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, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-5127
Mercantile Bankshares Corporation
(Exact name of registrant as specified in its charter)
Maryland 52-0898572
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Two Hopkins Plaza, P. O. Box 1477, Baltimore, Maryland
(Address of principal executive offices)
Registrant's telephone number, including area code (410) 237-5900 21203
Securities registered pursuant to Section 12(b) of the Act: (Zip Code)
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to section 12(g) of the Act:
Common Stock ($2 par value)
(Title of class)
Preferred Stock Purchase Rights
(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 No
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. [ ]
At February 27, 1998, the aggregate market value of shares of Common
Stock held by non-affiliates of Registrant (including fiduciary accounts
administered by affiliates) was $2,483,443,992 based on the last sale price on
the Nasdaq National Market on February 27, 1998.
As of February 27, 1998, 71,889,202 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, 1997, as
indicated, Part III - Definitive Proxy Statement of Registrant filed with the
Securities and Exchange Commission under Regulation 14A.
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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,
1997, 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 Corp., 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
made available through
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the Affiliated Banks. The Affiliated Banks, Mercantile Mortgage Corporation, MBC
Agency, Inc., Mercantile Life Insurance Company, MBC Realty, Inc., Hopkins Plaza
Agency, Inc. and MBC Leasing Corp. 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, 1997, see pages 53 to 59 of
Registrant's Annual Report to Stockholders for the year ended December 31, 1997,
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 November, 1997, Mercshares entered into an agreement to acquire all
the outstanding shares of Marshall National Bank and Trust Company, of Marshall,
Virginia. Under terms of the agreement, Mercshares will issue up to 677,198
shares of its common stock representing an exchange of 1.75 shares for each
outstanding share of the common stock of Marshall National. The business of
Marshall National will be continued, with the bank as a subsidiary of
Mercshares. The affiliation has been approved by the shareholders of Marshall
National and regulatory approvals are substantially complete. The affiliation is
expected to be consummated early in 1998 and will 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, 1997, assets under
the
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investment supervision of Merc-Safe's trust division had an estimated value of
$12.2 billion, assets held in its personal and corporate custody accounts had an
estimated value of $22.4 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.
Hopkins Plaza Agency, Inc. acts as agent in the sale of fixed rate
annuities, and MBC Leasing Corp. 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
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, 1997, as follows:
<TABLE>
<CAPTION>
Disclosure Required by Guide 3 Reference to 1997 Annual Report
- ------------------------------ -------------------------------
<S><C>
(I) Distribution of Assets,
Liabilities and Stockholder
Equity; Interest Rates and
Interest Differential Analysis of Interest Rates and Interest
Differentials (pages 10-11)
Rate/Volume Analysis (page 12)
Non-performing Assets (pages 19-20)
(II) Investment Portfolio Bond Investment Portfolio (page 16)
(III) Loan Portfolio Year-End Loan Data (page 49)
Loan Maturity Schedule (page 21)
Asset/Liability and Liquidity
Management (pages 23-24)
</TABLE>
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<TABLE>
<S><C>
Non-performing Assets (pages 19-20)
(IV) Summary of Loan Loss
Experience Allowance for Loan Losses
(pages 17-19)
and Credit Risk Analysis (page 17)
Allocation of Allowance for Loan Losses
(page 18)
(V) Deposits Analysis of Interest Rates and Interest
Differentials (pages 10-11)
Notes to Financial Statements, Note
5 - Deposits (page 37)
(VI) Return on Equity
and Assets Return on Equity and Assets (page 51)
(VII) Short-Term Borrowings Notes to Financial Statements, Note
6 (page 38)
</TABLE>
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Employees
At December 31, 1997, Mercshares and its Affiliates had approximately 835
officers and 2,054 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. Maryland, Virginia, Pennsylvania and
numerous other states have "opted-in" to these provisions 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 fourth largest commercial
bank in Maryland. During 1997, Mercshares also competed with Maryland-based bank
subsidiaries of the first, second, fifth and sixth largest bank holding
companies
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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 is a relatively small competitor in its
area 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 Corp. 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
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.
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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, subject to various exceptions established
in the Board's regulations.
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
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
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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
Affiliated Banks, and Section 23B of the Federal Reserve Act which requires that
transactions between the Affiliated Banks and Mercshares and its nonbanking
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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 having 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 were permitted to acquire banks in any state,
essentially preempting state laws prohibiting interstate bank acquisitions.
Commencing June 1, 1997, adequately capitalized and managed banks became able to
engage in interstate branching by merging banks in different states. States
could 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 not be permitted to branch into other states. 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.
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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
company could 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.
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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, became 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 "opting-in" to the provisions of the 1994
Interstate Act 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 protections to individuals
entering into reverse mortgage transactions and "high cost" mortgage
transactions, (3) remove certain 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
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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.
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.
In addition, in the past few years, 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 adopted significant changes designed to
facilitate entry of holding
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companies into the securities business within the confines of the Glass-Steagall
Act.
Year 2000 Issue
Mercshares is implementing a comprehensive program to prepare the
systems of Mercshares and its Affiliates for year 2000 compliance. The year 2000
issue relates to systems designed to use two digits rather than four to define
the applicable year. This flaw can cause system failures and disruptions,
including inability to process transactions. As noted in Management's Discussion
and Analysis of Financial Condition and Results of Operations (pages 14-15 of
the Annual Report to Stockholders for the year ended December 31, 1997),
Mercshares has incurred external costs of approximately $9,300,000 during the
three years ended December 31, 1997 in implementation of its year 2000
compliance program and related system improvements. At this time, management
does not anticipate material additional costs for the program, nor has
management identified significant uncertainties concerning its achievement of
year 2000 compliance. Investors should be aware, however, that any business can
be seriously impacted by the failure of others, such as contractors, suppliers
and customers, to attain compliance. Although Mercshares and Affiliates are
sharing knowledge with customers (including borrowers) and others concerning
these issues, the ultimate success or failure of such persons in attaining
compliance is beyond Mercshares' control.
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
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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 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, 1997, approximately 150,000 square
feet were occupied by Merc-Safe and Mercshares. At December 31, 1997, 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, four are owned in
fee, four are owned subject to ground leases and ten are leased with aggregate
annual rentals of approximately $1,225,000, not including rentals for the main
office and adjacent premises owned by MBC Realty, Inc.
Of the 155 banking offices of the other Affiliated Banks, 89 are owned
in fee, ten are owned subject to ground leases and 56 are leased, with aggregate
annual rentals of approximately $2,670,000 as of December 31, 1997.
ITEM 3. LEGAL PROCEEDINGS
There was no matter which is required to be disclosed in this Item 3
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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.
SPECIAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers of Registrant are:
<TABLE>
<CAPTION>
Name Position Age
- ---- -------- ---
<S><C>
H. Furlong Baldwin Chairman of the Board, President 66
and Chief Executive Officer
Hugh W. Mohler Executive Vice President 52
J. Marshall Reid (1) President and Chief 52
Operating Officer (Merc-Safe)
Jack E. Steil (1) Chairman - Credit Policy 51
(Merc-Safe)
Alan D. Yarbro General Counsel and Secretary 56
Terry L. Troupe Chief Financial Officer and
Treasurer 50
Robert W. Johnson Senior Vice President 55
O. James Talbott, II Senior Vice President 54
</TABLE>
- --------
(1) Messrs. Reid and Steil are officers of Merc-Safe. They are included above as
executive officers because they participate in policy-making functions
concerning Mercshares.
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 assumed the presidency
of Mercshares in 1997. He has been Chairman of the Board and Chief Executive
Officer of Merc-Safe since 1976.
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. Reid was elected President and Chief Operating Officer of
Merc-Safe
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in September, 1997. He joined Merc-Safe as a Senior Vice President in 1993 and
served as an Executive Vice President from 1994 until September, 1997.
Mr. Steil was elected Chairman - Credit Policy of Merc-Safe in
September, 1997. He had previously served Merc-Safe as an Executive Vice
President since 1994, and as Senior Vice President from 1988 to 1994.
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.
Mr. 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.
Edward K. Dunn, Jr. (age 62), served Mercshares and Merc-Safe in
various executive capacities commencing in 1988, most recently as President of
both companies. He resigned these positions in September, 1997, becoming
Chairman of the Board of Mercantile Mortgage Corporation, and is no longer an
executive officer of Mercshares or Merc-Safe.
Jay M. Wilson (age 52), was an Executive Vice President of Mercshares
and Merc-Safe from 1994 until December 31, 1997, when he resigned these
positions. He is no longer an executive officer of Mercshares or Merc-Safe.
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" and "Recent Common
Stock Prices" on page 26 of the Registrant's Annual Report to Stockholders for
the year
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ended December 31, 1997.
The following information is given in response to Item 701 of
Regulation S-K. In December, 1997, two directors of Mercshares received an
aggregate of 393 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 17 outside
directors. Mercshares common stock is actively traded on the Nasdaq National
Market. The maximum number of shares (450,000) issuable over ten years under the
Plan is less than 1% of the total shares outstanding.
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 49 of the Registrant's Annual Report to Stockholders for the year
ended December 31, 1997.
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 8 to 26 of the Registrant's Annual Report to Stockholders for the year
ended December 31, 1997.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
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 27 to 48 of the Registrant's
Annual Report to Stockholders for the year ended December 31, 1997.
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
18
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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 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.
19
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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
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, 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, and Exhibit 3-A(12)
listed below is incorporated by reference to Exhibit 3(i)(F)
to Form S-4 of the Registrant, No. 333-43651.
(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.
(12) Articles of Amendment effective April 30, 1997.
20
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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 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. Third Amendment, dated as of June 30, 1997, to Rights
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 Registrant, filed July 11, 1997,
Exhibit 4-A, Commission File No. 0-5127).
E. 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
21
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Incentive Compensation Plan, as amended through March
10, 1998 (filed herewith).
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
(Incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996, Exhibit 10 C,
Commission file No. 0-5127).
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
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 (Incorporated by reference
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, Exhibit 10 D, Commission File No. 0-5127).
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),
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<PAGE>
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. 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).
H. 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 and
Edward K. Dunn, Jr. (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
(Incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996, Exhibit 10 J,
Commission File No. 0-5127).
I. Mercantile Bankshares Corporation Omnibus Stock Plan
(Incorporated by reference to Registrant's Quarterly
Report on Form 10-Q for the period ended September
30, 1997, Exhibit 10 K, Commission File No. 0-5127).
J. Supplemental Pension Agreement dated January 10, 1992 between
Mercantile Bankshares Corporation, Mercantile-Safe Deposit and
23
<PAGE>
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).
K. Supplemental Pension Agreement, dated February 10,
1995, between Mercantile Bankshares Corporation and
Mercantile-Safe Deposit and Trust Company, Peninsula
Bank and Hugh W. Mohler (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).
L. 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 on Form 10-K for year
ended December 31, 1994, Exhibit 10 R, Commission
File No. 0- 5127).
M. 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).
N. 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
24
<PAGE>
No. 0-5127).
O. 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).
P. Supplemental Cash Balance Plan and Thrift Agreement,
dated 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).
Q. 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).
R. 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).
S. 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).
T. Agreement, dated September 12, 1997 among Mercantile
Bankshares Corporation, Mercantile-Safe Deposit and
Trust Company and Edward K. Dunn, Jr. (Incorporated
by reference to Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1997, Exhibit
10 V, Commission File No. 0-5127).
U. Letter Agreement, dated December 29, 1997, amending Option
25
<PAGE>
Agreement between Mercantile Bankshares Corporation and Jay
M. Wilson (filed herewith).
(13) Annual Report to security holders for the year ended December 31,
1997 (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 10, 1998 (filed herewith)
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
26
<PAGE>
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 27 of
the Registrant's Annual Report to Stockholders for the year ended December
31, 1997.
Consolidated Financial Statements and related notes are incorporated by
reference to the Registrant's Annual Report to Stockholders for the year
ended December 31, 1997, and may be found on the pages of said Report as
indicated in parentheses:
Consolidated Balance Sheets, December 31, 1997 and 1996 (page 28)
Statement of Consolidated Income for the years ended December 31, 1997,
1996 and 1995 (page 29)
Statement of Consolidated Cash Flows for the years ended December 31,
1997, 1996 and 1995 (pages 30 and 31)
Statement of Changes in Consolidated Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995 (page 32)
Notes to Consolidated Financial Statements (pages 33 to 48)
Supplementary Data:
Quarterly Results of Operations are incorporated by reference to the
information appearing under the caption "Quarterly Results of
Operations" on page 45 of the Registrant's Annual Report to
Stockholders for the fiscal year ended December 31, 1997.
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.
