 25% a year and those which are exercisable immediately on grant. If
certain levels of earnings per share of Mercshares and net operating income of
affiliates are not achieved, all or a portion of those options which become
exercisable at the rate of 25% a year are forfeited and become available for
future grants. All options will terminate ten years from date of grant if not
exercised. A summary of activity under the Omnibus Stock Plan during the years
1996 and 1995 follows:
<TABLE>
<CAPTION>
Options issued Weighted average
and outstanding exercise price
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Balance, December 31, 1994....................................................... 0
Granted.......................................................................... 1,043,150 $21.875
Terminated....................................................................... (18,000) 21.875
Exercised........................................................................ (14,140) 21.875
---------
Balance, December 31, 1995....................................................... 1,011,010 21.875
Granted ......................................................................... 126,000 25.956
Terminated....................................................................... (9,623) 21.875
Exercised........................................................................ (61,365) 21.875
---------
Balance, December 31, 1996....................................................... 1,066,022 22.357
=========
Options exercisable at December 31, 1996......................................... 401,022 22.096
</TABLE>
40 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
At December 31, 1996, the exercise price of options outstanding ranged from
$21.875 to $27.625 and the weighted average remaining contractual life of the
options outstanding was 8.4 years. The weighted average fair value of options
granted during 1996 and 1995 was $5.15 and $4.79, respectively. Compensation
cost associated with the options granted and expected to vest for 1996 and 1995
was $1,114,000 and $2,106,000, respectively.
The weighted average fair value of all of the options granted during 1996
and 1995 is estimated as of the date of grant using the Black-Scholes option
pricing model and assumes: (a) the actual date of grant; (b) the exercise price
equals the market value at date of grant; (c) dividend yield of 3.5%; (d)
weighted average expected term of 4.3 years; (e) weighted average risk-free
interest rate of 7.5%; and (f) weighted average volatility of 22.0%. Weighted
averages are used because of varying assumed expected exercise dates. In
accordance with Statement of Financial Accounting Standards No. 123, Accounting
for Stock-based Compensation, adopted in 1995, compensation cost is determined
based on the fair value of each option and the number of options that are
granted and expected to vest.
14. AFFILIATIONS
In October 1996, Mercshares announced its plan of affiliation with Home Bank,
Newark, Maryland (Home), in a tax-free exchange of stock. Shareholders of Home
will receive 2.6 shares of Mercshares common stock for each of the 175,947
shares outstanding of Home common stock and cash in lieu of any fractional
share. An additional 6,829 shares may be issued to holders of stock options.
This affiliation is expected to be accounted for as a purchase. The affiliation
has been approved by the shareholders of Home and approval by various regulatory
agencies is pending. It is anticipated that this affiliation will be completed
during 1997.
The results of operations of Home prior to the affiliation date are not
expected to be material to Mercshares' results of operations. For the year ended
December 31, 1996 Home reported net income of $656,000 and average total assets
of $45,802,000.
In December 1996, Mercshares announced its plan of affiliation with Farmers
Bank of Mardela Springs, Maryland (Farmers), in a tax-free exchange of stock.
Shareholders of Farmers will receive 1.25 shares of Mercshares common stock for
each of the 92,028 shares outstanding of Farmers common stock and cash in lieu
of any fractional share. This affiliation is expected to be accounted for as a
purchase. The affiliation has been approved by the shareholders of Farmers and
approval by various regulatory agencies is pending. It is anticipated that this
affiliation will be completed during 1997.
The results of operations of Farmers prior to the affiliation date are not
expected to be material to Mercshares' results of operations. For the year ended
December 31, 1996 Farmers reported net income of $215,000 and average total
assets of $27,669,000.
Both banks will be merged into Peninsula Bank, a Mercshares affiliate on
Maryland's Eastern Shore.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations:
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------
1996 (Dollars in thousands, except per share data) Dec. 31 Sept. 30 June 30 March 31
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income.......................................................... $79,587 $78,885 $77,119 $74,990
Provision for loan losses.................................................... 3,804 4,188 3,275 3,399
Net income................................................................... 30,358 30,007 29,302 27,733
Per share of common stock.................................................... .64 .63 .61 .58
</TABLE>
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------
1995 (Dollars in thousands, except per share data) Dec. 31 Sept. 30 June 30 March 31
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income.......................................................... $73,728 $72,153 $71,574 $69,333
Provision for loan losses.................................................... 2,890 2,123 1,535 1,440
Net income................................................................... 26,940 27,170 26,114 24,208
Per share of common stock.................................................... .56 .58 .55 .50
</TABLE>
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 41
<PAGE>
16. FAIR VALUE OF FINANCIAL INSTRUMENTS
In accordance with the disclosure requirements of Statement of Financial
Accounting Standards No. 107, the estimated fair values of Mercshares' financial
instruments at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1996 1995
------------------------- -------------------------
Book Fair Book Fair
(Dollars in thousands) Value Value Value Value
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and short-term investments........................................ $ 285,379 $ 285,379 $ 323,464 $ 323,464
Investment securities.................................................. 1,622,966 1,623,063 1,572,254 1,572,381
Loans.................................................................. 4,582,712 4,301,270
Less: allowance for loan losses........................................ (97,718) (91,398)
---------- ----------
Loans, net....................................................... 4,484,994 4,560,889 4,209,872 4,284,567
---------- ---------- ---------- ----------
Total financial assets........................................... $6,393,339 $6,469,331 $6,105,590 $6,180,412
========== ========== ========== ==========
LIABILITIES
Deposits............................................................... $5,339,655 $5,332,033 $5,169,381 $5,177,324
Short-term borrowings.................................................. 336,655 336,655 281,642 281,642
Long-term debt......................................................... 49,395 50,143 25,623 26,654
---------- ---------- ---------- ----------
Total financial liabilities...................................... $5,725,705 $5,718,831 $5,476,646 $5,485,620
========== ========== ========== ==========
</TABLE>
The following methods and assumptions were used to estimate the fair value
disclosures for financial instruments as of December 31, 1996 and 1995:
Cash and Short-Term Investments
The amounts reported in the balance sheet approximate the fair values of these
assets. Short-term investments include interest-bearing deposits in other banks,
federal funds sold and securities purchased under resale agreements.
Investment Securities
Fair values are based on quoted market prices.
Loans
The fair value of loans is estimated using discounted cash flow analyses based
on contractual repayment schedules and discount rates which are believed to
reflect current credit quality and other related factors. These factors provide
for the effect of interest over time, as well as losses expected over the life
of the loan portfolio and recovery of other operating expenses.
Deposits
The fair value of demand deposits, savings accounts and money market deposits is
the amount payable on demand at the reporting date. The fair value of
fixed-maturity certificates of deposit is estimated by discounting the expected
future cash flows using a discount rate with factors similar to those used above
for the loans. The credit quality factor used reflects the overall credit
quality of Mercshares and not its customers.
Short-Term Borrowings
The amounts reported in the balance sheet approximate the fair values because of
the short duration of those instruments.
Long-Term Debt
Fair value is estimated by discounting the future cash flows using estimates of
rates currently available to Mercshares and its affiliates for debt with similar
terms and remaining maturities.
Limitations
The valuation techniques employed above involve uncertainties and are affected
by assumptions used and judgments regarding prepayments, credit risk, future
loss experience, discount rates, cash flows and other factors. Therefore,
derived fair values cannot be substantiated by comparison to independent markets
or to other financial institutions. The reported fair values do not necessarily
represent what Mercshares would realize in immediate sales or other
dispositions. Changes in assumptions could significantly affect the reported
fair values.