27
<PAGE>
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 26, 1998
______________________
H. Furlong Baldwin, Chairman of the
Board, President 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 26, 1998
______________________
H. Furlong Baldwin, Chairman of the
Board, President and Chief Executive Officer
Principal Financial Officer
/S/ Terry L. Troupe March 26, 1998
______________________
Terry L. Troupe
Chief Financial Officer
Principal Accounting Officer
/S/ Jerry F. Graham March 26, 1998
______________________
Jerry F. Graham
Vice President and Controller
A majority of the Board of Directors: Cynthia A. Archer, H. Furlong Baldwin,
James A. Block, William R. Brody, George L. Bunting, Jr., Freeman A. Hrabowski,
III, B. Larry Jenkins, Mary Junck, Robert A. Kinsley, William J. McCarthy,
Morton B. Plant, Christian H. Poindexter, William C. Richardson, Donald J.
Shepard, Calman J. Zamoiski, Jr.
By: /S/ H. Furlong Baldwin March 26, 1998
______________________
H. Furlong Baldwin
For Himself and as Attorney-in-Fact
28
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 20 to 18, will be effective at the commencement of the
Annual Meeting of Stockholders to be held April 29, 1998, at 10:30 a.m.
<PAGE>
Exhibit (3)B
BY LAWS
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 sealed, witnessed or
acknowledged. The Board of Directors may fix the record date for the
1
<PAGE>
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.
(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.
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(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.
[The provisions of Sections 9 and 10 of Article I set forth immediately
below shall apply with respect to the annual meeting of stockholders to be held
in 1998 and immediately thereafter shall be deleted and superseded by the
revised provisions of Sections 9 and 10 which are subsequently set forth
herein.]
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
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<PAGE>
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 provides for
election of directors, by or under the direction of the Board of Directors, or
by
4
<PAGE>
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 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
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<PAGE>
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.
[The following revised provisions of Sections 9 and 10 of Article I shall apply
with respect to meetings of stockholders held after the annual meeting held in
1998, and shall supersede the prior provisions of Sections 9 and 10, which prior
provisions shall be deleted.]
SECTION 9. Advance Notice of Matters to be Presented at an Annual Meeting of
Stockholders.
At an annual meeting of the stockholders, 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 60 days nor more than 90 days prior to
the meeting (or, with respect to a proposal required to be included in the
Corporation's proxy statement pursuant to Rule 14a-8 of the Securities Exchange
Act of 1934, or any successor provision to Rule 14a-8, the earlier date such
proposal was received); provided, however, that if less than 70 days' prior
public disclosure of the date of the meeting is made by the Corporation, any
such notice by a stockholder must be so received not later than the 10th day
following the day on which such prior public disclosure of the date of the
meeting is made by the Corporation. Public disclosure by the Corporation of a
meeting date or other
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<PAGE>
matter contemplated by this Article shall be deemed to have been made if
communicated by notice to stockholders pursuant to Section 1 of Article X of
these bylaws, or by any filing with the Securities and Exchange Commission, or
by any general mailing to stockholders of record, or by public announcement or
by other means reasonably calculated to constitute public disclosure. With
respect to action proposed by any stockholder which is permitted by Article XII
of these bylaws, to change or rescind action taken by the Board of Directors
pursuant to said Article XII, notice of such proposed action by the stockholder
shall be deemed timely if given no earlier than the time prescribed above for
stockholder notices and no later than the later of the 10th day following public
disclosure by the Company of such Board action or the 60th day prior to the
meeting. 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
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at any meeting of stockholders. 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
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 60 days nor more than 90 days prior to
the meeting; provided, however, that if less than 70 days' prior public
disclosure of the date of the meeting is made by the Corporation, any such
notice by a stockholder must be so received not later than the 10th day
following the day on which such prior public disclosure of the date of the
meeting is made by the Corporation.
Such stockholder's notice shall set forth: (a) as to each person whom
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 the proxy rules 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 to serve as a director of the Corporation. No person shall be eligible
for election as a director
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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 stockholders
shall be deemed a filling of the vacancy and not a removal and may be made at
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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.
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
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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 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
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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 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
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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 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.
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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 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
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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.
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
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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 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
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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 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.
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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.
18
Exhibit (10) A
Annual Incentive Compensation Plan
(as amended)
<PAGE>
Exhibit (10) A
MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
ANNUAL INCENTIVE COMPENSATION PLAN
(as amended)
1. PURPOSE
This Annual Incentive Compensation Plan (the "Plan") is intended as an
incentive to increase the profitability of Mercantile Bankshares Corporation
(the "Corporation") and its Affiliated Corporations, as defined in Section 3, by
providing an opportunity for certain key executive employees, whose efforts are
deemed to have a direct impact on the earnings of the Corporation or its
Affiliated Corporations, (the "Participants") designated by the Compensation
Committee (the "Committee") of the Corporation's Board of Directors to earn
incentive payments for outstanding ability, achievement and performance and
thereby to participate in the overall profitability of the Corporation.
Participants may be classified as Class I, Class II or Class III Participants
("Class of Participants") depending upon and in recognition of their varying
corporate responsibilities. It is intended that the Plan encourage these key
executive employees to attain pre-established goals by providing recognition and
awards in the form of cash.
Those chosen as Participants shall be eligible to receive a maximum
Incentive Award, as defined in Section 5, in an amount not to exceed the maximum
percent of salary shown on Exhibit A for the applicable Class of Participant.
One portion of the Incentive Award shall be based on the net operating
income of the particular Affiliated Corporation employing the Participant, or
the division of the Affiliated Corporation to which that Participant is assigned
and shall not exceed the maximum percent of salary based on net operating income
shown on Exhibit A for the applicable Class of Participant, as more particularly
described in Section 5.
The other portion shall be based on the earnings per share of the
Corporation and shall not exceed the maximum percent of salary based on earnings
per share shown on Exhibit A for the applicable Class of Participant, as more
particularly described in Section 5.
2. ADMINISTRATION
The Plan shall be administered by the Committee as it shall, from time
to time, be constituted. In addition to its duties as described in this Plan,
the Committee shall interpret the Plan, may prescribe, amend and rescind rules
and regulations relating to the Plan and shall make all other determinations
necessary or advisable for the administration of the Plan. The interpretation
and construction by the Committee of any provision of the Plan, or award made
under the Plan, and any decision or action made or taken by it in connection
with the Plan shall be conclusive and binding. The Committee may, at the expense
of the Corporation, retain counsel to advise it. No member of the Board of
Directors or the Committee shall be liable for any action or determination made
in good faith, or upon the advice of counsel, with respect to the Plan or any
award made under the Plan.
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3. AFFILIATED CORPORATIONS
Affiliated Corporations (the "Affiliates") are those corporations or
other forms of business entities, more than 50% of the voting interest of which
is owned or controlled, directly or indirectly, from time to time, by the
Corporation and which have furnished the Committee with a certified copy of a
resolution evidencing adoption of this Plan.
4. PARTICIPANTS
ELIGIBILITY
Individuals eligible to be Participants in the Plan, and to receive
Incentive Awards under the Plan, shall be those key executive employees of the
Corporation and its Affiliates as the Committee, in its sole discretion, shall
select.
A Participant for any calendar year shall be eligible to receive an
Incentive Award for that year. However the Committee may, in its sole
discretion, deny any such Incentive Award or authorize payment of part thereof
to any Participant for any calendar year who is not a full time employee on
December 31 of that calendar year or whose employment terminates for any reason
during that calendar year, or who is granted a leave of absence during that
calendar year.
SELECTION
The Committee, prior to December 31 of the year preceding each calendar
year for which any award may be made (the "Award Year"), (prior to April 1, 1994
for the 1994 Award Year), shall select those individuals who are to be
Participants in the Plan for that particular Award Year, designate the
Participant as a Class I, Class II or Class III Participant, determine whether
the portion of the Participant's award attributable to net operating income
shall be based on the total net operating income of the Affiliate employing the
Participant, or the net operating income of the particular division of the
Affiliate to which the Participant is assigned and designate the Base Year for
purposes of Section 5. Failing a specific classification, a Participant shall be
deemed to be a Class III Participant. Each Participant shall be notified of
selection promptly.
5. THE INCENTIVE AWARD
(a) Definitions
For purposes of determining Incentive Awards made under the Plan:
Incentive Award shall mean cash payments made pursuant to the
computation described in Section 5(b) below.
Award Year shall mean that particular calendar year for which an award
may be made under this Plan.
Earnings Per Share shall mean the dollar amount of the consolidated
earnings per share of the Corporation's common stock.
Net Operating Income shall mean the dollar amount of the net after tax
operating income of each Affiliate or one or more divisions of an
Affiliate, as the Committee shall determine.
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Base Year Earnings Per Share shall mean Earnings Per Share as stated in
the Corporation's Annual Report to Shareholders, for the Base Year,
which Earnings Per Share may be adjusted, as necessary, from time to
time, to reflect mergers, acquisitions, sales, stock dividends, or
other corporate changes affecting earnings per share.
Base Year Net Operating Income shall mean the Net Operating Income for
the Base Year, as reported to the Board of Directors of the
Corporation, or otherwise published, which Net Operating Income may be
adjusted, as necessary, from time to time, to reflect mergers,
acquisitions, sales, stock dividends, intercorporate and intracorporate
transfers of operations or operating divisions, or other corporate
changes.
Preceding Year Earnings Per Share shall mean the Earnings Per Share for
the year preceding the Award Year, to be stated in the Corporation's
Annual Report to Shareholders for the Award Year, which may be
adjusted, as necessary, from time to time, to reflect mergers,
acquisitions, sales, stock dividends, or other corporate changes
affecting earnings per share.
Preceding Year Net Operating Income shall mean the Net Operating Income
for the year preceding the Award Year, as reported to the Board of
Directors of the Corporation, or otherwise published, which may be
adjusted, as necessary, from time to time, to reflect mergers,
acquisitions, sales, stock dividends, intercorporate and intracorporate
transfers of operations or operating divisions, or other corporate
changes.
Award Year Earnings Per Share shall mean the Earnings Per Share for the
Award Year.
Award Year Net Operating Income shall mean the Net Operating Income for
the Award Year.
Annual Rate of Growth shall be the percent determined by calculating
the annual rate of growth between: (1) the Preceding Year Earnings Per
Share and the Award Year Earnings Per Share and (2) the Preceding Year
Net Operating Income and the Award Year Net Operating Income, as the
case may be.
Compounded Rate of Growth shall be the percent determined by
calculating the annual compounded percentage rate of growth between (1)
the Base Year Earnings Per Share and the Award Year Earnings Per Share,
and (2) the Base Year Net Operating Income and the Award Year Net
Operating Income, as the case may be.
Salary shall mean the Participant's base rate of pay for the Award
Year.
Salary Award Percentage shall be the percent of salary based on varying
rates of growth a shown on Exhibit "B".
(b) Computation
The Committee, prior to March 1 following each Award Year, shall
compute the Annual Rate of Growth and the Compounded Rate of Growth of both
Award Year Earnings Per Share, and Award Year Net Operating Income for each
Affiliate, or division of an Affiliate,that employs a Participant.
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If the Compounded Rate of Growth of the Award Year Earnings Per Share
shall not exceed 5.00%, then no cash payment shall be made based on Award Year
Earnings Per Share. If the Compounded Rate of Growth of the Award Year Earnings
Per Share shall exceed 5.00%, each Participant shall be entitled to receive a
cash payment equal to that percent of salary opposite the rate of growth equal
to the Annual Rate of Growth as shown on Exhibit "B" for the Class of
Participant applicable to that Participant.
If the Compounded Rate of Growth of the Award Year Net Operating Income
for any Affiliate, or a division of the Affiliate where applicable, shall not
exceed 5.00%, then no cash payment shall be made to any Participant employed by
such Affiliate, or such division, based on Award Year Net Operating Income. If
the Compounded Rate of Growth of the Award Year Net Operating Income for any
Affiliate, or such division, shall exceed 5.00%, each Participant employed by
such Affiliate, or such division, shall be entitled to receive a cash payment
equal to that percent of salary opposite the rate of growth equal to that
Affiliate's, or such division's Annual Rate of Growth as shown on Exhibit "B"
for the Class of Participant applicable to that Participant.
Percentages used in determining Annual Rate of Growth exceeding 5.00%
shall be rounded to the nearest whole percent.
No Participant shall be entitled to receive in total Incentive Awards
more than the percent of Salary applicable to the Class of that Participant as
shown on Exhibit "A" for any one calendar year, nor shall any Participant
receive an Incentive Award in excess of $750,000 for any one calendar year.
(c) Notification of Award
The Committee, prior to the March 1 following each Award Year shall
determine, based on the above Computation, whether any Participant shall be
entitled to an Incentive Award under the Plan and shall make such award. The
Committee shall then notify all Participants of the results of its determination
and shall advise each Affiliate employing a Participant of the amount to be paid
that Participant.
6. PAYMENT
(a) Payment of Incentive Awards made under this Plan shall be paid in
cash promptly upon receipt of the notice described in Section 5 by each
Affiliate with respect to Participants employed by that Affiliate.
(b) Payment of any Incentive Award due a Participant who dies prior to
receipt of the payment of that award shall be made to the person, estate, trust,
organization or other entity designated by the Participant to receive benefits
under the Corporation's or any Affiliate's Group Life Insurance Policy unless
another Beneficiary is designated by the Participant. In the absence of any
Beneficiary so designated, the estate of the Participant shall be the
Beneficiary.
7. COMMITTEE REPORTS
The Committee shall file with the Board of Directors of the
Corporation, and each Affiliate employing a Participant, on or before April 1 of
each calendar year, a report which shall set forth
(a) The total Incentive Awards paid under the Plan for the prior
year together with the basis for the computation of those
awards, and
4
<PAGE>
(b) The Participants, and their total salary, selected for the
year in which the report is made.
8. REVOCATION OR REDUCTION OF SELECTION OR AWARD
Any Incentive Award made by the Committee, or the selection of a
Participant by the Committee, may be revoked or, in the case of an Incentive
Award, reduced by the Committee at any time if such Participant's employment by
the Corporation, or an Affiliate, is terminated because of dishonesty, fraud,
embezzlement, conviction of a felony, or for any other reason as determined in
the sole discretion of the Committee.
9. ASSIGNMENT
A Participant's rights and interests under this Plan may not be
assigned, transferred, pledged or hypothecated and are not subject to
attachment, garnishment, execution or any other creditor's processes and, to the
extent permitted by law, the Corporation and any Affiliate shall not be bound by
any attempted assignment, alienation or creditor's process and shall be entitled
to make any payment under the Plan directly to a Participant or Beneficiary.
10. NO EMPLOYMENT CONTRACT
Nothing contained in this Plan, nor any selection or award made
pursuant to this Plan shall confer upon any Participant any rights to continue
in the employ of the Corporation or any Affiliate or to interfere in any way
with the right of the Corporation or any Affiliate to reduce a Participant's
compensation at any time and all Participants shall remain subject to discharge,
or compensation reduction, the same as if this Plan had not been adopted.
11. AMENDMENT OR TERMINATION
This Plan may be amended or terminated at any time by action of the
Board of Directors of the Corporation and notice of such action shall be given
promptly to the Boards of Directors of the Affiliates.
12. EFFECTIVE DATE
This Plan shall be effective January 1, 1981.
5
<PAGE>
EXHIBIT "A"
MAXIMUM ANNUAL AMOUNT OF AWARD
<TABLE>
<CAPTION>
Maximum % of Salary
Based On
-------------------
Class of Maximum % Earnings Per Net Operating
Participant of Salary Share Income
- ----------- --------- ------------ -------------
<S><C>
Class I 65.0 32.5 32.5
Class II 50.0 25.0 25.0
Class III 33.0 16.5 16.5
</TABLE>
EXHIBIT "B"
PERCENT OF SALARY AWARD BY CLASSIFICATION OF PARTICIPANT
<TABLE>
<CAPTION>
Annual Rate Class Class Class
Of Growth I II III
- ----------- ----- ----- -----
<S><C>
5 0 0 0
6 3.25 2.50 1.65
7 6.50 5.00 3.30
8 9.75 7.50 4.95
9 13.00 10.00 6.60
10 16.25 12.50 8.25
11 19.50 15.00 9.90
12 22.75 17.50 11.55
13 26.00 20.00 13.20
14 29.25 22.50 14.85
15 32.50 25.00 16.50
</TABLE>
6
Exhibit (10) U
Letter agreement dated December 29, 1997 between
Mercantile Bankshares Corporation and
Jay M. Wilson.
<PAGE>
Exhibit (10) U
Mercantile Bankshares Corporation
December 29, 1997
Mr. Jay M. Wilson
Executive Vice President
Mercantile-Safe Deposit and
Trust Company
2 Hopkins Plaza
Baltimore, Maryland 21201
Dear Jay:
This letter is written pursuant to the December meeting of the
Compensation Committee, in view of your resignation effective December 31, 1997,
concerning the modification to your Option Agreement dated August 18, 1995,
which we have previously discussed.
Accordingly, Section 3.3 of the Option Agreement is hereby amended by
adding the following subparagraph (c) at the end thereof:
"(c) In the event that Grantee ceases to be an employee of MBC or an
Affiliate for any reason on or after December 31, 1997 and prior to
March 15, 1998, the determination of the percentage of the Anniversary
Date Option Amount that shall become exercisable, if at all, on the
March 14, 1998 Anniversary Date shall be determined as though Grantee's
employment with MBC or an Affiliate ceased on March 15, 1998."
Section 4.1 of the Option Agreement is hereby amended by adding the
following language after the initial sentence of Section 4.1.
"If, however, Grantee ceases to be an employee of MBC or an Affiliate
for any reason on or after December 31, 1997 and prior to March 15,
1998, (a) any portion of the Option which shall have become exercisable
prior to or on the March 14, 1998 Anniversary Date may be exercised in
whole or in part at any time on or after March 14, 1998, but not later
than the stated term of the Option or as otherwise provided by Section
4.2 of the Agreement, and (b) any portion of the Option which shall not
have become exercisable prior to or on March 14, 1998 shall terminate
on March 14, 1998.
<PAGE>
Letter to Mr. Jay M. Wilson
December 29, 1997
Page Two
Please sign one copy of this letter agreement below and return it to
me.
Mercantile Bankshares Corporation
By /s/ Alan D. Yarbro
__________________
Alan D. Yarbro
General Counsel and Secretary
Agreed:
/s/ Jay M. Wilson
_______________________
Jay M. Wilson
Exhibit 13
----------
Annual Report to Stockholders
For the Year Ended December 31, 1997
ANNUAL REPORT
1997
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
[Logo Appears Here] 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) 1997 1996 (Decrease)
===============================================================================================
<S><C>
FOR THE YEAR
Net interest income............................ $ 336,049 $ 310,581 8.2%
Net income..................................... 132,043 117,400 12.5
Cash dividends paid............................ 55,277 46,579 18.7
Basic net income per share*.................... 1.85 1.64 12.8
Dividend paid per common share*................ .77 .65 18.5
Average loans.................................. 4,821,500 4,411,500 9.3
Average investment securities.................. 1,587,100 1,596,900 (.6)
Average assets................................. 6,828,800 6,436,300 6.1
Average deposits............................... 5,449,000 5,218,300 4.4
Average stockholders' equity................... 886,400 810,500 9.4
========== ========== ========
AT YEAR END
Loans, net..................................... $4,872,425 $4,484,994 8.6%
Investment securities.......................... 1,631,623 1,622,966 .5
Assets......................................... 7,170,669 6,642,681 7.9
Deposits....................................... 5,693,911 5,339,655 6.6
Stockholders' equity........................... 935,004 836,036 11.8
Book value per common share*................... 13.01 11.75 10.7
Market value per common share*................. 39 1/8 21 5/16 83.6
========== ========== ========
RATIOS
Return on average assets....................... 1.93% 1.82%
Return on average stockholders' equity......... 14.90 14.48
Average stockholders' equity/average assets.... 12.98 12.59
========== ==========
STATISTICS
Banking offices................................ 173 164 9
Employees...................................... 2,889 2,813 76
Shareholders................................... 9,148 8,717 431
Average number of common shares
outstanding*................................. 71,465,976 71,475,492 (9,516)
Common shares outstanding*..................... 71,874,297 71,151,795 722,502
========== ========== ========
</TABLE>
* In June 1997, the Company declared a three-for-two stock split in the form of
a stock dividend on its common stock. All share and per share amounts above have
been adjusted to give effect to the split.
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.................................................. 8
Report of Independent Accountants.......................................... 27
Consolidated Balance Sheets................................................ 28
Statement of Consolidated Income........................................... 29
Statement of Consolidated Cash Flows....................................... 30
Statement of Changes in Consolidated Stockholders' Equity.................. 32
Notes to Consolidated Financial Statements................................. 33
Five Year Selected Financial Data.......................................... 49
Five Year Statistical Summary.............................................. 50
Five Year Summary of Consolidated Income................................... 52
Principal Affiliates....................................................... 53
Mercantile Bankshares Corporation.......................................... 60
Corporate Information...................................................... 61
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
TO OUR SHAREHOLDERS
For the 22nd consecutive year, Mercantile Bankshares Corporation reported an
increase in consolidated net income. Net income per share was $1.85 in 1997, a
13% increase over the $1.64 per share in 1996. Total consolidated net income was
$132,043,000 compared to $117,400,000 in 1996, an increase of 12%. Per share
amounts are based on the weighted average number of common shares outstanding,
71,466,000 for 1997 and 71,475,000 for 1996.
As stewards of our shareholders' investment, the management of Mercantile
Bankshares is responsible for providing a satisfactory return on investment
consistent with the long-term strength of the company. In June, 1997, the
company declared a 3 for 2 stock split in the form of a stock dividend on its
common stock. All share and per share amounts cited in this report have been
adjusted to reflect the stock dividend. Also in June, the cash dividend was
increased to $.20 a share for the quarter, after adjusting for the split, from
$.17 for the previous three quarters. Total cash dividends paid per share in
1997 were $.77, an 18% increase over 1996. Our history of profitability and
capital strength has allowed us to increase total cash dividends paid per share
for 21 consecutive years. The compound growth rate of per share dividends paid
to shareholders over the last 10 years is 12%.
Two banks were added to the Mercantile Bankshares system in 1997. They were
Home Bank, with $47,000,000 in assets at time of acquisition, and Farmers Bank
of Mardela Springs, with $30,000,000. Located on the Eastern Shore of Maryland,
both were merged into our affiliate, Peninsula Bank, on July 1, 1997. These
acquisitions were accounted for using the purchase method of accounting. Amounts
reported for the second half of 1997 include their accounts.
In 1997, return on average assets, a key measure of profitability, was 1.93%,
up from 1.82% in 1996, continuing to place us in the top tier of U.S. banks.
Average shareholders' equity increased by 9% to $886,400,000. The return on
average equity, which is constrained by our large equity base, increased to
14.90% in 1997 from 14.48% in 1996. The ratio of average equity to average
assets, a measure of capital strength, is among the strongest of the nation's
largest banking organizations. It was 12.98% in 1997, up from 12.59% in 1996.
At December 31, 1997, total assets at Mercantile Bankshares Corporation were
$7,170,669,000 compared to $6,642,681,000 at December 31, 1996. On a daily
average basis, total assets rose 6% to $6,828,800,000. Average total loans rose
9% to $4,821,500,000. Total average investment securities declined slightly to
$1,587,100,000.
The 9% increase in average total loans reflected a 7% increase in average
total mortgage and construction loans, which were approximately 52% of the total
loan portfolio. Average commercial loans, which were approximately 34% of the
entire loan portfolio, increased 15%. Average consumer loans increased 2%. We
noted a leveling in loan demand as the year progressed and expect that condition
to persist into 1998.
While there was a modest increase in non-performing loans, credit quality at
Mercantile Bankshares, as measured by commonly used statistics, remains high. At
year end 1997, total non-performing loans were $28,456,000 or .57% of total
loans, up from .45% at year end 1996. Total non-performing assets, which include
other real estate owned as well as non-performing loans, were $31,083,000 at
year end 1997, up from $23,773,000 the prior year. Non-performing assets as a
percentage of year end loans plus other real estate owned was .62% at year end
1997 compared to .52% in 1996.
The provision for loan losses was $13,703,000 in 1997, down from $14,666,000
in 1996. In 1997, loans charged off, net of recoveries, totaled $6,697,000, down
from $8,346,000 charged off in 1996. The allowance for loan losses at December
31,1997 was $106,097,000 versus $97,718,000 in the prior year. At year end 1997,
the allowance for loan losses as a percentage of non-performing loans was 373%
compared to 478% at year end 1996. The allowance for loan losses was 2.13% of
total year end loans, the same as the prior year.
Average total deposits for the year ended December 31, 1997 were
$5,449,000,000, a 4% increase over 1996. In 1997, the long-term movement in the
deposit mix to more expensive interest-bearing instruments slowed. While
certificates of deposit rose in 1997 from 39% to 40% of average total deposits,
the combination of savings, checking plus interest and money market accounts
declined from 42% to 40% of the total. Demand deposits, which do not bear
interest, increased slightly to 20% of average total deposits.
Net interest income for 1997 increased 8% over 1996 to $336,049,000. This was
due to a 7% increase in average earning assets in 1997, to $6,492,800,000, and
an increase in the net interest margin on earning assets to 5.24% compared to
5.17% in 1996. Net interest rate spread, the difference between the yield
realized on average earning assets and interest rate paid for average
interest-bearing funds, was 4.15% compared to 4.13% in 1996.
Total noninterest income increased 10% in 1997 to $98,653,000. The largest
component of noninterest income is trust revenues, which were up 11% over the
prior year to $51,547,000.