42 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
17. MERCANTILE BANKSHARES CORPORATION (PARENT CORPORATION ONLY) FINANCIAL
INFORMATION
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(Dollars in thousands, except per share data) 1996 1995
===================================================================================================================================
<S> <C> <C>
ASSETS
Cash.................................................................................................. $ 5,973 $ 5,265
Investment in bank affiliates......................................................................... 781,477 753,172
Investment in bank-related affiliates................................................................. 23,595 22,784
Interest-bearing deposit with bank affiliate.......................................................... 28,000 4,000
Securities purchased under resale agreements with bank affiliate...................................... 116,679 115,480
Loans and advances to bank-related affiliates......................................................... 19,000 14,000
Investment securities available-for-sale.............................................................. 1,250
Excess cost over equity in affiliates................................................................. 28,276 30,251
Other assets.......................................................................................... 496 891
---------- --------
Total............................................................................................. $1,004,746 $945,843
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Commercial paper.................................................................................... $ 116,679 $125,480
Accounts payable and other liabilities.............................................................. 3,031 2,537
Long-term debt...................................................................................... 49,000 24,000
---------- --------
Total liabilities................................................................................. 168,710 152,017
---------- --------
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 47,435,322 shares in 1996 and 48,272,451 shares in 1995 ................................... 94,872 96,545
Capital surplus..................................................................................... 97,154 66,107
Retained earnings................................................................................... 641,212 620,391
Unrealized gains (losses) on securities............................................................. 2,798 10,783
---------- --------
Total stockholders' equity........................................................................ 836,036 793,826
---------- --------
Total........................................................................................... $1,004,746 $945,843
========== ========
</TABLE>
STATEMENT OF INCOME
<TABLE>
<CAPTION>
(Dollars in thousands)
-------------------------------------
For the Years Ended December 31, 1996 1995 1994
===================================================================================================================================
<S> <C> <C> <C>
INCOME
Dividends from bank affiliates............................................................ $ 83,478 $ 49,810 $35,809
Dividends from bank-related affiliates.................................................... 1,885 481 260
Interest-bearing deposit with bank affiliate.............................................. 849 1,154 942
Interest on securities purchased under resale agreements with bank affiliate.............. 6,019 4,381 2,705
Interest on loans to bank-related affiliates.............................................. 801 894 1,464
Other income.............................................................................. 31
-------- -------- -------
Total income.......................................................................... 93,063 56,720 41,180
-------- -------- -------
EXPENSES
Amortization of excess cost over equity in affiliates..................................... 1,975 1,276 1,131
Interest on short-term borrowings......................................................... 6,388 4,627 2,940
Interest on long-term debt................................................................ 2,546 1,693 1,958
Other expenses............................................................................ 2,875 2,452 1,965
-------- -------- -------
Total expenses........................................................................ 13,784 10,048 7,994
-------- -------- -------
Income before income tax benefit and equity in
undistributed net income of affiliates.................................................. 79,279 46,672 33,186
Income tax (benefit)...................................................................... (372) (94) 488
-------- -------- -------
79,651 46,766 32,698
Equity in undistributed net income of:
Bank affiliates......................................................................... 36,939 55,816 55,320
Bank-related affiliates................................................................. 810 1,850 2,423
-------- -------- -------
NET INCOME............................................................................ $117,400 $104,432 $90,441
======== ======== =======
</TABLE>
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 43
<PAGE>
17. MERCANTILE BANKSHARES CORPORATION (PARENT CORPORATION ONLY) FINANCIAL
INFORMATION (cont.)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(Dollars in thousands)
Increase (decrease) in cash and cash equivalents --------------------------------
For the Years Ended December 31, 1996 1995 1994
===================================================================================================================================
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Dividends from affiliates....................................................................... $ 85,363 $ 50,291 $ 36,069
Interest on securities purchased under resale agreements with bank affiliate.................... 6,019 4,381 2,705
Interest on loans to bank-related affiliates.................................................... 604 973 1,459
Other income.................................................................................... 3,576 1,513 1,244
Interest paid................................................................................... (8,934) (6,402) (4,898)
Other expenses.................................................................................. (1,409) (3,854) (1,998)
Income taxes (paid) benefit..................................................................... (951) (350) 1,183
-------- ------- -------
Net cash provided by operating activities................................................... 84,268 46,552 35,764
-------- ------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans to affiliates.................................................. (5,000) 16,500 19,145
Net (increase) decrease in other investments.................................................... (250) 525 375
Investment in affiliates........................................................................ (350) (453)
-------- ------- -------
Net cash provided by (used in) investing activities......................................... (5,250) 16,675 19,067
-------- ------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in commercial paper..................................................... (8,800) 51,170 (21,024)
Proceeds from issuance of long-term debt........................................................ 25,000
Repayment of long-term debt..................................................................... (5,000)
Proceeds from issuance of shares................................................................ 5,846 4,486 7,087
Repurchase of common shares..................................................................... (28,578) (45,685) (11,299)
Dividends paid.................................................................................. (46,579) (41,013) (34,387)
-------- ------- -------
Net cash used in financing activities....................................................... (53,111) (36,042) (59,623)
-------- ------- -------
Net increase (decrease) in cash and cash equivalents............................................ 25,907 27,185 (4,792)
Cash and cash equivalents at beginning of year.................................................. 124,745 97,567 102,359
Adjustment for affiliation...................................................................... (7)
-------- ------- -------
Cash and cash equivalents at end of year........................................................ $150,652 $124,745 $ 97,567
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands)
Reconciliation of net income to net cash provided by operating activities --------------------------------
For the Years Ended December 31, 1996 1995 1994
===================================================================================================================================
<S> <C> <C> <C>
Net income...................................................................................... $117,400 $104,432 $ 90,441
-------- ------- -------
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of affiliates.............................................. (37,749) (57,666) (57,743)
Amortization of excess cost over equity in affiliates......................................... 1,975 1,276 1,131
(Increase) decrease in interest receivable.................................................... (197) 79 337
(Increase) decrease in other receivables...................................................... 2,696 357 (40)
Decrease in interest payable.................................................................. (53)
Increase (decrease) in accrued expenses....................................................... 1,466 (1,429) (33)
Increase (decrease) in taxes payable.......................................................... (1,323) (444) 1,671
-------- ------- -------
Total adjustments........................................................................... (33,132) (57,880) (54,677)
-------- ------- -------
Net cash provided by operating activities....................................................... $ 84,268 $ 46,552 $ 35,764
========= ======== ========
</TABLE>
44 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
FIVE YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(Dollars in thousands, except per share data) 1996 1995 1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INTEREST INCOME.................................... $ 310,581 $ 286,788 $ 262,956 $ 246,482 $ 228,540
========== ========== ========== ========== ==========
NET INCOME............................................. $ 117,400 $ 104,432 $ 90,441 $ 83,468 $ 76,298
========== ========== ========== ========== ==========
NET INCOME PER SHARE OF COMMON STOCK................... $2.46 $2.19 $1.88 $1.73 $1.67
TOTAL ASSETS........................................... $6,642,681 $6,349,103 $5,938,225 $5,789,620 $5,459,577
========== ========== ========== ========== ==========
LONG-TERM DEBT......................................... $ 49,395 $ 25,623 $ 31,470 $ 32,350 $ 15,108
========== ========== ========== ========== ==========
PROVISION FOR LOAN LOSSES.............................. $ 14,666 $ 7,988 $ 7,056 $ 12,969 $ 45,346
========== ========== ========== ========== ==========
PER SHARE CASH DIVIDENDS
Common................................................. $.98 $.86 $.74 $.64 $.58
CASH DIVIDENDS DECLARED AND PAID
On common stock........................................ $ 46,579 $ 41,013 $ 34,982 $ 30,173 $ 26,454
YEAR END LOAN DATA
Commercial, financial and agricultural................. $1,506,662 $1,393,145 $1,311,064 $1,240,951 $1,126,191
Real estate-construction............................... 380,007 363,570 318,531 318,401 317,074
Real estate-mortgage:
Commercial........................................... 1,087,434 965,640 832,290 728,290 613,903
1-4 family residential............................... 993,953 969,235 866,004 831,236 814,037
Home equity lines.................................... 144,284 130,934 132,512 135,917 121,049
Consumer............................................... 470,372 478,746 477,694 466,552 497,220
---------- ---------- ---------- ---------- ----------
Total loans........................................ 4,582,712 4,301,270 3,938,095 3,721,347 3,489,474
Less:
Allowance for loan losses............................ (97,718) (91,398) (91,257) (92,567) (88,261)
---------- ---------- ---------- ---------- ----------
Loans, net......................................... $4,484,994 $4,209,872 $3,846,838 $3,628,780 $3,401,213
========== ========== ========== ========== ==========
</TABLE>
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 45
<PAGE>
FIVE YEAR STATISTICAL SUMMARY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(Dollars in thousands) 1996 1995 1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE BALANCE SHEET STATISTICS
Average loans:
Commercial (including time & demand) loans........... $1,438,900 $1,351,600 $1,235,800 $1,186,600 $1,116,900
Mortgage and construction loans...................... 2,484,500 2,244,700 2,061,900 1,970,100 1,796,300
Consumer loans....................................... 488,100 483,000 467,500 490,300 524,800
---------- ---------- ---------- ---------- ----------
Total loans........................................ 4,411,500 4,079,300 3,765,200 3,647,000 3,438,000
---------- ---------- ---------- ---------- ----------
Federal funds sold..................................... 80,300 62,700 12,200 37,600 42,400
Securities purchased under resale agreements........... 5,300 20,000 15,700 8,700
Average securities:
U.S. government obligations.......................... 1,564,600 1,491,900 1,675,900 1,588,700 1,436,500
States and political subdivisions.................... 14,700 13,500 14,100 15,600 7,300
Other investments*................................... 17,700 10,300 10,600 7,900 5,800
---------- ---------- ---------- ---------- ----------
Total securities................................... 1,597,000 1,515,700 1,700,600 1,612,200 1,449,600
---------- ---------- ---------- ---------- ----------
Total earning assets............................. $6,094,100 $5,677,700 $5,478,000 $5,312,500 $4,938,700
========== ========== ========== ========== ==========
Average deposits:
Noninterest-bearing deposits......................... $ 982,200 $ 888,900 $ 890,100 $ 845,500 $ 746,200
Savings deposits..................................... 2,214,700 2,200,200 2,410,400 2,390,600 2,025,200
Time deposits........................................ 2,021,400 1,777,500 1,392,000 1,389,100 1,528,300
---------- ---------- ---------- ---------- ----------
Total deposits..................................... $5,218,300 $4,866,600 $4,692,500 $4,625,200 $4,299,700
========== ========== ========== ========== ==========
Average borrowed funds:
Short-term borrowings................................ $ 292,900 $ 280,900 $ 314,400 $ 286,100 $ 308,600
Long-term debt....................................... 39,600 27,900 31,900 22,000 15,500
---------- ---------- ---------- ---------- ----------
Total borrowed funds............................... $ 332,500 $ 308,800 $ 346,300 $ 308,100 $ 324,100
========== ========== ========== ========== ==========
AVERAGE RATES**
Loans:
Commercial (including time & demand) loans........... 9.24% 9.69% 8.27% 7.56% 7.85%
Mortgage and construction loans...................... 9.11 9.19 8.51 8.43 9.05
Consumer loans....................................... 9.29 9.59 8.67 8.74 9.56
Total loans........................................ 9.17 9.40 8.45 8.19 8.74
Federal funds sold..................................... 5.22 5.72 3.93 2.94 3.61
Securities purchased under resale agreements........... 6.13 5.63 3.18 3.94
Securities:
U.S. government obligations.......................... 5.82 5.45 5.15 5.49 6.60
States and political subdivisions.................... 7.59 7.75 7.79 8.26 10.25
Other investments*................................... 7.20 8.01 7.25 12.33 9.17
Total securities................................... 5.84 5.49 5.19 5.55 6.63
Composite rate earned............................ 8.24% 8.30% 7.43% 7.34% 8.07%
==== ==== ==== ===== =====
Deposits:
Savings deposits..................................... 2.63% 2.94% 2.72% 2.87% 3.60%
Time deposits........................................ 5.57 5.56 4.36 4.43 5.36
Total interest-bearing deposits.................... 4.03 4.11 3.32 3.44 4.35
Borrowed funds:
Short-term borrowings................................ 4.85 5.38 3.85 2.73 3.29
Long-term debt....................................... 6.55 6.48 6.66 7.00 7.79
Total borrowed funds............................... 5.05 5.48 4.11 3.04 3.50
Composite rate paid.............................. 4.11% 4.21% 3.39% 3.41% 4.28%
==== ==== ==== ===== =====
</TABLE>
*Includes interest-bearing deposits in other banks.