Total noninterest expense, excluding the provision for loan losses, increased
8% in 1997 to $213,404,000. Salary and employee benefit expenses, combined, are
the largest part of noninterest expense and were $124,563,000, up 3% over 1996.
Also included in noninterest expense is approximately $4,500,000 spent in 1997
to effect data processing improvements in preparation for the year 2000.
Combined with expenditures made in the previous two years, a total of
approximately $9,300,000 has been invested to upgrade technology
2 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
and data processing procedures. Having largely completed the conversion to a new
core bank operating system, we are concentrating now on updating our trust and
other date-sensitive applications, internal and external. At the same time, we
are finding ways to benefit from the efficiencies offered by our new systems.
Because we stress cost control, we monitor closely the relationship of
operating costs to income, or efficiency ratio. We were pleased to be listed
near the top in a ranking of efficiency ratios of the nation's 100 largest
banking organizations conducted by a nationally recognized bank data base
analyst. For the year ended December 31, 1997, despite the heavy investment in
data processing improvements, Mercantile Bankshares achieved an efficiency ratio
of 48.5%.
An institution that looks back over a history beginning in the middle of the
last century, is encouraged to take the long view when it looks forward. As we
consider our future, we observe an increasing disparity in how banks are
defining what they want to be and who they plan to serve. How do we think
Mercantile Bankshares fits into the future of banking?
As bank consolidation proceeds, banking institutions will settle into one of
three types. There will be the national/international mega-banks who know how to
profit from economies of scale. The driving force behind the mega-banks is
volume. They will be able to deliver very sophisticated products, but their
geographic reach and investment in technology means that they must standardize.
That is when their "services" become "transactions."
At the other end of the spectrum, will be the smaller community banks that
are directed and managed by men and women who live among the individuals and
businesses who use their traditional banking services.
Finally, there will be a few medium-sized banks, like our largest affiliate,
Mercantile-Safe Deposit & Trust Company, that have made a unique imprint on
their community based on their tradition of value-added services; these are the
banks with a franchise.
In its affiliate system, Mercantile Bankshares Corporation combines two of
the three types of banking institutions of the future. Recognizing a valuable
market segment among the community banks, we set about bringing some of the best
of them in our region into the Mercantile family -- and, once they were
affiliated, did not interfere with their traditional, local relationships. In
addition, we have been careful to preserve the special franchise that belongs to
Mercantile-Safe Deposit & Trust Company.
As outlined in the Review of Services contained in this report, Mercantile
Bankshares Corporation was designed to combine community banking with access to
the more specialized services provided by Mercantile-Safe Deposit & Trust
Company. We have managed to invest in technology and the efficiencies of
centralized back-office functions without sacrificing traditional, locally
focused banking relationships. It is a combination that sets us apart from the
institutions with which we compete and gives rise to the longevity which our
customers and communities value.
We believe that our place in the future of banking will bring long-term value
to our shareholders. We acknowledge that our kind of bank will not suit
everyone. However, in our marketplace, for those people who care about
continuity and a value-added relationship with their bank, we are that bank. As
long as we recognize what it is we are about, and continue to provide the
service our customers expect of us, we will retain the distinctive place in our
market that has worked so well for our customers, our communities and our
shareholders.
/s/ H. Furlong Baldwin
______________________
H. Furlong Baldwin, Chairman
February 27, 1998
BOARD OF DIRECTORS
In 1997, Mercantile Bankshares Corporation welcomed three new directors: Cynthia
A. Archer is Senior Vice President - The Intermodal Service Group, Consolidated
Rail Corporation; Mary Junck is President of Times Mirror Eastern Newspapers;
Morton B. Plant is Chairman of Keywell Corporation, a recycler of high
temperature alloy scrap metal.
In 1997, we lost the services of three directors: Edward K. Dunn, Jr. retired
from the Board of Mercantile Bankshares and as President of the Corporation. He
continues as Chairman of Mercantile Mortgage Corporation.
Robert D. Kunisch, who joined the Board in 1984, resigned and Bishop L.
Robinson, who joined in 1989, reached mandatory retirement age. They served with
distinction and will be missed.
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 3
<PAGE>
REVIEW OF SERVICES
Traditional banking is a relationship-oriented business. Mercantile Bankshares
affiliates provide banking services to local individuals, families, businesses
and institutions. At the same time, our 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 based on selected services performed well.
COMMUNITY BANKING
Twenty-one locally managed and directed banks, working through 173 banking
offices, deliver personal and business banking services to their communities.
Each bank is dedicated to its particular market area and empowered to respond
directly to its customers' banking needs. Our distinctive community bank
structure means that customers can count on the bank's personnel to know them,
know their circumstances and, importantly, take a continuing interest in their
banking relationships as they change and grow. In addition, each affiliate bank
has responsibility for its own day-to-day administration, budget and marketing
plans, creating an entrepreneurial environment that encourages initiative.
Affiliate back-office functions, such as auditing, loan review and
operations, are consolidated at the holding company level. A major
affiliate-wide project was accomplished in 1997 with the conversion to a new
core bank data processing system that is compliant with the requirements of the
year 2000. This significant investment in our future is a good example of how
community banks, working within a multi-bank context, can accomplish tasks which
would be daunting on their own. Presently, we are working together to identify
and, where necessary, correct other date-sensitive applications relevant to the
year 2000.
Commercial Lending
Community banking at Mercantile Bankshares is well suited to serving small
businesses. A survey by American Banker for June 30, 1997, ranked Mercantile
Bankshares 50th in the nation for total loans to small businesses and industries
where the original amount loaned was less than $1,000,000. Among the advantages
of our community orientation is the fact that local bank officers can respond to
each specific business situation without having to rely on the credit scoring
schemes and generic loan packages that are endemic to large, far-flung banking
organizations. A community bank marketing effort in 1998 will make potential
customers aware of the value added to a commercial banking relationship at the
community bank level -- augmented, where needed, by specialized services
provided by Mercantile-Safe Deposit & Trust.
Personal Banking
Personal deposit and credit services are supplied to individuals in each bank's
market area. Two personal savings vehicles of current interest are Individual
Retirement Accounts, which were enhanced in 1997 by banking legislation that
created new IRA options, and fixed annuities, offered by trained and licensed
people in most of our banks. Credit services we continue to stress throughout
the affiliate system are home equity loans and lines of credit, as well as an
array of consumer loans on both a direct and indirect basis. In addition to home
equity loans, these consumer, or "installment" loans, focus on the financing of
automobiles and boats.
Bank offices are supported by twenty-four hour telephone Voice Response Units
that give access to account information and make available selected banking
transactions. Each Mercantile Bankshares affiliate will have its own Web site in
1998 and general information about the bank will be expanded to include other
services. A list of affiliate banks and their Internet addresses is available on
the Mercantile Bankshares site at http://www.mercantile.net.
4 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
Community Service
As bank consolidation proceeds in our region, fewer and fewer "home-town" banks
exist to support their community's civic and charitable institutions. Our
affiliate banks, with well established roots in the areas in which they operate,
have always understood their obligation to act as community leaders. Affiliate
bank personnel, at all levels, continue to invest volunteer hours and charitable
dollars in making the community a better place to live. It is, after all, THEIR
community.
CORPORATE BANKING
Each affiliate bank provides commercial banking services to businesses in its
own market area. Mercantile-Safe Deposit & Trust corporate lenders extend credit
in their market area and, where appropriate, in collaboration with affiliates.
These loans are for general business purposes, such as working capital, plant
expansion, or buying equipment, and for financing commercial real estate. When a
business requires credit which exceeds the affiliate's lending limit, or has a
more specialized commercial banking need, Corporate Banking at Mercantile-Safe
Deposit & Trust cooperates with the affiliate to supply that service.
Specialized services at Mercantile-Safe Deposit & Trust include cash
management, asset-based lending, leasing, and real estate construction and
development lending.
Cash Management
Cash management, to help businesses collect, transfer and invest cash, is
available in our market areas through Cash Management Services at
Mercantile-Safe Deposit & Trust.
Keeping their cash at work is a priority with most businesses and an
overnight investment sweep is perceived as an essential cash management tool. Of
special interest in 1997, were software upgrades that enabled Mercantile to
offer end-of-day sweep investment options. Also in 1997, we added to our
MercAccess programs. With two versions, geared to the size of the business,
these services connect the customer's personal computer to the bank in order to
access account information and initiate selected transactions. MercAccess
programs are distinguished by the degree of service delivered. Bank
representatives go on site to install the software, train personnel in its use
and are available for continuing support.
Two services are to be introduced in 1998. An escrow accounting package
provides accounting and tax compliance reports useful to such entities as
lawyers, home builders, apartment owners and property managers. The second
service is Positive Pay. Check forgeries are an increasing problem; this service
helps detect and prevent fraudulent disbursements.
Asset-Based Lending
The Asset-Based Lending Group provides financing to businesses that might not
qualify for traditional financing by converting the value of their accounts
receivable, inventory and equipment into cash for operations. The Group also
provides financing for acquisitions, management buyouts and equipment purchases.
This kind of lending requires carefully crafted financing arrangements based on
the specific circumstances of each business. The nature of banking relationships
and proficiency of personnel at Mercantile-Safe Deposit & Trust Company have
made us especially adept at asset-based lending and it is an area that continues
to grow.
Another of the Group's units is Dealer Finance, which provides floorplan
financing to automobile, airplane, marine and heavy equipment dealers for new
and used vehicles, airplanes and equipment.
Leasing
In 1997, MBC Leasing Corp. completed its first full year of operations. It
provides tax-oriented and finance leases of various types of equipment to small
and mid-size businesses. In addition to building its own portfolio of earning
assets, MBC Leasing generates fee income by syndicating leases to others.
Leasing is often integrated into a larger banking relationship and its
availability enables us to assist customers who, previously, had to go elsewhere
for that service.
Real Estate Lending
The Real Estate Industries Group provides land acquisition and development,
construction, and interim lending to investors in commercial real estate.
The real estate market continued to grow in 1997, as did Mercantile's land
acquisition and construction portfolios. Many of our existing customers moved
ahead with new projects and we established new customer relationships, with
emphasis on expanding our geographic market areas. In 1998, we will be calling
on southern Pennsylvania and northern Virginia, as well as working with other
affiliate banks on projects in their areas.
The thrust of our marketing effort is to do what we have traditionally done,
find local developers who know their business, then design credit arrangements
that specifically meet their needs and stay with them as they grow. The result
is productive and long-term relationships.
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<PAGE>
INVESTMENT MANAGEMENT AND
TRUST SERVICES
Investment management and trust services are provided to individuals and
institutions by our largest affiliate, Mercantile-Safe Deposit & Trust Company.
At December 31, 1997, total assets under administration were approximately $35
billion.
Investment Management
In the world of investment management, technologies and expectations are
changing rapidly. At Mercantile, we continue to upgrade equipment and software
to enhance investment research, execution, and reporting. However, the
philosophy supporting our management of investments remains constant. We call
our investment style "value investing." That means, we emphasize the importance
of establishing risk/return parameters appropriate for each client; we focus on
value for the long run; we assemble a mix of assets that will meet each
individual investor's objectives.
Decisions related to investments and investment strategies begin with the
acquisition and synthesis of economic data. On-staff economists and security
analysts determine from which economic sectors growth is likely to come and
those investments offering the greatest promise, in light of a volatile economic
environment. The average portfolio manager has 16 years experience, long enough
to understand that there are cycles in securities markets.
We continue to tailor investments to each individual's portfolio. Where
appropriate, the portfolio includes mutual funds. In 1998, we are completing
conversion of various collective, commingled and mutual funds into one family of
13 mutual funds. M.S.D.&T. Funds bring with them the advantages of daily
valuation, enhanced liquidity and improved access to price/performance
information. They are managed by the same experienced staff of investment
professionals. We are continuing to expand our array of mutual funds to improve
the potential for diversification by risk/return objectives and asset category.
A new asset allocation service, Personal Pathways, enables a client to select
from a variety of mutual funds and makes a diversified portfolio available to
people who have not yet built an asset base sufficient to accomplish that
diversity individually.
Personal Trust and Investment
Services
Mercantile has long been preeminent in the region for trust and investment
services for individuals and families. At year end 1997, we were managing,
either in a fiduciary or non-fiduciary capacity, approximately $7 billion in
personal trust assets and held a total of $10 billion under administration.
The concept of a trust is an ancient one, but remains useful. It is a
surprisingly flexible instrument that allows for efficient management and
transfer of wealth according to the wishes of the trust client, with Mercantile
acting in a fiduciary capacity to administer and invest trust assets. In some
instances, clients prefer a non-fiduciary or "agency" relationship for
investment management.
Mercantile acts also in a custodial capacity, providing safe-keeping of
assets and investment analysis. There are, in addition, estate planning
services, tax services and a new Family Office collection of services.
While the crusty old trust officer of legend has given way to modern
portfolio managers and administrators, the old-fashioned attention to a client's
needs remains. That kind of personalized care is unusual, now, as the "800
number" trust companies become ever-more prevalent.
Institutional Trust and Investment
Services
Institutions, such as corporations, labor unions and not-for-profit
organizations, are an important client base. At year end 1997, Institutional
Services managed approximately $5 billion in assets and held a total of $25
billion under administration. Areas of special interest are retirement plans for
corporate employees and planned giving services for nonprofits.
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 selecting investments from
M.S.D.&T. Funds as well as some of the nation's highest rated mutual fund
families. As the population ages, and the role of traditional pension plans and
social security shifts, the market for retirement plan services is experiencing
considerable growth.
In addition to traditional annual giving and capital campaigns, many
nonprofit organizations are further endowing their futures through planned
giving programs. Planned giving provides tax and income benefits to the donor,
while enhancing the financial future of a charitable organization. Our Planned
Giving Unit is investing in new systems to help the nonprofit organization with
the technical and reporting aspects of life-income gift administration and, with
investment management services, meet the needs of the organization and its
donor/income beneficiaries.
6 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
PRIVATE BANKING
The continued success of the Private Banking Group is evidence of the genuine
need that high net worth individuals have for an integrated approach to managing
their financial affairs. The careful coordination of the multiple facets of
one's finances is a complex and time-consuming task. Private Banking's single
point of contact is a significant advantage for our customers, who avoid the
frustration and confusion of working with multiple personnel within the same
institution and, often, even multiple institutions.
As consolidation continues in banking, fewer financial institutions deliver
truly personal service. Being able to manage one's finances, over time, with the
aid of an experienced professional adds to the appeal of Mercantile's Private
Banking. Knowledgeable counsel and continuity of the relationship is an
important part of the service. The Group's officers have an average of
twenty-three years of financial services experience and fifteen years with the
bank. Most have advanced training and certification in several disciplines of
personal financial management.
Among those who find Private Banking services beneficial, are business
owners, professional people and senior corporate executives. Private Bankers can
coordinate cash flows, structure credit arrangements to satisfy long-term needs,
such as Jumbo Mortgages, or offset temporary shortfalls, through lines of
credit, as well as arrange investments for short- and long-term funds, all
within the context of an overall investment plan. In the same office, the
Private Banker can provide guidance on estate planning, identify appropriate
investment services and recommend personal and charitable trusts to suit the
individual's long-term goals. A risk-averse approach to investments, with
competitive rates of return, offers considerable peace of mind to those
concerned about the volatile securities markets.
The Private Banking Group is located at Mercantile-Safe Deposit & Trust
Company with satellite offices in Easton and Frederick, Maryland; its services
are marketed throughout the affiliate network of banks.
MORTGAGE BANKING
Mortgage lending services include construction lending to real estate developers
and home builders, permanent loans on multi-family housing projects, and a full
menu of mortgage banking services for individual consumers. In addition, we
service loans for others.
Construction lending continues to provide an important part of our earnings,
with more than $96,000,000 in new loans booked in 1997. That number includes a
substantial increase in the northern Virginia market, where over $28,000,000 in
loans were originated for the year.
In 1997, we focused on providing multi-family permanent loans to the real
estate development community. Loans closed in 1997 were $31,900,000, including
our first Delegated Underwriting and Servicing loan. This shared risk program is
offered to a selected number of lenders by Fannie Mae and Mercantile is proud to
have been approved for the program. We hope to expand our multi-family lending
substantially in the coming years, using DUS in conjunction with our existing
array of FHA and conventional multi-family loans. Again, we will target the
northern Virginia marketplace, believing that its growth prospects and proximity
present real opportunities.
The volume of residential mortgages to individuals rose slightly in 1997 to
just over $138,000,000. This increase in volume was accomplished with less
overhead expense than in 1996, reflecting continuing introduction of
efficiencies into the company's origination, processing and closing systems. We
continue to work to improve our cost structure for residential mortgage lending
so as to remain competitive in an increasingly price-sensitive business.
At year end 1997, Mercantile Mortgage was servicing for others loans totaling
$538,000,000. Although the bulk of this portfolio is not reflected on our
balance sheet, it produces important fee income. The quality of the residential
mortgages serviced by the company remains strong, with overall delinquencies
running more than 375 basis points below industry averages in our marketplace,
as reported for September 30, 1997 by the Mortgage Bankers Association of
America.
Mercantile Mortgage Corporation representatives deliver services in offices
located throughout the affiliate banking system.
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 7
<PAGE>
[Total Assets Graph Appears Here]
TOTAL ASSETS
(Dollars in millions) December 31
1993 1994 1995 1996 1997
$5,790 $5,938 $6,349 $6,643 $7,171
[Earnings Growth Graph Appears Here]
EARNINGS GROWTH
NET INCOME
(Dollars in millions)
5 Year Compound Growth Rate: 11.6%
1993 1994 1995 1996 1997
$83.5 $90.4 $104.4 $117.4 $132.0
[Basic Earnings Per Share Graph Appears Here]
BASIC EARNINGS PER SHARE
(In dollars)
5 Year Compound Growth Rate: 10.6%
1993 1994 1995 1996 1997
$1.16 $1.25 $1.46 $1.64 $1.85
MANAGEMENT'S DISCUSSION
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
I. PERFORMANCE SUMMARY
Mercantile Bankshares Corporation ("Mercshares") achieved a 12.5% increase in
net income for 1997, representing the 22nd consecutive year of increased net
income. Net income for Mercshares was $132,043,000 for the year ended December
31, 1997, as compared to $117,400,000 and $104,432,000 for the years ended
December 31, 1996 and 1995, respectively. Net income per common share for 1997
was $1.85, as compared to $1.64 reported for 1996, an increase of 12.8%. Net
income per share reported for 1995 was $1.46. The earnings results for 1997
include a half year of operations for Home Bank, Newark, Maryland and Farmers
Bank of Mardela Springs, Maryland which were affiliated with Mercshares on July
1, 1997 and were merged into an existing affiliate of Mercshares. The
affiliations were accounted for using the purchase method of accounting. Their
results of operations were not material to the total earnings reported by
Mercshares.
The continuing strong earnings growth for 1997 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 1.93% for the year ended December 31, 1997, as compared to 1.82% and
1.74% for the years ended December 31, 1996 and 1995, respectively. Mercshares'
return on average stockholders' equity increased to 14.90% for 1997, as compared
to the 14.48% reported for 1996 and 13.86% reported for 1995. 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 12.98%, up from the average of 12.59% reported for 1996.
Average assets increased by 6.1% to $6,828,800,000, average deposits
increased by 4.4% to $5,449,000,000 and average loans increased by 9.3% to
$4,821,500,000 for the year ended December 31, 1997, as compared to the prior
year. Overall balance sheet growth was positively impacted by the above
referenced affiliations. However, the impact was not material to the totals
reported by Mercantile.
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 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-
8 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
bearing liabilities. The Analysis of Interest Rates and Interest Differentials
on pages 10 and 11 and the Rate/Volume Analysis on page 12 provide further
details supporting this discussion. Net interest income on a fully taxable
equivalent basis was $340,547,000 for 1997, an increase of $25,729,000 or 8.2%
over the prior year's $314,818,000. Fully taxable equivalent net interest income
increased by $23,929,000 or 8.2% in 1996 over 1995. As reflected in the volume
variance column of the Rate/Volume Analysis, the 6.5% growth in average earning
assets accounted for 93.5% of the improvement in net interest income for 1997.
The 7 basis point improvement in the net interest margin to 5.24% in 1997 from
5.17% in 1996 accounted for the remainder of the increase. The increase in 1996
was attributed to an improvement in the net interest margin, which increased by
5 basis points from the reported 5.12% in 1995, and a 7.3% increase in average
earning assets.
Interest Income
Fully taxable equivalent interest income amounted to $538,468,000 in 1997
representing an increase of $36,092,000 or 7.2% over $502,376,000 in 1996. The
increase in 1996 over 1995 was $31,000,000 or 6.6%. The yield on average earning
assets in 1997 was 8.29% compared to a yield of 8.24% in 1996 and 8.30% in 1995.
The change in the yield on average earning assets is impacted by the change in
the average prime rate. The average prime rate in 1997 was 8 3/8% compared to an
average of 8 1/4% for 1996 and 8 3/4% for 1995. The yield on average total loans
was 9.08% in 1997 compared to 9.17% in 1996 and 9.40% in 1995. The growth in
average total loans was 9.3% in 1997 compared to 8.1% in 1996 and 8.3% in 1995.
The decline of 9 basis points in the yield on average total loans, despite an
increase in the average prime rate, is reflective of the increasingly
competitive market Mercshares' affiliates are competing within. As previously
noted, loan growth benefited from acquisitions in both 1997 and 1996.
Offsetting the moderate decline in the yield on the average loan portfolio
was an improvement in the yield on the investment securities portfolio. The 21
basis point improvement in the yield from 5.84% in 1996 to 6.05% in 1997
compares favorably to the average yield on the portfolio of 5.49% in 1995.
Interest Expense
Total interest expense in 1997 was $197,921,000, an increase of $10,363,000 from
$187,558,000 in 1996. The increase in interest expense for 1997 was primarily
attributable to the increase in average interest-bearing deposits, which grew by
3.4%. The average rate paid on interest-bearing deposits increased 2 basis
points to 4.05% during 1997 from 4.03% in 1996. Overall, the rate paid on total
interest-bearing funds increased to 4.14% in 1997 from 4.11% in 1996. Total
interest expense in 1996 was $7,071,000 higher than in 1995 due primarily to an
increase in the average interest bearing deposits, which grew by 6.5%.
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 1.03% in 1995 to 1.04% in 1996 and 1.09% in 1997 as
shown in the Analysis of Interest Rates and Interest Differentials on pages 10
and 11. Such benefit is influenced by the relative levels of interest rates as
well as the volume of such funds.
[Interest Yields Graph Appears Here]
INTEREST YIELDS AND RATES
(Tax equivalent basis)
1993 1994 1995 1996 1997
Average yield earned on earning assets 7.34% 7.43% 8.30% 8.24% 8.29%
Average rate paid on interest-bearing funds 3.41% 3.39% 4.21% 4.11% 4.14%
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 9
<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>
1997
--------------------------------------------------------
Average Income*/ Yield*/
(Dollars in thousands) Balance** Expense Rate
===================================================================================================================================
<S><C>
Earning assets
Loans:
Commercial..................................................... $1,659,900 $150,866 9.09%
Mortgage and construction...................................... 2,523,900 229,196 9.08
Consumer***.................................................... 637,700 57,767 9.06
---------- --------
Total loans.............................................. 4,821,500 437,829 9.08
---------- --------
Federal funds sold................................................ 78,700 4,389 5.57
Securities purchased under resale agreements...................... 5,400 301 5.63
Securities:
Taxable securities
U.S. Treasury securities.................................... 1,535,100 92,154 6.00
U.S. Agency securities...................................... 16,100 899 5.59
Other stocks and bonds...................................... 22,800 1,879 8.25
Tax-exempt securities
States and political subdivisions........................... 13,100 1,012 7.74
---------- --------
Total securities......................................... 1,587,100 95,944 6.05
---------- --------
Interest-bearing deposits in other banks.......................... 100 5 5.50
---------- --------
Total earning assets..................................... 6,492,800 538,468 8.29
--------
Cash and due from banks.............................................. 194,400
Bank premises and equipment, net..................................... 79,900
Other assets......................................................... 164,500
Less: allowance for loan losses...................................... (102,800)
----------
Total assets............................................. $6,828,800
==========
Interest-bearing liabilities
Deposits:
Savings deposits............................................... $2,198,800 57,702 2.62
Certificates of deposit and other time deposits--
less than $100,000.......................................... 1,467,800 80,289 5.47
Certificates of deposit--$100,000 and over...................... 713,400 39,378 5.52
---------- --------
Total interest-bearing deposits.......................... 4,380,000 177,369 4.05
Short-term borrowings............................................. 353,600 17,220 4.87
Long-term debt.................................................... 49,900 3,332 6.67
---------- --------
Total interest-bearing funds............................. 4,783,500 197,921 4.14
Noninterest-bearing deposits......................................... 1,069,000 --------
Other liabilities and accrued expenses............................... 89,900
----------
Total liabilities........................................ 5,942,400
Stockholders' equity................................................. 886,400
Total liabilities and stockholders' equity............... $6,828,800
==========
Net interest income.................................................. $340,547
========
Net interest rate spread............................................. 4.15%
Effect of noninterest-bearing funds.................................. 1.09
----
Net interest margin on earning assets................................ 5.24%
====
Taxable-equivalent adjustment included in:
Loan income....................................................... $ 3,796
Investment securities income...................................... 702
-------
Total.................................................... $ 4,498
=======
</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.
*** Includes home equity lines of credit which were previously classified as
real estate loans.