**Presented on a tax equivalent basis.
46 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands) 1996 1995 1994 1993 1992
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RETURN ON EQUITY AND ASSETS
Average total assets................................... $6,436,300 $6,000,400 $5,801,600 $5,638,600 $5,251,000
========== ========== ========== ========== ==========
Average stockholders' equity........................... $ 810,500 $ 753,500 $ 704,400 $ 651,100 $ 573,700
========== ========== ========== ========== ==========
Return on average total assets......................... 1.82% 1.74% 1.56% 1.48% 1.45%
Return on average stockholders' equity................. 14.48% 13.86% 12.84% 12.82% 13.30%
Average stockholders' equity as a percentage
of average total assets.............................. 12.59% 12.56% 12.14% 11.55% 10.93%
Dividends paid per share as a percentage
of net income per share.............................. 39.8% 39.3% 39.4% 37.0% 34.7%
SOURCES OF INCOME
Commercial (including time & demand) loans............. 22.4% 23.6% 20.7% 18.9% 17.3%
Mortgage and construction loans........................ 38.1 37.2 35.4 35.2 32.4
Consumer loans......................................... 7.7 8.4 8.3 9.2 10.1
Federal funds sold..................................... .7 .7 .1 .2 .3
Securities purchased under resale agreements........... .1 .2 .1 .1
Securities............................................. 15.8 15.1 18.1 19.1 19.3
----- ----- ----- ----- -----
Total interest income.............................. 84.8 85.2 82.6 82.7 79.5
Trust division services................................ 7.9 8.1 8.9 8.9 8.0
Other income........................................... 7.3 6.7 8.5 8.4 12.5
----- ----- ----- ----- -----
Total income....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
NET INTEREST INCOME
(Taxable Equivalent)
Interest earned:
Loans................................................ $404,530 $383,523 $318,132 $298,612 $300,445
Federal funds sold................................... 4,195 3,587 479 1,107 1,530
Securities purchased under resale agreements......... 325 1,126 499 343
Taxable securities................................... 92,211 82,094 87,200 88,185 95,398
Tax-exempt securities................................ 1,115 1,046 1,099 1,289 748
-------- -------- -------- -------- --------
Total interest income.............................. 502,376 471,376 406,910 389,692 398,464
-------- -------- -------- -------- --------
Interest paid:
Savings deposits..................................... 58,187 64,732 65,488 68,587 72,866
Time deposits........................................ 112,576 98,824 60,709 61,511 81,884
-------- -------- -------- -------- --------
Total interest-bearing deposits.................... 170,763 163,556 126,197 130,098 154,750
Short-term borrowings................................ 14,199 15,123 12,111 7,824 10,150
Long-term debt....................................... 2,596 1,808 2,125 1,539 1,207
-------- -------- -------- -------- --------
Total interest expense............................. 187,558 180,487 140,433 139,461 166,107
-------- -------- -------- -------- --------
Net interest income.............................. $314,818 $290,889 $266,477 $250,231 $232,357
======== ======== ======== ======== ========
</TABLE>
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 47
<PAGE>
FIVE YEAR SUMMARY OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
Three Months
Ended
For the Years Ended December 31, December 31,
--------------------------------------------------------- --------------------
(Dollars in thousands) 1996 1995 1994 1993 1992 1996 1995
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans.................... $400,800 $379,888 $315,094 $295,450 $297,006 $102,167 $ 97,751
Interest and dividends on securities.......... 92,812 82,670 87,766 88,805 95,695 23,639 21,674
Other interest income......................... 4,527 4,717 529 1,688 1,946 1,160 2,439
-------- -------- -------- -------- -------- -------- --------
Total interest income..................... 498,139 467,275 403,389 385,943 394,647 126,966 121,864
-------- -------- -------- -------- -------- -------- --------
INTEREST EXPENSE
Interest on deposits.......................... 170,763 163,556 126,197 130,098 154,750 42,907 44,216
Interest on short-term borrowings............. 14,199 15,123 12,111 7,824 10,150 3,659 3,512
Interest on long-term debt.................... 2,596 1,808 2,125 1,539 1,207 813 408
-------- -------- -------- -------- -------- -------- --------
Total interest expense.................... 187,558 180,487 140,433 139,461 166,107 47,379 48,136
-------- -------- -------- -------- -------- -------- --------
NET INTEREST INCOME........................... 310,581 286,788 262,956 246,482 228,540 79,587 73,728
Provision for loan losses..................... 14,666 7,988 7,056 12,969 45,346 3,804 2,890
-------- -------- -------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES.................. 295,915 278,800 255,900 233,513 183,194 75,783 70,838
-------- -------- -------- -------- -------- -------- --------
NONINTEREST INCOME
Trust division services....................... 46,244 44,273 43,360 41,673 39,903 12,139 11,672
Service charges on deposit accounts........... 16,234 15,764 15,655 16,367 15,140 4,213 4,006
Other income.................................. 26,950 20,869 25,792 22,660 46,696 6,427 5,463
-------- -------- -------- -------- -------- -------- --------
Total noninterest income.................. 89,428 80,906 84,807 80,700 101,739 22,779 21,141
-------- -------- -------- -------- -------- -------- --------
NONINTEREST EXPENSES
Salaries and employee benefits................ 120,783 117,512 110,870 106,437 95,086 30,280 29,108
Net occupancy and equipment expenses.......... 29,491 27,999 24,848 24,200 21,840 7,851 8,448
FDIC insurance premium expense................ 288 6,346 10,911 10,699 9,883 132 603
Other expenses................................ 47,853 41,840 47,192 36,906 35,348 12,513 12,211
-------- -------- -------- -------- -------- -------- --------
Total noninterest expenses................ 198,415 193,697 193,821 178,242 162,157 50,776 50,370
-------- -------- -------- -------- -------- -------- --------
Income before income taxes.................... 186,928 166,009 146,886 135,971 122,776 47,786 41,609
Applicable income taxes....................... 69,528 61,577 56,445 52,503 46,478 17,428 14,669
-------- -------- -------- -------- -------- -------- --------
NET INCOME.................................... $117,400 $104,432 $ 90,441 $ 83,468 $ 76,298 $ 30,358 $ 26,940
======== ======== ======== ======== ======== ======== ========
</TABLE>
48 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
PRINCIPAL AFFILIATES
EXECUTIVE OFFICERS DIRECTORS
________________________________________________________________________________
[Mercantile Logo] CARL A. TENHOOPEN, JR. GEORGE R. BENSON, JR.
THE ANNAPOLIS Chairman of the Board CLARENCE A. BLACKWELL
BANKING AND ROBERT E. HENEL, JR. BENNETT CRAIN, JR.
TRUST COMPANY President and RALPH W. CROSBY
Chief Executive Officer FRANCIS E. GARDINER, JR.
Main Street and CAROLYN D. O'LEARY ROBERT E. HENEL, JR.