10 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------- ------------------------------------------------------
Average Income*/ Yield*/ Average Income*/ Yield*/
Balance** Expense Rate Balance** Expense Rate
================================================================================================================================
<S><C>
$1,438,900 $134,041 9.32% $1,351,600 $131,916 9.76%
2,348,200 212,636 9.06 2,116,400 192,987 9.12
624,400 57,853 9.27 611,300 58,620 9.59
---------- -------- ---------- --------
4,411,500 404,530 9.17 4,079,300 383,523 9.40
---------- -------- ---------- --------
80,300 4,195 5.22 62,700 3,587 5.72
5,300 325 6.13 20,000 1,126 5.63
1,546,900 89,977 5.82 1,466,400 79,915 5.45
17,700 957 5.40 25,500 1,354 5.31
17,600 1,270 7.21 10,200 821 8.05
14,700 1,115 7.59 13,500 1,046 7.75
---------- -------- ---------- --------
1,596,900 93,319 5.84 1,515,600 83,136 5.49
---------- -------- ---------- --------
100 7 4.64 100 4 4.00
---------- -------- ---------- --------
6,094,100 502,376 8.24 5,677,700 471,376 8.30
-------- --------
206,900 196,700
79,800 75,800
151,900 141,600
(96,400) (91,400)
---------- ----------
$6,436,300 $6,000,400
========== ==========
$2,214,700 58,187 2.63 $2,200,200 64,732 2.94
1,403,200 79,202 5.64 1,228,000 69,857 5.69
618,200 33,374 5.40 549,500 28,967 5.27
---------- -------- ---------- --------
4,236,100 170,763 4.03 3,977,700 163,556 4.11
292,900 14,199 4.85 280,900 15,123 5.38
39,600 2,596 6.55 27,900 1,808 6.48
---------- -------- ---------- --------
4,568,600 187,558 4.11 4,286,500 180,487 4.21
-------- --------
982,200 888,900
75,000 71,500
---------- ----------
5,625,800 5,246,900
810,500 753,500
---------- ----------
$6,436,300 $6,000,400
========== ==========
$314,818 $290,889
======== ========
4.13% 4.09%
1.04 1.03
---- ----
5.17% 5.12%
==== ====
$ 3,730 $ 3,635
507 466
------- -------
$ 4,237 $ 4,101
======= =======
</TABLE>
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 11
<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. The calculation of rate, volume and rate/volume variances is based upon a
procedure established for banks by the Securities and Exchange Commission. Rate,
volume and rate/volume variances presented for each component will not total to
the variances presented on totals of interest income and interest expense
because of shifts from year-to-year in the relative mix of interest-earning
assets and interest-bearing liabilities.
<TABLE>
<CAPTION>
Year Ended December 31,
1997 vs. 1996 1996 vs. 1995
Due to variances in Due to variances in
--------------------------------------- ---------------------------------------
Rate/ Rate/
(Dollars in thousands) Total Rates Volumes Volume Total Rates Volumes Volume
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Interest earned on:
Loans:
Commercial (1)........................... $16,825 $(3,261) $20,587 $(501) $ 2,125 $(6,007) $ 8,520 $(388)
Mortgage & construction (2).............. 16,560 605 15,910 45 19,649 (1,341) 21,137 (147)
Consumer................................. (86) (1,291) 1,232 (27) (767) (1,981) 1,256 (42)
Taxable securities (3)......................... 2,728 3,223 (478) (17) 10,114 5,446 4,377 291
Tax-exempt securities (3)...................... (103) 21 (121) (3) 69 (22) 93 (2)
Federal funds sold/repos....................... 170 254 (79) (5) (193) (346) 165 (12)
Interest-bearing deposits in other banks....... (2) (2) 3 3
------- ------- ------- ----- ------- ------- ------- ----
Total interest income.............. 36,092 3,027 32,867 198 31,000 (3,327) 34,571 (244)
------- ------- ------- ----- ------- ------- ------- ----
Interest paid on:
Savings deposits............................ (485) (68) (418) 1 (6,545) (6,926) 427 (46)
Certificates of deposit and other time
deposits less than $100,000.............. 1,087 (2,447) 3,646 (112) 9,345 (544) 9,967 (78)
Certificates of deposit--$100,000 and over.. 6,004 749 5,139 116 4,407 698 3,622 87
Short-term borrowings....................... 3,021 65 2,943 13 (924) (1,506) 646 (64)
Long-term debt.............................. 736 48 675 13 788 21 758 9
------- ------- ------- ----- ------- ------- ------- ----
Total interest expense............. 10,363 1,471 8,822 70 7,071 (4,510) 11,878 (297)
------- ------- ------- ----- ------- ------- ------- ----
Net interest earned............................ $25,729 $ 1,556 $24,045 $ 128 $23,929 $ 1,183 $22,693 $ 53
======= ======= ======= ===== ======= ======= ======= ====
</TABLE>
(1) Tax equivalent adjustments of $3,557,000 for 1997, $3,442,000 for 1996 and
$3,193,000 for 1995 are included in the calculation of commercial loan rate
variances.
(2) Tax equivalent adjustments of $239,000 for 1997, $288,000 for 1996 and
$442,000 for 1995 are included in the calculation of mortgage and
construction loan rate variances.
(3) Tax equivalent adjustments of $702,000 for 1997, $507,000 for 1996 and
$466,000 for 1995 are included in the calculation of investment securities
rate variances.
12 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
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) 1997 1996 1995 1997/1996 1996/1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Trust division services........................... $51,547 $46,244 $44,273 11.5% 4.5%
Service charges on deposit accounts............... 16,890 16,234 15,764 4.0 3.0
Other fees ....................................... 26,399 24,178 19,975 9.2 21.0
Investment securities gains and (losses).......... (1,491) 74 (1,715)
Other income...................................... 5,308 2,698 2,609 96.7 3.4
------- ------- -------
Total................................. $98,653 $89,428 $80,906 10.3% 10.5%
======= ======= ======= ==== ====
</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) 1997 1996 1995 1997/1996 1996/1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Salaries and employee benefits.................... $124,563 $120,783 $117,512 3.1% 2.8%
Net occupancy expense of bank premises............ 12,246 11,846 11,106 3.4 6.7
Furniture and equipment expenses.................. 20,417 17,645 16,893 15.7 4.5
Communications and supplies....................... 11,804 10,809 9,778 9.2 10.5
FDIC insurance premium expense.................... 668 288 6,346 131.9 (95.5)
Other expenses.................................... 43,706 37,044 32,062 18.0 15.5
-------- -------- --------
Total................................. $213,404 $198,415 $193,697 7.6% 2.4%
======== ======== ======== ===== ====
</TABLE>
Noninterest Income
Total noninterest income, including investment securities gains or losses, was
$98,653,000 in 1997, $9,225,000 or 10.3% above 1996, which was $8,522,000 or
10.5% above 1995. The increase in noninterest income for 1997 was due primarily
to the increase in Trust Department revenues and the increase in other income
primarily due to a non-recurring gain of $1,175,000 on the sale of a bank owned
building in the first quarter of 1997.
Revenues from trust services represents the largest source of noninterest
income and amounted to $51,547,000 for 1997, an increase of 11.5% or $5,303,000
over 1996. Revenues of $46,244,000 for 1996 represented an increase of
$1,971,000 or 4.5% over 1995. At December 31, 1997, assets under administration
were $35 billion, of which Mercshares had investment management responsibility
for $12 billion. This compares to 1996 assets under administration of $27
billion and investment management responsibility for $11 billion. Net income
after the provision for income taxes for the Trust Division of Mercantile-Safe
Deposit & Trust Company, the affiliate through which trust and investment
management services are provided, was $12,366,000 in 1997 compared to
$11,063,000 and $10,412,000 in 1996 and 1995, respectively.
Other fees increased by $2,221,000 or 9.2% to $26,399,000 for 1997. During
1996, other fees increased by $4,203,000 or 21.0% to $24,178,000 from
$19,975,000 in 1995. The most significant factors relative to the change in the
level of other fees income have been foreign ATM and debit card fees and credit
card processing fees. Mortgage banking fees accounted for $1,719,000 or over 40%
of the total increase in other fees between 1996 and 1995. 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.
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 13
<PAGE>
SOURCES OF INCOME
(Dollars in millions)
[Graph Appears Here -- Plot Points Below]
Other Total
interest Interest of all
Other Trust and dividend and fees Sources
income division income on loans Total of Income
'93 9% 9% 19% 63% 100% $466.6
'94 8% 9% 18% 65% 100% $488.2
'95 7% 8% 16% 69% 100% $548.2
'96 7% 8% 17% 68% 100% $587.6
'97 7% 8% 16% 69% 100% $632.6
Investment securities gains and (losses) was the only other category of
noninterest income to reflect a significant change in 1997, as compared to the
prior year. Net investment securities (losses) totaled $(1,491,000) for 1997
compared to gains of $74,000 for 1996 and (losses) of $(1,715,000) for 1995. The
reinvestment of the proceeds on the securities sold in 1997 contributed to the
overall improvement in the portfolio yields.
Noninterest Expenses
Total noninterest expenses were $213,404,000, representing an increase of
$14,989,000 or 7.6% over the prior year's level of $198,415,000. In comparison
1995 total noninterest expenses were $193,697,000. Management continues to focus
on expense control and the efficiency of operations. However, during 1997 it was
necessary to incur onetime expenses related to the conversion to year 2000
compliant banking systems. Total noninterest expenses for 1997, excluding year
2000 related expenses, increased 6.6% over 1996 expenses. During 1997, increases
in salaries, furniture and equipment expenses and other expenses were partially
offset by reductions in employee benefits. Noninterest expenses for 1996 were
2.4% or $4,718,000 greater than those recorded in 1995.
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 48.5%, 49.0% and 52.4% for each of the years ended December
31, 1997, 1996, and 1995, 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 $124,563,000 in 1997, $3,780,000 or
3.1% over the $120,783,000 expense level for 1996. The combined salaries and
employee benefits expenses for 1996 were up $3,271,000 or 2.8% over the
$117,512,000 reported for 1995. Mercshares' staffing level on a full time
equivalent basis was 2,889 at December 31, 1997, relatively unchanged from 2,813
at December 31, 1996, and the 2,810 reported at December 31, 1995. Included in
the 1997 total are 55 employees added as a result of the two 1997 affiliations.
The employee benefits expense declined by $945,000 or 4.1% during 1997. This
decline from the prior year is largely attributable to the expenses associated
with retirement benefits due to recent favorable experience in the funding of
these programs. Mercshares adopted the cost recognition provisions of SFAS No.
123, Accounting for Stock-Based Compensation in 1995. Benefit expense related to
the Mercshares Omnibus Stock Plan amounted to $1,027,000 in 1997 compared to
$1,114,000 in 1996 and $2,106,000 for 1995. See Footnote No. 13 to the financial
statements for further information.
Net occupancy expense increased $400,000 or 3.4% during 1997 to $12,246,000.
Net occupancy expense was $11,846,000 in 1996 compared to $11,106,000 in 1995.
Total furniture and equipment expenses were $20,417,000, an increase of
$2,772,000 or 15.7% over 1996 expenses of $17,645,000. In comparison, 1995
expenses were $16,893,000. A significant portion of the increases are related to
the conversion to year 2000 compliant systems. Through the three year period
ended December 31, 1997, the external costs incurred relative to this
14 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
project amounted to approximately $9,300,000, the most significant component of
which related to the equipment expense category.
Other expenses for 1997 totaled $43,706,000, representing an increase of
$6,662,000 or 18.0% from the $37,044,000 for 1996. Other expenses for 1995
totaled $32,062,000. The most significant item increase in 1997 was the accrual
for the Mercshares' Deferred Directors Fees Program which resulted in total
expense of $2,400,000 compared to $400,000 in the prior year. This expense is
directly related to the increase in the market value of Mercshares common stock.
Additional items contributing to the increase in other expenses are increases in
communications and supplies expenses of $1,000,000, primarily a cost of the
banking systems conversion, and increases in other year 2000 related costs.
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, 1997, the total investment securities portfolio was
$1,631,623,000, reflecting a slight increase of $8,657,000 or .5% above the
prior year's $1,622,966,000. As in the past, the 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 1997, the average maturity of the bond component
of the available-for-sale portfolio was 1.8 years, representing a slight decline
from 1.9 years at December 31, 1996. The market value of the bond investment
portfolio as of December 31, 1997, was 100.6% of adjusted cost compared to 99.9%
at December 31, 1996. At December 31, 1997, $1,323,401,000 of these investments
had unrealized gains of $10,510,000 and the remaining $275,157,000 of these
investment securities had unrealized losses of $1,063,000. More information on
the investment portfolio is shown in the table on page 16 and in Footnote No. 2
to the financial statements.