Church Circle Executive Vice President JOHN K. HOPKINS
Annapolis, ERNEST R. AMADIO JOHN R. MOSES
Maryland 21401 Senior Vice President JAMES O. OLFSON
410/268-3366 WILLIAM A. BUSIK JOHN W. RENARD
Senior Vice President PATRICIA A. ROCHE, PH.D.
11 Offices MILDRED L. HENRY CARL A. TENHOOPEN, JR.
Senior Vice President
CHARTERED IN 1904 RANDALL M. ROBEY
Senior Vice President and
Chief Financial Officer
CHARLES E. RUCH
Senior Vice President
LYNDALL R. WARD
Senior Vice President
PAMELA A. BOWEN
Vice President and
Corporate Secretary
BALANCE SHEET (Dollars in thousands) December 31, 1996
- - -------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - -------------------------- -------------------------------------------
Cash and due Total deposits $240,280
from banks $ 14,386
Short-term borrowings 14,975
Earning assets 269,124
Other liabilities and
Allowance for accrued expenses 1,447
loan losses (2,850)
Long-term debt --
Other assets 5,656
-------- Stockholders' equity 29,614
Total assets $286,316 --------
======== Total liabilities
Net income $ 5,015 and equity $286,316
======== ========
________________________________________________________________________________
[Mercantile Logo] ROBERT E. DICKERSON THURMAN ADAMS, JR.
BALTIMORE TRUST President and EUGENE BUNTING
COMPANY Chief Executive Officer R. CAROL CAMPBELL-HANSEN
D. BRENT HURLEY ROBERT E. DICKERSON
One West Church Street Senior Vice President DAVID C. DOANE
Selbyville, B. PHILIP LYNCH, JR. D. BRENT HURLEY
Delaware 19975 Vice President and Cashier RICHARD I. LEWIS
302/436-8236 JANET L. MCCABE JAY C. MURRAY
Vice President and Secretary WILLIAM O. MURRAY
6 Offices KENNETH R. GRAHAM P. COLEMAN TOWNSEND,JR.
Vice President
CHARTERED IN 1903
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ------------------------------ -------------------------------
Cash and due
from banks $ 5,039 Total deposits $210,304
Earning assets 242,666 Short-term borrowings 190
Allowance for Other liabilities and
loan losses (3,209) accrued expenses 2,557
Other assets 7,168 Long-term debt --
--------
Total assets $251,664 Stockholders' equity 38,613
======== --------
Net income $ 5,018 Total liabilities
======== and equity $251,664
========
________________________________________________________________________________
[Mercantile Logo] WESLEY E. HUGHES, JR. WARREN E. BARLEY
BANK OF President and KENNETH O. DIXON
SOUTHERN Chief Executive Officer WESLEY E. HUGHES, JR.
MARYLAND JAMES E. SHOOK EVELYN SUSAN HUNGERFORD
Senior Vice President EDWARD L. SANDERS, JR.
304 Charles Street JAMES F. DIMISA ROBERT J. SCHICK
LaPlata, Vice President and JAMES C. SIMPSON
Maryland 20646 Cashier JOHN L. SPRAGUE
301/934-1000 J. WAYNE WELSH J. BLACKLOCK WILLS, JR.
Vice President
6 Offices DIANE M. KESTLER
Controller
CHARTERED IN 1906
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ---------------------------- ------------------------------------------
Cash and due Total deposits $150,768
from banks $ 4,285
Short-term borrowings --
Earning assets 168,515
Other liabilities and
Allowance for accrued expenses 1,050
loan losses (2,359)
Long-term debt --
Other assets 4,820
-------- Stockholders' equity 23,443
Total assets $175,261 --------
======== Total liabilities
and equity $175,261
Net income $ 3,393 ========
========
________________________________________________________________________________
[Mercantile Logo] HAROLD J. KAHL GORDON F. BOWEN
CALVERT BANK AND Chairman, President and MARY E. EISENMAN
TRUST COMPANY Chief Executive Officer BEDFORD C. GLASCOCK
HARRY B. ZINN ALLEN S. HANDEN
Calvert Village Executive Vice President HAROLD J. KAHL
Shopping Center KEVIN R. BAER LARRY D. KELLEY
P.O. Box 590 Vice President MAURICE T. LUSBY, III
Prince Frederick, JAMES B. BUIE JOHN D. MURRAY
Maryland 20678 Vice President JOHN A. SIMPSON, JR.
410/535-3535 LEONARD J. CLEMENTS GUFFRIE M. SMITH, JR.
Vice President W. DAVID SNEADE
5 Offices PATRICIA A. DIEDRICH
Vice President
CHARTERED IN 1963 R. LINDA HIPSLEY
Vice President and Treasurer
JUDITH T. MCMANUS
Vice President and
Assistant Corporate Secretary
KIMBERLEY L. WILSON
Vice President and Controller
JANICE M. LOMAX
Corporate Secretary
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - -------------------------------- ------------------------------------
Cash and due Total deposits $142,035
from banks $ 5,485
Short-term borrowings --
Earning assets 152,667
Other liabilities and
Allowance for accrued expenses 887
loan losses (1,933)
Long-term debt --
Other assets 2,518
-------- Stockholders' equity 15,815
Total assets $158,737 --------
======== Total liabilities
Net income $ 3,291 and equity $158,737
======== ========
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 49
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
________________________________________________________________________________
[Mercantile Logo] R. RAYMOND TARRACH EDWARD S. GILLESPIE
THE CHESTERTOWN President and GEORGE H. GODFREY
BANK OF MARYLAND Chief Executive Officer CLARENCE A. HAWKINS
LARRY L. RASH FRANKLIN T. HOGANS
211 High Street Senior Vice President WILLIAM M. KNIGHT
Chestertown, and Senior Loan Officer R. RAYMOND TARRACH
Maryland 21620 SHARON A. USILTON EUGENIA C. WOOTTON
410/778-2400 Vice President and
Senior Administrative Officer
8 Offices
CHARTERED IN 1904
BALANCE SHEET (Dollars in thousands) December 31, 1996
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - -------------------------------- --------------------------------
Cash and due Total deposits $144,156
from banks $ 5,015
Short-term borrowings 5,585
Earning assets 168,871
Other liabilities and
Allowance for accrued expenses 1,274
loan losses (1,921)
Long-term debt --
Other assets 4,366
-------- Stockholders' equity 25,316
Total assets $176,331 --------
======== Total liabilities
Net income $ 3,359 and equity $176,331
======== ========
________________________________________________________________________________
[Mercantile Logo] PETER W. FLOECKHER, JR. WILLIAM H. CARTER, JR.
THE CITIZENS President and CHARLES E. CASTLE, JR.
NATIONAL BANK Chief Executive Officer JOHN N. FAIGLE
GLENN L. WILSON PETER W. FLOECKHER, JR.
517 Main Street Executive Vice President MARTIN L. GOOZMAN
Laurel, and Senior Credit Officer THOMAS E. LYNCH
Maryland 20707 CHARLES M. HEISHMAN FRED L. MCKEE
301/725-3100 Executive Vice President HUGH W. MOHLER
301/953-3044 and Cashier F. ALLEN MOTHERSHEAD
Baltimore: JOSEPH F. PIPITONE MICHELE K. RYAN
410/792-7626 Senior Vice President,
Community Banking
17 Offices
CHARTERED IN 1890
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ------------------------------- ---------------------------------
Cash and due Total deposits $433,914
from banks $ 20,550
Short-term borrowings 22,325
Earning assets 491,868
Other liabilities and
Allowance for accrued expenses 2,976
loan losses (6,374)
Long-term debt --
Other assets 16,848
-------- Stockholders' equity 63,677
Total assets $522,892 --------
======== Total liabilities
Net income $ 8,559 and equity $522,892
======== ========
________________________________________________________________________________
[Mercantile Logo] S. DELL FOXX THOMAS F. BRADLEE
COUNTY BANKING President and CHARLES J. FOLEY, JR., M.D.
& TRUST Chief Executive Officer S. DELL FOXX
COMPANY RAYMOND A. HAMM, JR. SAMUEL M. GAWTHROP, JR.
Executive Vice President HARRY E. HAMMOND
123 North Street RALPH R. LANPHAR
P.O. Box 100 HOWARD D. MCFADDEN
Elkton, G. EUGENE MACKIE
Maryland 21921 F. GROVE MILLER
410/398-2600
9 Offices
CHARTERED IN 1908
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ------------------------------- ----------------------------------
Cash and due Total deposits $256,662
from banks $ 12,160
Short-term borrowings 1,390
Earning assets 271,470
Other liabilities and
Allowance for accrued expenses 2,047
loan losses (3,742)
Long-term debt --
Other assets 9,420
-------- Stockholders' equity 29,209
Total assets $289,308 --------
======== Total liabilities
Net income $ 4,278 and equity $289,308
======== ========
________________________________________________________________________________
[Mercantile Logo] ROBERT L. SIMPSON WILLIAM F. BERNART
THE EASTVILLE President and CHARLES W. DICKINSON, IV
BANK Chief Executive Officer CROXTON GORDON
CHARLES W. DICKINSON, IV RUSSELL KELLAM
16485 Lankford Highway Vice President and Secretary KATHERINE T. MEARS
P.O. Box 7 FAY S.WEBB J. THOMAS SAVAGE
Eastville, Assistant Cashier ROBERT L. SIMPSON
Virginia 23347 C. A. TURNER, III
757/678-5187
1 Office
CHARTERED IN 1920
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - -------------------------------- -----------------------------------
Cash and due Total deposits $21,044
from banks $ 639
Short-term borrowings --
Earning assets 27,020
Other liabilities and
Allowance for accrued expenses 146
loan losses (575)
Long-term debt --
Other assets 616
------- Stockholders' equity 6,510
Total assets $27,700 -------
======= Total liabilities
Net income $ 565 and equity $27,700
======= =======
50 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
________________________________________________________________________________
[Mercantile Logo] GEORGE N. MCMATH KELLY B. CONKLIN
FARMERS & Chairman of the Board JEFFERY L. DAVIS
MERCHANTS BANK- H. B. REW, JR. M. CARTER DAVIS, JR.
EASTERN SHORE President and JOHN H. DUER, III
Chief Executive Officer W. REVELL LEWIS, III
25275 Lankford Highway TED D. DUER THOMAS J. MAPP, JR.
P.O. Box 623 Executive Vice President and NORMAN JAMES MARSHALL
Onley, Chief Administrative Officer GEORGE N. MCMATH
Virginia 23418 JULIE M. BADGER H. B. REW, JR.
757/787-4111 Vice President and THOMAS N. RICHARDSON
757/824-3052 Chief Financial Officer RICHARD W. YOUNG
ROBERT J. BLOXOM
4 Offices Vice President and
Senior Lending Officer
CHARTERED IN 1909 ELIZABETH A. KERNS
Vice President and
Assistant Secretary
BALANCE SHEET (Dollars in thousands) December 31, 1996
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ---------------------------------- --------------------------------------
Cash and due Total deposits $114,941
from banks $ 4,960
Short-term borrowings 519
Earning assets 133,815
Other liabilities and
Allowance for accrued expenses 740
loan losses (2,190)
Long-term debt --
Other assets 3,736
-------- Stockholders' equity 24,121
Total assets $140,321 --------
======== Total liabilities
Net income $ 2,928 and equity $140,321
======== ========
________________________________________________________________________________
[Mercantile Logo] C. JOSEPH CUNNINGHAM, III FRANCIS X. COSGROVE
THE FIDELITY BANK Chairman of the Board, C. JOSEPH CUNNINGHAM, III
President and STEVEN V. HASE
59 East Main Street Chief Executive Officer JAMES P. KREILING
Frostburg, JAMES P. KREILING HUGH A. MCMULLEN
Maryland 21532 Senior Vice President JAMES A. POLAND
301/689-1111 MATTHEW SKIDMORE, SR.
F. EMMETT SMITH
3 Offices KAREN O. SULLIVAN
CHARTERED IN 1902
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ------------------------------- -------------------------------------
Cash and due Total deposits $35,896
from banks $ 945
Short-term borrowings 335
Earning assets 39,524
Other liabilities and
Allowance for accrued expenses 246
loan losses (389)
Long-term debt --
Other assets 953
------- Stockholders' equity 4,556
Total assets $41,033 -------
======= Total liabilities
Net income $ 397 and equity $41,033
======= =======
________________________________________________________________________________
[Mercantile Logo] JOSEPH M. GOUGH, JR. SAMUEL M. BAILEY, JR.
THE FIRST Chairman of the Board MARTIN A. BARLEY
NATIONAL BANK JOHN A. CANDELA JOSEPH E. BELL, II
OF ST. MARY'S President and WALTER R. BLAIR, JR.
Chief Executive Officer ELMER BROWN
41615 Park Avenue GEORGE A. FERGUSON EDWARD S. BURROUGHS
P.O. Box 655 Vice President, Cashier, JOHN A. CANDELA
Leonardtown, Senior Operations Officer FORD L. DEAN
Maryland 20650 and Secretary to the Board FRANCES P. EAGAN
301/475-8081 DAN KUBICAN GEORGE A. FERGUSON
Vice President and JOSEPH M. GOUGH, JR.
7 Offices Senior Loan Officer JOSEPH F. MITCHELL
GENEVIEVE M. HUNT EDMUND W. WETTENGEL
CHARTERED IN 1903 Vice President and
Controller
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ------------------------------- ------------------------------------
Cash and due Total deposits $223,953
from banks $ 5,633
Short-term borrowings 2,250
Earning assets 254,419
Other liabilities and
Allowance for accrued expenses 1,186
loan losses (2,842)
Long-term debt --
Other assets 6,338
-------- Stockholders' equity 36,159
Total assets $263,548 --------
======== Total liabilities
Net income $ 6,582 and equity $263,548
======== ========
________________________________________________________________________________
[Mercantile Logo] PAUL E. PEAK THOMAS A. BURKE
THE FOREST HILL President and JOHN B. DINNING
STATE BANK Chief Executive Officer ANN K. EDIE
RUSSELL R. CULLUM HENRY S. HOLLOWAY
130 South Bond Street Executive Vice President RICHARD E. KINARD
Bel Air, MICHAEL F. ALLEN RALPH L. KLEIN
Maryland 21014 Senior Vice President C. RAY MANN
410/838-6131 PAUL E. PEAK
Baltimore: BARBARA LEE RUDOLPH
410/879-1475 R. EDWARD SCHUELER, JR.
GREGORY A. SZOKA
7 Offices F. D. WHITEFORD
CHARTERED IN 1913
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - -------------------------------- ---------------------------------------
Cash and due Total deposits $203,013
from banks $ 6,580
Short-term borrowings 14,164
Earning assets 231,765
Other liabilities and
Allowance for accrued expenses 1,468
loan losses (3,095)
Long-term debt --
Other assets 7,552
-------- Stockholders' equity 24,157
Total assets $242,802 --------
======== Total liabilities
Net income $ 3,963 and equity $242,802
======== ========
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 51
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
________________________________________________________________________________
[Mercantile Logo] J. BRIAN GAENG W. BERT ANDERSON
FREDERICKTOWN President and MARVIN E. AUSHERMAN
BANK & Chief Executive Officer GEORGE W. BRUCHEY
TRUST COMPANY ROBERT M. ESLINGER DAVID P. CHAPIN
Senior Vice President CALEB C. EWING, JR.
30 North Market Street ELIZABETH M. GROSSNICKLE J. BRIAN GAENG
Frederick, Vice President and Treasurer ROBERT E. GEARINGER
Maryland 21701 RICHARD L. KESSLER
301/662-8231 CHRISTOPHER T. KLINE
DAVID C. MEADOWS
8 Offices PETER H. PLAMONDON
ALFRED P. SHOCKLEY
CHARTERED IN 1828
BALANCE SHEET (Dollars in thousands) December 31, 1996
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - -------------------------------- ------------------------------------
Cash and due Total deposits $174,432
from banks $ 4,148
Short-term borrowings 3,943
Earning assets 199,625
Other liabilities and
Allowance for accrued expenses 2,134
loan losses (3,664)
Long-term debt --
Other assets 6,217
-------- Stockholders' equity 25,817
Total assets $206,326 --------
======== Total liabilities
Net income $ 3,232 and equity $206,326
======== ========
________________________________________________________________________________
[Mercantile Logo] H. FURLONG BALDWIN H. FURLONG BALDWIN
MERCANTILE-SAFE Chairman of the Board and THOMAS M. BANCROFT, JR.
DEPOSIT & Chief Executive Officer RICHARD O. BERNDT
TRUST COMPANY EDWARD K. DUNN, JR. JAMES A. BLOCK, M.D.
President and WILLIAM R. BRODY, M.D.
2 Hopkins Plaza Chief Operating Officer GEORGE L. BUNTING, JR.
Baltimore, BRIAN B. TOPPING EDWARD K. DUNN, JR.
Maryland 21201 Vice Chairman of MARTIN L. GRASS
410/237-5900 the Board FREEMAN A. HRABOWSKI, III
KENNETH A. BOURNE, JR. B. LARRY JENKINS
18 Offices Executive Vice President ROBERT A. KINSLEY
HUGH W. MOHLER ROBERT D. KUNISCH
CHARTERED IN 1864 Executive Vice President WILLIAM J. MCCARTHY
J. MARSHALL REID MORRIS W. OFFIT
Executive Vice President CHRISTIAN H. POINDEXTER
JACK E. STEIL WILLIAM C. RICHARDSON
Executive Vice President BISHOP L. ROBINSON
DAVID C. TAIT DONALD J. SHEPARD
Executive Vice President BRIAN B. TOPPING
DONALD J. TRUFANT CALMAN J. ZAMOISKI, JR.