Loans
Mercshares continued to experience significant growth in loans during 1997
though loan demand tended to level off during the fourth quarter. Continuing the
trend of the prior two years, average total loans increased by $410,000,000 or
9.3% to $4,821,500,000 for the year ended December 31, 1997. During 1997,
average loans increased in all three categories: commercial (including
industrial, financial and agricultural); real estate (residential and commercial
mortgages and construction); and consumer (installment and home equity).
Average commercial loans grew 15.4% in 1997 to an average balance of
$1,659,900,000, compared to a growth rate of 6.5% in 1996. Real estate loans
grew 7.5% to an average balance of $2,523,900,000 in 1997, representing a
decline from the 10.7% growth rate reported in 1996. Growth in both the
USES OF INCOME
(Dollars in millions)
[Graph Appears Here -- Plot Points Below]
<TABLE>
<CAPTION> Total
Salaries and of all
Net Applicable Other employee Provision for Interest Uses
income income taxes expenses benefits loan losses expense Total of Income
<S><C>
'93 18% 11% 15% 23% 3% 30% 100% $466.6
'94 18% 12% 17% 23% 1% 29% 100% $488.2
'95 19% 11% 14% 22% 1% 33% 100% $548.2
'96 20% 12% 13% 21% 2% 32% 100% $587.6
'97 21% 12% 14% 20% 2% 31% 100% $632.6
</TABLE>
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 15
<PAGE>
BOND INVESTMENT PORTFOLIO
The following summary shows the maturity distribution, average maturity and
average yields for the bond investment portfolio at December 31, 1997, 1996 and
1995.
<TABLE>
<CAPTION>
DECEMBER 31, 1997 December 31, 1996 December 31, 1995
------------------------------- ------------------------------- ------------------------------
Tax Tax Tax
Equivalent Equivalent Equivalent
Amortized Market Yield To Amortized Market Yield To Amortized Market Yield To
(Dollars in thousands) Cost Value Maturity Cost Value Maturity Cost Value Maturity
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
States and political subdivisions:
Within 1 year................. $ 3,585 $ 3,584 7.23% $ 2,904 $ 2,915 7.63% $ 1,593 $ 1,592 6.78%
1-5 years..................... 7,246 7,282 7.35 10,240 10,306 7.40 12,465 12,564 7.48
5-10 years.................... 250 264 9.49 407 421 8.73 1,175 1,197 7.88
After 10 years................
---------- ---------- ---------- ---------- ---------- ----------
Total....................... $ 11,081 $ 11,130 7.36% $ 13,551 $ 13,642 7.49% $ 15,233 $ 15,353 7.44%
========== ========== ==== ========== ========== ==== ========== ========== ====
Average maturity (years).... 1.6 2.2 2.9
==== ==== ====
Other bonds, notes and debentures:
After 10 years................ $ 8 $ 8 9.06% $ 7 $ 7 9.05% $ 6 $ 6 9.06%
---------- ---------- ---------- ---------- ---------- ----------
Total....................... $ 8 $ 8 9.06% $ 7 $ 7 9.05% $ 6 $ 6 9.06%
========== ========== ==== ========== ========== ==== ========== ========== ====
Average maturity (years).... 19.8 20.8 21.8
==== ==== ====
Totals:
Within 1 year................. $ 3,585 $ 3,584 7.23% $ 2,904 $ 2,915 7.63% $ 1,593 $ 1,592 6.78%
1-5 years..................... 7,246 7,282 7.35 10,240 10,306 7.40 12,465 12,564 7.48
5-10 years.................... 250 264 9.49 407 421 8.73 1,175 1,197 7.88
After 10 years................ 8 8 9.06 7 7 9.05 6 6 9.06
---------- ---------- ---------- ---------- ---------- ----------
Total ...................... $ 11,089 $ 11,138 7.36% $ 13,558 $ 13,649 7.49% $ 15,239 $ 15,359 7.45%
========== ========== ==== ========== ========== ==== ========== ========== ====
Average maturity (years).... 1.7 2.3 3.0
==== ==== ====
Securities available-for-sale
U.S. Treasury and other
U.S. government agencies:
Within 1 year................. $ 483,667 $ 484,092 5.81% $ 516,940 $ 517,209 5.82% $ 684,269 $ 685,346 5.42%
1-5 years..................... 1,096,758 1,105,750 6.08 1,066,351 1,064,308 5.95 839,428 850,072 5.89
5-10 years.................... 450 450 6.77
After 10 years................
---------- ---------- ---------- ---------- ---------- ----------
Total....................... $1,580,875 $1,590,292 6.00% $1,583,291 $1,581,517 5.91% $1,523,697 $1,535,418 5.68%
========== ========== ==== ========== ========== ==== ========== ========== ====
Average maturity (years).... 1.8 1.8 1.4
==== ==== ====
States and political subdivisions:
1-5 years..................... $ 702 $ 726 8.35%
After 10 years................ 30 31 11.92 $ 35 $ 36 11.92% $ 45 $ 45 11.92%
---------- ---------- ---------- ---------- ---------- ----------
Total....................... $ 732 $ 757 8.49% $ 35 $ 36 11.92% $ 45 $ 45 11.92%
========== ========== ==== ========== ========== ==== ========== ========== ====
Average maturity (years).... 4.4 19.5 20.5
==== ==== ====
Other bonds, notes and debentures:
Within 1 year................. $ 33 $ 33 4.76% $ 573 $ 574 6.35% $ 900 $ 899 6.89%
1-5 years..................... 1,546 1,527 5.80 1,998 1,953 6.04 3,087 3,069 5.71
5-10 years.................... 3,113 3,088 5.77 3,156 3,119 5.85 2,304 2,277 5.21
After 10 years................ 1,170 1,170 7.11 1,989 1,980 6.63 3,512 3,488 6.09
---------- ---------- ---------- ---------- ---------- ----------
Total....................... $ 5,862 $ 5,818 6.04% $ 7,716 $ 7,626 6.14% $ 9,803 $ 9,733 5.84%
========== ========== ==== ========== ========== ==== ========== ========== ====
Average maturity (years).... 8.0 6.8 6.8
==== ==== ====
Totals:
Within 1 year................. $ 483,700 $ 484,125 5.81% $ 517,513 $ 517,783 5.82% $ 685,169 $ 686,245 5.42%
1-5 years..................... 1,099,006 1,108,003 6.08 1,068,349 1,066,261 5.95 842,515 853,141 5.89
5-10 years.................... 3,563 3,538 5.90 3,156 3,119 5.85 2,304 2,277 5.21
After 10 years................ 1,200 1,201 7.23 2,024 2,016 6.72 3,557 3,533 6.16
---------- ---------- ---------- ---------- ---------- ----------
Total....................... $1,587,469 $1,596,867 6.00% $1,591,042 $1,589,179 5.91% $1,533,545 $1,545,196 5.68%
========== ========== ==== ========== ========== ==== ========== ========== ====
Average maturity (years).... 1.8 1.9 1.4
==== ==== ====
</TABLE>
16 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
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 with an
increase of just 2.1% in 1997.
While on average the real estate loan portfolio represented over 52% of the
average total loan portfolio, a large portion of this portfolio consists of
loans to individuals on their residences. At December 31, 1997, 37% of total
real estate loans were one to four family residential mortgages.
Commercial mortgages made up 44% and construction loans, at 19%, 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, 1997, 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 loans is
reflected in the analysis of the allowance for loan losses on page 18.
For further comparative information on the components of the loan portfolio,
see the Five Year Selected Financial Data table on page 49.
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.
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 loans, was 2.13% at
December 31, 1997, unchanged from the percentage at December 31, 1996. The
percentage at December 31, 1995 was 2.12%. The allowance for loan losses as a
percentage of non-performing loans was 373% at December 31, 1997, which
represents a decline from the two previous years of 478% at December 31, 1996
and 430% at December 31, 1995. Mercshares believes that current coverage is
[Allowance As a % of Average Loans Graph Appears Here]
ALLOWANCE AS A % OF AVERAGE LOANS;
CHARGE-OFFS (Net of Recoveries)
AS A % OF AVERAGE LOANS
1993 1994 1995 1996 1997
Loan loss allowance as a % of
average loans 2.54% 2.42% 2.24% 2.22% 2.20%
Net charge-offs as a % of
average loans .31% .22% .26% .19% .14%
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 17
<PAGE>
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Allowance balance--beginning.................................. $ 97,718 $ 91,398 $ 91,257 $ 92,567 $ 88,261
Allowance of acquired banks................................... 1,373 2,818 2,803
Charge-offs:
Commercial, financial and agricultural..................... 2,738 7,282 7,867 4,262 7,845
Real estate--construction.................................. 260 325 1,134 2,405 1,258
Real estate--mortgage...................................... 2,306 494 1,476 1,901 2,451
Consumer................................................... 4,047 4,109 2,368 1,961 2,716
---------- ---------- ---------- ---------- ----------
Totals................................................ 9,351 12,210 12,845 10,529 14,270
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial, financial and agricultural..................... 617 1,666 917 729 1,500
Real estate--construction.................................. 29 4 52 224
Real estate--mortgage...................................... 441 944 225 177 148
Consumer................................................... 1,567 1,250 986 1,033 1,156
---------- ---------- ---------- ---------- ----------
Totals................................................ 2,654 3,864 2,180 2,163 2,804
---------- ---------- ---------- ---------- ----------
Net charge-offs............................................... 6,697 8,346 10,665 8,366 11,466
Provision for loan losses..................................... 13,703 14,666 7,988 7,056 12,969
---------- ---------- ---------- ---------- ----------
Allowance balance--ending..................................... $ 106,097 $ 97,718 $ 91,398 $ 91,257 $ 92,567
========== ========== ========== ========== ==========
Average loans outstanding during year......................... $4,821,500 $4,411,500 $4,079,300 $3,765,200 $3,647,000
========== ========== ========== ========== ==========
Percent of net charge-offs to average loans outstanding
during year................................................ .14% .19% .26% .22% .31%
==== ==== ==== ==== ====
Percent of allowance for loan losses at year-end to
average loans.............................................. 2.20% 2.22% 2.24% 2.42% 2.54%
==== ==== ==== ==== ====
</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
17 for Allowance for Loan Losses.
<TABLE>
<CAPTION>
Allowance amount allocated as of December 31,
------------------------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
Allowance amount allocated to:
Commercial, financial and agricultural..... $ 30,700 $27,200 $25,400 $25,600 $26,200
Real estate--construction.................. 12,700 11,700 11,000 10,900 11,700
Real estate--mortgage...................... 5,300 5,100 5,200 5,100 5,000
Consumer................................... 5,400 5,200 5,300 5,500 5,600
Allowance amount not allocated................ 51,997 48,518 44,498 44,157 44,067
-------- ------- ------- ------- -------
Total................................... $106,097 $97,718 $91,398 $91,257 $92,567
======== ======= ======= ======= =======
</TABLE>
COMPOSITION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------
1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Commercial, financial and agricultural........ 32.8% 32.9% 32.4% 33.3% 33.3%
Real estate--construction..................... 10.2 8.3 8.5 8.1 8.6
Real estate--mortgage......................... 44.0 45.4 45.0 43.1 41.9
Consumer...................................... 13.0 13.4 14.1 15.5 16.2
----- ----- ----- ----- -----
Total................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
18 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
adequate and well within industry standards when considered with our actual past
experience in collecting non-performing loans.
During 1997, the provision for loan loss expense was $13,703,000 compared to
a 1996 expense of $14,666,000. Management believes that the 1997 provision for
loan losses is prudent in relation to the growth in loans and the total
allowance for loan losses in relation to total loans at December 31, 1997. The
1995 provision was $7,988,000.
Net charge-offs declined to $6,697,000 during 1997 from a total of $8,346,000
in 1996, which were down from $10,665,000 in 1995. Net charge-offs as a
percentage of average loans were .14%, .19% and .26% for the years ended
December 31, 1997, 1996 and 1995, 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 28% in 1997, 32% in 1996 and 17% in 1995. 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 18 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 (non-accrual loans and other real estate owned), as a
percentage of period end loans and other real estate owned, was .62% at December
31, 1997, compared to .52% and .56% in the two preceding years. At year end
1997, non-performing assets were $31,083,000 compared with $23,773,000 and
$24,093,000 in 1996 and 1995, respectively. Non-performing loans totaled
$28,456,000 at December 31, 1997 compared to $20,457,000 at December 31, 1996,
and $21,235,000 in 1995. Mercshares did not have any renegotiated loans
outstanding during or at the close of either of these years.
Other real estate owned decreased by $689,000 to $2,627,000 at December 31,
1997, compared to $3,316,000 at December 31, 1996, and $2,858,000 in 1995. This
decrease is primarily attributable to the sale of a foreclosed property.
Attention is directed to the data in Non-Performing Assets on page 20 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.