Executive Vice President
JAY M. WILSON
Executive Vice President
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ----------------------------- -----------------------------------
Cash and due Total deposits $1,867,875
from banks $ 202,384
Short-term borrowings 271,788
Earning assets 2,216,828
Other liabilities and
Allowance for accrued expenses 44,228
loan losses (36,686)
Long-term debt --
Other assets 80,826
---------- Stockholders' equity 279,461
Total assets $2,463,352 ----------
========== Total liabilities
Net income $ 46,235 and equity $2,463,352
========== ==========
________________________________________________________________________________
[Mercantile Logo] J. WILLIAM POOLE LELAND H. BAKER
THE NATIONAL Chairman of the Board JOHN H. CHICHESTER
BANK OF WILLIAM B. YOUNG GEORGE C. FREEMAN
FREDERICKSBURG President and LEWIS W. GRAVES
Chief Executive Officer JOHN A. JAMISON
2403 Fall Hill Avenue WILLIAM E. MILBY CHARLES T. LEWIS
Fredericksburg, Executive Vice President and CHARLES A. MCCORMACK
Virginia 22401 Cashier WILLIAM E. MILBY
540/899-3200 JOHN B. DANIEL J. WILLIAM POOLE
Senior Vice President FRANK C. SILVEY
8 Offices LLOYD B. HARRISON WILLIAM B. YOUNG
Senior Vice President
CHARTERED IN 1865 KENNETH T. WHITESCARVER, III
Senior Vice President
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ------------------------------ ------------------------------------
Cash and due Total deposits $220,720
from banks $ 10,619
Short-term borrowings 2,853
Earning assets 232,073
Other liabilities and
Allowance for accrued expenses 1,664
loan losses (2,751)
Long-term debt --
Other assets 9,420
-------- Stockholders' equity 24,124
Total assets $249,361 --------
======== Total liabilities
Net income $ 3,529 and equity $249,361
======== ========
52 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
________________________________________________________________________________
[Mercantile Logo] JEFFREY F. TURNER CHARLES A. BRUCE, JR.
PENINSULA President and FRANK B. HANNA, SR.
BANK Chief Executive Officer HENRY H. HANNA, III
WILLIAM T. STURGIS CHARLES R. JENKINS, SR.
11738 Somerset Avenue Executive Vice President, JOHN R. LERCH
P.O. Box 219 Senior Loan Officer and GEORGE A. PURNELL
Princess Anne, Acting Secretary E. SCOTT TAWES
Maryland 21853 DEBORAH S. ABBOTT CASEY I. TODD
410/651-2400 Vice President and JEFFREY F. TURNER
Regional Officer ROBERT B. TWILLEY, JR.
16 Offices JOHN J. SIMSON
Vice President and
CHARTERED IN 1889 Regional Officer
W. THOMAS MEARS
Vice President and
Regional Officer
JERRY C. BRIELE
Vice President and
Treasurer
MICHAEL R. WALSH
Vice President,
Operations
BALANCE SHEET (Dollars in thousands) December 31, 1996
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ----------------------------- --------------------------------------
Cash and due Total deposits $319,383
from banks $ 12,974
Short-term borrowings 16,410
Earning assets 364,646
Other liabilities and
Allowance for accrued expenses 3,405
loan losses (7,598)
Long-term debt 98
Other assets 13,228
-------- Stockholders' equity 43,954
Total assets $383,250 --------
======== Total liabilities
Net income $ 6,969 and equity $383,250
======== ========
________________________________________________________________________________
[Mercantile Logo] JEFFREY N. HEFLEBOWER A. CURTIS ANDREW
THE PEOPLES President and RICHARD A. EDWARDS
BANK OF Chief Executive Officer JEFFREY N. HEFLEBOWER
MARYLAND FREDERICK L. HUBBARD
CALVERT C. MERRIKEN, JR.
205 Market Street E. JOHN MILLS
Denton, JOSEPH D. QUINN
Maryland 21629 A. ORRELL SAULSBURY, III
410/479-2600
5 Offices
CHARTERED IN 1919
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ------------------------------- ----------------------------------
Cash and due Total deposits $70,511
from banks $ 3,756
Short-term borrowings 2,710
Earning assets 76,956
Other liabilities and
Allowance for accrued expenses 646
loan losses (975)
Long-term debt --
Other assets 3,526
------- Stockholders' equity 9,396
Total assets $83,263 -------
======= Total liabilities
Net income $ 1,349 and equity $83,263
======= =======
________________________________________________________________________________
[Mercantile Logo] JAMES J. CROMWELL KENNETH A. BOURNE, JR.
POTOMAC Chairman of the Board STEPHEN E. CHASE
VALLEY BANK KENNETH C. COOK KENNETH C. COOK
President and JAMES J. CROMWELL
702 Russell Avenue Chief Executive Officer BRUCE MACKEY
Gaithersburg, FRANCIS R. MASSICOTTE WILLIAM C. MOYER
Maryland 20877 Senior Vice President and REX L. STURM
301/963-7600 Corporate Secretary C. CLIFTON VEIRS, III
WILLIAM W. WEST
6 Offices Senior Vice President and
Chief Lending Officer
CHARTERED IN 1959 ARREL E. GODFREY
Senior Vice President
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ----------------------------- ----------------------------------
Cash and due Total deposits $155,578
from banks $ 7,548
Short-term borrowings 11,925
Earning assets 177,017
Other liabilities and
Allowance for accrued expenses 1,233
loan losses (2,939)
Long-term debt --
Other assets 3,477
-------- Stockholders' equity 16,367
Total assets $185,103 --------
======== Total liabilities
Net income $ 2,566 and equity $185,103
======== ========
________________________________________________________________________________
[Mercantile Logo] WILLIAM W. DUNCAN, JR. WILLIAM W. DUNCAN, JR.
ST. MICHAELS President and PAMELA P. GARDNER
BANK Chief Executive Officer NORMAN M. SHANNAHAN, III
R. IVAN THAMERT R. IVAN THAMERT
213 Talbot Street Executive Vice President JOHN R. VALLIANT
P.O. Box 70 CLIFFORD L. HILK ROBERT B. VOJVODA
St. Michaels, Senior Vice President and DAVID N. WEISE
Maryland 21663 Senior Loan Officer DONALD R. YOUNG
410/745-5091 ANITA N. PARROTT
Senior Vice President and
5 Offices Chief Financial Officer
CHARTERED IN 1890
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ---------------------------- ----------------------------------
Cash and due Total deposits $100,112
from banks $ 3,513
Short-term borrowings 6,300
Earning assets 115,996
Other liabilities and
Allowance for accrued expenses 810
loan losses (4,820)
Long-term debt --
Other assets 3,679
-------- Stockholders' equity 11,146
Total assets $118,368 --------
======== Total liabilities
Net income $ 1,909 and equity $118,368
======== ========
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 53
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
________________________________________________________________________________
[Mercantile Logo] CHARLES E. ENSOR, SR. LINDA I. ALEXANDER
THE SPARKS Chairman of the Board CHARLES E. ENSOR, SR.
STATE BANK RICHARD F. PRICE J. DAVID LAWSON
Vice Chairman LEIB MCDONALD
14804 York Road BRADLEY G. MOORE BRADLEY G. MOORE
Sparks, President and GEORGE V. PALMER
Maryland 21152 Chief Executive Officer RICHARD F. PRICE
410/771-4900 DANIEL R. WERNECKE ROBERT J. RIGGER
Executive Vice President OSCAR M. SCHAPIRO
5 Offices JANET M. MILLER WILLIAM L. TARBERT, SR.
Senior Vice President and
CHARTERED IN 1916 Corporate Treasurer
JOHN W. WRIGHT
Senior Vice President
AMY G. WHITELEY
Senior Vice President
DONNA S. ENSOR
Vice President and
Corporate Secretary
BALANCE SHEET (Dollars in thousands) December 31, 1996
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ------------------------------ ------------------------------------
Cash and due Total deposits $169,329
from banks $ 4,189
Short-term borrowings 4,150
Earning assets 192,157
Other liabilities and
Allowance for accrued expenses 1,796
loan losses (2,943)
Long-term debt 59
Other assets 5,443
-------- Stockholders' equity 23,512
Total assets $198,846 --------
======== Total liabilities
Net income $ 3,745 and equity $198,846
======== ========
________________________________________________________________________________
[Mercantile Logo] JOHN C. SCHAEFFER ROBERT R. BOWMAN
WESTMINSTER BANK Chairman of the Board DANIEL S. DULANY
AND TRUST FERDINAND A. RUPPEL, JR. ROBERT L. JONES
COMPANY OF President and G. THOMAS MULLINIX
CARROLL COUNTY Chief Executive Officer MARLIN L. RITTASE
MARK G. POHLHAUS FERDINAND A. RUPPEL, JR.
71 East Main Street Executive Vice President JOHN C. SCHAEFFER
Westminster, DANIEL E. DUTTERER MERHLE B. WARFIELD, JR.
Maryland 21157 Senior Vice President and
410/848-9300 Chief Financial Officer
9 Offices
CHARTERED IN 1898
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ---------------------------- ----------------------------------
Cash and due Total deposits $205,371
from banks $ 5,872
Short-term borrowings 3,410
Earning assets 227,904
Other liabilities and
Allowance for accrued expenses 1,372
loan losses (2,852)
Long-term debt --
Other assets 5,732
-------- Stockholders' equity 26,503
Total assets $236,656 --------
======== Total liabilities
Net income $ 3,535 and equity $236,656
======== ========
________________________________________________________________________________
[Mercantile Logo] PAUL W. PARKS H. FURLONG BALDWIN
MERCANTILE President and RICHARD O. BERNDT
MORTGAGE Chief Executive Officer MICHAEL S. CORDES
CORPORATION MICHAEL S. CORDES EDWARD K. DUNN, JR.
Executive Vice President and WILLIAM J. MCCARTHY
20 South Charles Street, Chief Operating Officer PAUL W. PARKS
3rd Floor EDWARD J. MURN, III CHRISTIAN H. POINDEXTER
Baltimore, Executive Vice President for CALMAN J. ZAMOISKI, JR.
Maryland 21201 Multi-family Finance
410/347-8940 WILLIAM L. WILCOX, JR.
Executive Vice President
12 Offices for Production
KEVIN J. MICHNO
INCORPORATED IN 1972 Senior Vice President
for Underwriting and
Information Services
JOHN M. SCHWANKY
Senior Vice President
for Servicing
TIMOTHY B. HOFFMAN
Vice President for Secondary
Marketing
KEVIN P. MCCARTHY
Vice President for Construction
SALLY M. LYNCH
Vice President for Human
Resources
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ----------------------------- --------------------------------------
Cash and due Total deposits $ --
from banks $ 2,488
Short-term borrowings 19,000
Earning assets 22,742
Other liabilities and
Allowance for accrued expenses 3,373
loan losses (1,010)
Long-term debt --
Other assets 5,493
------- Stockholders' equity 7,340
Total assets $29,713 -------
======= Total liabilities
Net income $ 784 and equity $29,713
======= =======
54 [Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
________________________________________________________________________________
[Mercantile Logo] TERRY L. TROUPE H. FURLONG BALDWIN
MBC AGENCY, INC. President TERRY L. TROUPE
ALAN D. YARBRO EDWARD K. DUNN, JR.
2 Hopkins Plaza Secretary WILLIAM J. MCCARTHY
Baltimore, WILLIAM T. SKINNER, JR. HUGH W. MOHLER
Maryland 21201 Vice President and Treasurer
410/347-8294 DENNIS W. KREINER
Assistant Secretary
BALANCE SHEET (Dollars in thousands) December 31, 1996
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ------------------------------ -----------------------------------
Cash and due Total deposits $ --
from banks $ 307
Short-term borrowings --
Earning assets 3,137
Other liabilities and
Allowance for accrued expenses 1,977
loan losses --
Long-term debt --
Other assets 48
------ Stockholders' equity 1,515
Total assets $3,492 ------
====== Total liabilities
Net income $ 460 and equity $3,492
====== ======
________________________________________________________________________________
[Mercantile Logo] DAVID C. TAIT H. FURLONG BALDWIN
MBC REALTY, INC. President EDWARD K. DUNN, JR.
VERNON D. CONWAY DAVID C. TAIT
2 Hopkins Plaza Senior Vice President
Baltimore, ALAN D. YARBRO
Maryland 21201 Secretary
410/237-5377 PERRY H. SOUZIS
Treasurer
LARRY D. SMITH
Assistant Treasurer
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ---------------------------- ------------------------------------
Cash and due Total deposits $ --
from banks $ 357
Short-term borrowings --
Earning assets --
Other liabilities and
Allowance for accrued expenses 2,280
loan losses --
Long-term debt 237
Other assets 16,511
------- Stockholders' equity 14,351
Total assets $16,868 -------
======= Total liabilities
Net income $ 1,435 and equity $16,868
======= =======
________________________________________________________________________________
[Mercantile Logo] JOSEPH M. SANTOS H. FURLONG BALDWIN
MBC LEASING President KENNETH A. BOURNE, JR.
CORPORATION W. KEITH MOORE EDWARD K. DUNN, JR.
Vice President JOSEPH M. SANTOS
(a subsidiary of SCOTT H. KRIEGER DONALD J. TRUFANT
Mercantile-Safe Treasurer
Deposit & Trust DENNIS W. KREINER
Company) Secretary
2 Hopkins Plaza
P.O. Box 1451
Baltimore,
Maryland 21203
410/237-5855
- - --------------------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- - ------------------------------ -------------------------------------
Cash and due Total deposits $ --
from banks $ 8
Short-term borrowings 23,974
Earning assets 24,562
Other liabilities and
Allowance for accrued expenses 208
loan losses --
Long-term debt --
Other assets --
------- Stockholders' equity 388
Total assets $24,570 -------
======= Total liabilities
Net income $ 138 and equity $24,570
======= =======
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 55
<PAGE>
MERCANTILE BANKSHARES CORPORATION
OFFICERS
H. FURLONG BALDWIN
Chairman of the Board and
Chief Executive Officer
EDWARD K. DUNN, JR.
President
HUGH W. MOHLER
Executive Vice President
JAY M. WILSON
Executive Vice President
ALAN D. YARBRO
General Counsel and
Secretary
TERRY L. TROUPE
Chief Financial Officer
and Treasurer
ROBERT W. JOHNSON
Senior Vice President
O. JAMES TALBOTT, II
Senior Vice President
JERRY F. GRAHAM
Vice President and
Controller
ROBERT C. SMITH
Auditor
SUZANNE G. WOLFF
Vice President
DIRECTORS
(dagger)H. FURLONG BALDWIN
Chairman of the Board and
Chief Executive Officer of
Mercantile Bankshares
Corporation and Chairman
of the Board and Chief
Executive Officer of
Mercantile-Safe Deposit &
Trust Company
*THOMAS M. BANCROFT, JR.
Former Chairman of the
Board and Chief Executive
Officer of The New York
Racing Association
*RICHARD O. BERNDT
Partner in the law firm of
Gallagher, Evelius & Jones
JAMES A. BLOCK, M.D.
Former President and Chief
Executive Officer of Johns
Hopkins Health System and
The Johns Hopkins Hospital
WILLIAM R. BRODY, M.D.
President of The Johns
Hopkins University
GEORGE L. BUNTING, JR.
President and Chief
Executive Officer of
Bunting Management
Group, a private financial
management company
(dagger)EDWARD K. DUNN, JR.
President of Mercantile
Bankshares Corporation
and President and Chief
Operating Officer of
Mercantile-Safe Deposit &
Trust Company
*MARTIN L. GRASS
Chairman of the Board
and Chief Executive
Officer of Rite Aid
Corporation, retail drug
sales, and Vice Chairman
of the Board of Super Rite
Corporation, food whole-
saler and retailer
FREEMAN A.
HRABOWSKI, III
President of University
of Maryland-Baltimore
County
*B. LARRY JENKINS
Chairman of the Board,
President and Chief
Executive Officer of
Monumental Life
Insurance Company,
providing individual life
insurance
ROBERT A. KINSLEY
Chairman of the Board
and Chief Executive
Officer of Kinsley
Construction, Inc., a
general and heavy
construction firm
(dagger)*(caret)ROBERT D. KUNISCH
Chairman of the Board,
President and Chief
Executive Officer of PHH
Corporation, transnation-
al business services
(dagger)WILLIAM J. MCCARTHY
Principal of William
J. McCarthy, P.C., a
Partner in the law firm
of Venable, Baetjer and
Howard, LLP
(dagger)(caret)MORRIS W. OFFIT
Chairman of the Board
and Chief Executive
Officer of OFFITBANK,
a private bank offering
integrated investment
services
(dagger)(caret)CHRISTIAN H. POINDEXTER
Chairman of the Board
and Chief Executive
Officer of Baltimore Gas
& Electric Company, a
gas and electric utility
WILLIAM C. RICHARDSON
President and Chief
Executive Officer of W. K.
Kellogg Foundation, a
private grant-making
foundation
*BISHOP L. ROBINSON
Secretary of the
Department of Public
Safety and Correctional
Services for the State of
Maryland
(dagger)DONALD J. SHEPARD
Chairman of the Board,
President and Chief
Executive Officer of
AEGON USA, Inc., a
holding company owning
insurance and insurance
related companies
(dagger)(caret)CALMAN J. ZAMOISKI, JR.
Chairman of the Board of
Independent Distributors,
Incorporated, general
wholesale distributors
(dagger)Member of Executive
Committee
*Member of Audit
Committee
(caret)Member of Compensation
Committee
Listing as of March 1997
56
<PAGE>
CORPORATE INFORMATION
CORPORATE PROFILE
Mercantile Bankshares Corporation is a multibank holding company organized in
1969 under the laws of Maryland. On January 1, 1997, its principal affiliates
were twenty-one banks and a mortgage banking company.
The affiliated banks are engaged in a general personal and corporate banking
business. The Corporation's largest bank, Mercantile-Safe Deposit & Trust
Company, also provides a full range of trust services.
Personal Banking
The banking affiliates of Mercantile Bankshares Corporation have 164 retail
banking offices providing personal banking services. Services include debit
cards, deposit vehicles such as regular and interest-bearing checking accounts,
Money Market Deposit Accounts, Certificates of Deposit, and Individual
Retirement Accounts. Loans are made to individuals to meet a variety of consumer
needs.
In addition to banking services, fixed income annuities are available through
affiliates.
Corporate Banking
Each of the Corporation's affiliates pursues a commercial banking program
serving local businesses. Specialized corporate banking services are centered at
Mercantile-Safe Deposit & Trust Company. Corporate banking services include the
making of various types of commercial and real estate loans, offering various
types of deposit accounts, cash management and short-term money market
investing.
Trust and Investment
The Trust Division of Mercantile-Safe Deposit & Trust Company provides services
to individuals, corporations and not-for-profit institutions. Services for
individuals include investment management, estate settlement, living and
testamentary trusts and custody of securities. Employee benefit plans, master
and directed trusteeship and corporate financial services are provided to
businesses. Endowment trusts and employee benefit plans are provided to
not-for-profit institutions. The Trust Division is also investment advisor to
M.S.D.&T. Funds, Inc., which provides a series of no-load mutual funds.
Mortgage Banking
Through offices in Maryland and Delaware, Mercantile Mortgage Corporation
generates and services real estate mortgage loans and construction loans, as
principal and as agent. Residential and commercial real estate appraisals are
offered through an appraisal subsidiary.
ACCOUNTANTS
Coopers & Lybrand L.L.P.
217 East Redwood Street
Baltimore, Maryland 21202-3316
ANNUAL MEETING OF SHAREHOLDERS
10:30 A.M., Wednesday,
April 30, 1997
2 Hopkins Plaza,
Baltimore, Maryland
ANNUAL REPORT TO SECURITIES &
EXCHANGE COMMISSION
Form 10-K will be furnished to shareholders without charge upon written request.
Exhibits thereto furnished upon payment of $3.00 per set. Direct request to
Secretary.
HEADQUARTERS
2 Hopkins Plaza, P.O. Box 1477
Baltimore, Maryland 21203
410/237-5900
STOCK INFORMATION
The common stock of Mercantile Bankshares Corporation is traded on the Nasdaq
National Market under the symbol MRBK.
DIRECT DEPOSIT OF CASH DIVIDENDS
Shareholders of Mercantile Bankshares Corporation common stock may have their
cash dividends deposited automatically, on date of payment, to a checking,
savings or money market account in a financial institution which participates in
an Automated Clearing House. Shareholders will receive confirmation by mail from
the Dividend Disbursing Agent of the amount deposited. Shareholders who wish to
enroll in the direct deposit service should contact the Dividend Disbursing
Agent.
DIVIDEND DISBURSING AGENT AND
TRANSFER AGENT FOR STOCK
The Bank of New York
For telephone inquiries:
800/524-4458
For written inquiries:
The Bank of New York
Shareholder Relations Department 11E
P.O. Box 11258
Church Street Station
New York, New York 10286
Send certificates for transfer and address change notices to:
The Bank of New York
Receive and Deliver Department 11W
P.O. Box 11002
Church Street Station
New York, New York 10286
AUTOMATIC DIVIDEND REINVESTMENT AND STOCK PURCHASE PLAN
Mercantile Bankshares Corporation offers its shareholders of common stock a Plan
whereby they may automatically invest their cash dividends in Mercantile stock
at a price which is 5% less than the market price on the dividend payment date.
Plan participants may also make additional cash payments to purchase stock
through the Plan at the market price. Mercantile Bankshares Corporation absorbs
all fees and transaction costs.
Shareholders who wish to enroll in the Plan should contact the Corporation's
Transfer Agent:
The Bank of New York
Mercantile Bankshares Corporation
Dividend Reinvestment and
Stock Purchase Plan
P.O. Box 1958
Newark, New Jersey 07101-9774
800/524-4458
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
[Mercantile Logo] MERCANTILE BANKSHARES CORPORATION
Baltimore, Maryland
Exhibit (21)
(21) SUBSIDIARIES OF THE REGISTRANT
STATE OF
NAME INCORPORATION
- - ---- --------------
The Annapolis Banking and Trust Company Maryland
Baltimore Trust Company Delaware
Bank of Southern Maryland Maryland
Calvert Bank and Trust Company Maryland
The Chestertown Bank of Maryland Maryland
The Citizens National Bank United States
County Banking & Trust Company Maryland
The Eastville Bank Virginia
Farmers & Merchants Bank - Eastern Shore Virginia
The Fidelity Bank Maryland
The First National Bank of St. Mary's United States
The Forest Hill State Bank Maryland
Fredericktown Bank & Trust Company Maryland
MBC Agency, Inc. Maryland
Mercantile Life Insurance Company Arizona
MBC Realty, Inc. Maryland
Mercantile Mortgage Corporation Maryland
Benchmark Appraisal Group, Inc. Maryland
Mercantile-Safe Deposit and Trust Company Maryland
Hopkins Plaza Agency, Inc. Maryland
MBC Leasing, Inc. Maryland
The National Bank of Fredericksburg United States
Peninsula Bank Maryland
The Peoples Bank of Maryland Maryland
Potomac Valley Bank Maryland
The Sparks State Bank Maryland
St. Michaels Bank Maryland
Westminster Bank and Trust Company of
Carroll County Maryland
Each of the foregoing subsidiaries conducts business under its
corporate name.
Exhibit (23)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference into the Registration
Statements on Form S-3 (No. 33-44376) and Forms S-8 (No. 33-44373, 33-44374
and 33-44375) of Mercantile Bankshares Corporation of our report dated
January 22, 1997, on our audit of the consolidated financial statements of
Mercantile Bankshares Corporation and Affiliates as of December 31, 1996,
and 1995 and for each of the three years in the period ended December 31,
1996, 1995 and 1994, which report is included in this Form 10-K.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
March 27, 1997
Exhibit (24)
MERCANTILE BANKSHARES CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Directors of
MERCANTILE BANKSHARES CORPORATION, a Maryland Corporation, hereby
constitute and appoint H. FURLONG BALDWIN and EDWARD K. DUNN, JR., or
either of them acting alone, the true and lawful agents and attorneys in
fact of the undersigned in each case with full power and authority in
either of said agents and attorneys in fact, to sign for the undersigned
and in their respective names as Directors of the Corporation the Annual
Report of the Corporation to the Securities and Exchange Commission for the
year 1996, on Form
10-K, filed under the Securities Exchange Act of 1934, as amended, and any
amendment or amendments to such Form 10-K hereby ratifying and confirming
all acts taken by such agents and attorneys in fact, or either of them, as
herein authorized.
Date: March 11, 1997
/s/ Freeman A. Hrabowski, III Director /s/ James A. Block Director
Freeman A. Hrabowski, III James A. Block
/s/ Christian H. Poindexter Director /s/ William C. Richardson Director
Christian H. Poindexter William C. Richardson
/s/ Robert A. Kinsley Director Director
Robert A. Kinsley
/s/ Thomas M. Bancroft, Jr. Director Director
Thomas M. Bancroft, Jr.
/s/ Bishop L. Robinson Director Director
Bishop L. Robinson
/s/ Donald J. Shepard Director Director
Donald J. Shepard
/s/ Robert D. Kunisch Director Director
Robert D. Kunisch
/s/ William R. Brody Director Director
William R. Brody
/s/ Calman J. Zamoiski, Jr. Director Director
Calman J. Zamoiski, Jr.
/s/ B. Larry Jenkins Director Director
B. Larry Jenkins
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE SHEET AS OF DECEMBER 31, 1996, FROM THE INCOME STATEMENT FOR
THE TWELVE MONTHS ENDED DECEMBER 31, 1996 AND FROM MANAGEMENT'S DISCUSSION
AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE PERIOD
ENDED DECEMBER 31, 1996, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 257,337,000
<INT-BEARING-DEPOSITS> 100,000
<FED-FUNDS-SOLD> 27,942,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,596,687,000
<INVESTMENTS-CARRYING> 26,279,000
<INVESTMENTS-MARKET> 26,376,000
<LOANS> 4,582,712,000
<ALLOWANCE> 97,718,000
<TOTAL-ASSETS> 6,642,681,000
<DEPOSITS> 5,339,655,000
<SHORT-TERM> 336,655,000
<LIABILITIES-OTHER> 80,940,000
<LONG-TERM> 49,395,000
0
0
<COMMON> 94,872,000
<OTHER-SE> 741,164,000
<TOTAL-LIABILITIES-AND-EQUITY> 6,642,681,000
<INTEREST-LOAN> 400,800,000
<INTEREST-INVEST> 92,812,000
<INTEREST-OTHER> 4,527,000
<INTEREST-TOTAL> 498,139,000
<INTEREST-DEPOSIT> 170,763,000
<INTEREST-EXPENSE> 187,558,000
<INTEREST-INCOME-NET> 310,581,000
<LOAN-LOSSES> 14,666,000
<SECURITIES-GAINS> 74,000
<EXPENSE-OTHER> 198,415,000
<INCOME-PRETAX> 186,928,000
<INCOME-PRE-EXTRAORDINARY> 186,928,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 117,400,000
<EPS-PRIMARY> 2.46
<EPS-DILUTED> 2.46
<YIELD-ACTUAL> 5.17
<LOANS-NON> 20,457,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,645,000
<ALLOWANCE-OPEN> 91,398,000
<CHARGE-OFFS> 12,210,000
<RECOVERIES> 3,864,000
<ALLOWANCE-CLOSE> 97,718,000
<ALLOWANCE-DOMESTIC> 97,718,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