Sources of Funds
Mercshares' primary source of funding comes from deposits gathered by the 173
branches of its affiliate banks. Average total deposits were $5,449,000,000,
representing an increase of $230,700,000 or 4.4% over the prior year average of
$5,218,300,000. Average total deposits for 1995 amounted to $4,866,600,000. For
the year ended December 31, 1997, 83.9% of the funding for average earning
assets was derived from deposits. This
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 19
<PAGE>
NON-PERFORMING ASSETS
A five-year comparison of non-performing assets is presented below:
<TABLE>
<CAPTION>
December 31,
----------------------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Non-accrual loans (1)......................... $28,456 $20,457 $21,235 $33,645 $66,063
Renegotiated loans (1)........................ 3
Loans contractually past due 90 days or more
and still accruing interest................
------- ------- ------- ------- -------
Total non-performing loans................. 28,456 20,457 21,235 33,648 66,063
Other real estate owned....................... 2,627 3,316 2,858 10,165 22,658
------- ------- ------- ------- -------
Total non-performing assets................ $31,083 $23,773 $24,093 $43,813 $88,721
======= ======= ======= ======= =======
Non-performing loans as a percentage of
period end loans........................... .57% .45% .49% .85% 1.78%
Non-performing assets as a percentage of
period end loans and other real estate
owned...................................... .62% .52% .56% 1.11% 2.37%
Allowance for loan losses as a percentage
of non-performing loans.................... 372.85% 477.68% 430.41% 271.21% 140.12%
</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 $3,024,000 and
$1,982,000 in 1997 and 1996 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 $1,404,000 and $875,000 in 1997
and 1996, respectively.
Note: The Corporation was monitoring loans estimated to aggregate $3,662,000 at
December 31, 1997 and $4,645,000 at December 31, 1996, not classified as
non-accrual or renegotiated loans. These loans had characteristics which
indicated they might result in such classification in the future.
ratio is virtually unchanged from the ratios of 85.6% for 1996 and 85.7% for
1995.
Significant growth for 1997 was recorded in the noninterest-bearing deposit
category. Averaging $1,069,000,000 for the year and representing 19.6% of
average total deposits, this key source of funds grew by 8.8% over the prior
year's average of $982,200,000. The average for 1996 was up 10.5% over the 1995
average and represented 18.8% of total average deposits for 1996. 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 average interest-bearing deposits for 1997 grew by a more modest 3.4%
or $143,900,000. Average interest-bearing deposits amounted to $4,380,000,000,
up from the 1996 average of $4,236,100,000. The average for 1996 represented an
increase of 6.5% over 1995's average of $3,977,700,000. Virtually all of the
1997 growth in interest-bearing deposits was in the area of consumer time
deposits. Savings deposits which are comprised of checking plus interest, money
market and savings accounts have remained virtually flat over the past three
years. 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 a higher yield on their funds. Averaging $2,181,200,000 for
the year ended December 31, 1997, certificates of deposit grew by 7.9% from the
average of $2,021,400,000 for 1996. The 1996 average was up 13.7% over the 1995
average of $1,777,500,000, reflecting the above noted shift of funds by
depositors. Certificates of deposit - $100,000 and over averaged $713,400,000,
$618,200,000 and $549,500,000 for the years ended December 31, 1997, 1996
20 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
COMPOSITION OF EARNING ASSETS
<TABLE>
<CAPTION>
Average Balances
---------------------------------------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Loans......................... $4,821,500 74.3% $4,411,500 72.4% $4,079,300 71.8% $3,765,200 68.7% $3,647,000 68.7%
Investment securities*........ 1,587,200 24.4 1,597,000 26.2 1,515,700 26.7 1,700,600 31.1 1,612,200 30.3
Federal funds sold............ 78,700 1.2 80,300 1.3 62,700 1.1 12,200 .2 37,600 .7
Securities purchased under
resale agreements.......... 5,400 .1 5,300 .1 20,000 .4 15,700 .3
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total................. $6,492,800 100.0% $6,094,100 100.0% $5,677,700 100.0% $5,478,000 100.0% $5,312,500 100.0%
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
</TABLE>
* Includes interest-bearing deposits in other banks.
DEPOSIT MIX
<TABLE>
<CAPTION>
Average Balances
---------------------------------------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Noninterest-bearing deposits.. $1,069,000 19.6% $ 982,200 18.8% $ 888,900 18.3% $ 890,100 19.0% $ 845,500 18.3%
Interest-bearing deposits:
Savings, checking plus
interest................. 1,460,300 26.8 1,451,000 27.8 1,421,000 29.2 1,577,100 33.6 1,505,000 32.5
Money market............... 738,500 13.6 763,700 14.6 779,200 16.0 833,300 17.8 885,600 19.1
CDs and other time deposits
less than $100,000....... 1,467,800 26.9 1,403,200 26.9 1,228,000 25.2 1,052,100 22.4 1,086,600 23.5
CDs $100,000
and over................. 713,400 13.1 618,200 11.9 549,500 11.3 339,900 7.2 302,500 6.6
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total................. $5,449,000 100.0% $5,218,300 100.0% $4,866,600 100.0% $4,692,500 100.0% $4,625,200 100.0%
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
</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, 1997.
<TABLE>
<CAPTION>
Maturing
-----------------------------------------------------------------------------
Over 1
1 year through Over 5
(Dollars in thousands) or less 5 years years Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Commercial, financial and agricultural.......... $681,174 $581,792 $369,927 $1,632,893
Real estate--construction....................... 151,286 248,799 108,719 508,804
-------- -------- -------- ----------
Total................................... $832,460 $830,591 $478,646 $2,141,697
======== ======== ======== ==========
</TABLE>
Of the $1,309,237,000 loans maturing after one year, $495,048,000 or 38% have
predetermined interest rates and $814,189,000 or 62% have floating interest
rates.
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 21
<PAGE>
INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
At December 31, 1997
-----------------------------------------------------------------------------------
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>
ASSETS
Securities (1).............................. $ 103.1 $114.9 $271.3 $1,104.3 $ 5.0 $ 33.1 $1,631.7
Federal funds/repos......................... 76.5 76.5
Loans....................................... 2,703.6 201.4 393.2 1,292.9 387.4 4,978.5
Other assets................................ 484.0 484.0
-------- ------ ------ -------- --------- -------- --------
Total............................... 2,883.2 316.3 664.5 2,397.2 392.4 517.1 7,170.7
-------- ------ ------ -------- --------- -------- --------
LIABILITIES & EQUITY
Money market deposit accounts............... 722.2 722.2
Time deposits............................... 747.7 332.1 444.0 736.0 12.3 2,272.1
Other deposits (2).......................... 413.9 2,285.8 2,699.7
Short-term borrowings....................... 402.7 402.7
Long-term debt.............................. 9.1 31.9 9.0 50.0
Other liabilities........................... 89.0 89.0
Stockholders' equity........................ 935.0 935.0
-------- ------ ------ -------- --------- -------- --------
Total............................... 2,286.5 332.1 453.1 767.9 2,307.1 1,024.0 $7,170.7
-------- ------ ------ -------- --------- -------- --------
Excess...................................... $ 596.7 $(15.8) $211.4 $1,629.3 $(1,914.7) $ (506.9)
======== ====== ====== ======== ========= ========
Accumulated excess.......................... $ 596.7 $580.9 $792.3 $2,421.6 $ 506.9
======== ====== ====== ======== =========
Accumulated excess as a percent
of total................................. 8.3% 8.1% 11.0% 33.8% 7.1%
</TABLE>
(1) Includes interest-bearing deposits in other banks.
(2) Reflects behavior experience which often differs from legal withdrawal
provisions.
22 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
and 1995, respectively. Growth in this category was 15.4% in 1997 and 12.5% in
1996 compared to 61.7% in 1995.
Due to the fact that Mercshares' overall growth in average loans was nearly
double the growth in deposits during 1997, it was necessary to increase average
short-term borrowings in order to partially fund this growth. Short-term
borrowings averaged $353,600,000 in 1997, $60,700,000 or 20.7% greater than the
average balance of $292,900,000 in 1996. The 1996 average balance represented an
increase of $12,000,000 or 4.3% greater than the average for 1995.
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. Average stockholders' equity was $886,400,000
which represents an increase of $75,900,000 or 9.4% greater than the prior year.
The average was $810,500,000 in 1996, which represents an increase of 7.6% over
1995's average of $753,500,000. With the growth in average total assets being
6.1%, the Company was able to maintain its ratio of average total stockholders'
equity to overall average total assets at 13.0% for 1997 and 12.6% for 1996. For
a more in-depth discussion of stockholders' equity and capital adequacy, see
page 24 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 22, asset sensitivity
indicates that, given the composition of assets and liabilities at December 31,
1997, 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
LOAN COMPOSITION AND GROWTH
Average Loans (Dollars in millions)
5 Year Compound Growth Rate: 7.0%
[Graph Appears Here -- See Plot Points Below]
Real estate -- Commercial, Total
construction financial and Average
Consumer and mortgage agricultural Total Loans
'93 17% 50% 33% 100% $3,647.0
'94 16% 51% 33% 100% $3,765.2
'95 15% 52% 33% 100% $4,079.3
'96 14% 53% 33% 100% $4,411.5
'97 13% 52% 35% 100% $4,821.5
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 23
<PAGE>
RISK-BASED CAPITAL RATIOS*
Regulatory Tier One Minimum: 4%
[Graph Appears Here -- See Plot Points Below]
Tier Tier
one two
'93 18.2% 1.4%
'94 18.3% 1.3%
'95 17.9% 1.3%
'96 17.9% 1.3%
'97 18.1% 1.3%
*Tier one and tier two equity as percentages of
risk-adjusted total assets at December 31.
arrangements in connection with commercial loans made to MSD&T's 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, 1997, one customer had entered into such arrangement effective in
1999. This hedge agreement will not have a material impact on the financial
performance of Mercshares. 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
1997, as previously noted, growth of average total loans exceeded average total
deposit growth, contributing to a slight decline in investment securities and an
increase in short-term borrowings. The reverse situation occurred in 1996. 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.
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 11.8% to $935,044,000 at year end 1997 from
$836,036,000 at year end 1996 which, in turn, represented a 5.3% increase from
$793,826,000 at year end 1995. These increases are primarily attributable to
growth in earnings. Book value per share was $13.01, $11.75 and $10.96 at
December 31, 1997, 1996 and 1995, respectively. The ratio of average equity to
average assets was 13.0% in 1997 compared to 12.6% in 1996 and 1995, ranking
Mercshares among the very strongest banks in the industry each year. 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 1,500,000 shares of
Mercshares common stock. This followed prior authorization for the purchase of
7,500,000 shares. Through December 31, 1997, 5,709,000 shares of common stock
were purchased under these programs. At December 31, 1997, remaining
authorization to purchase common stock was 3,291,000 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 that required to support
the growth of earning assets.
Various bank regulatory agencies have implemented stringent capital
guidelines which are directly related to a
24 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
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 page 24 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 39.
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 39 for information regarding Mercshares' commitments.
Dividends
For the 21st consecutive year, the annual dividend paid on common stock exceeded
the prior year's level. At the June 1997 meeting of the Company's Board of
Directors, a 3 for 2 stock split in the form of a dividend was declared on the
common stock. The quarterly cash dividend, adjusted for the stock split was
increased to $.20 from the restated $.173 per share, which represents a 15%
increase. 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, restated for the stock split,
were $.77 in 1997, $.65 in 1996, and $.57 in 1995. Total cash dividends paid
were $55,277,000 in 1997, $46,579,000 in 1996 and $41,013,000 in 1995. The chart
appearing on page 26 presents quarterly dividends paid over the last two years.
Acquisitions and Commitments
In November 1997, Mercshares entered into an agreement to acquire all the
outstanding shares of Marshall National Bank and Trust Company, Marshall,
Virginia. Under terms of the agreement, Mercshares will issue up to 677,198
shares of common stock representing an exchange of 1.75 shares for each
outstanding share of the common stock of Marshall National Bank. Marshall
shareholders approved the affiliation during the first quarter of 1998. Approval
by various regulatory agencies is substantially complete. It is anticipated that
this affiliation will be completed during early 1998. It is anticipated that
this affiliation will be accounted for using the purchase method of accounting.
Further information regarding this affiliation is presented in Footnote No. 14
on page 45.
Commitments for 1998 include plans for approximately $9,700,000 of capital
expenditures, consisting primarily of improvements to existing banking offices
of affiliate banks and the replacement of furniture and equipment. For further
information on commitments, see Footnotes No. 4 and 8 on pages 37 and 39,
respectively.
DIVIDENDS PER SHARE
5 Year Compound Growth Rate: 14.6%
[Graph Appears Here -- Plot Points Below]
'93 $.43
'94 $.49
'95 $.57
'96 $.65
'97 $.77
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 25
<PAGE>
DIVIDENDS
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
Quarter 4TH 3RD 2ND 1ST 4th 3rd 2nd 1st
- ----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Common dividends.......................................... .20 .20 .20 .17 .17 .17 .15 .15
</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>
1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
Quarter 4TH 3RD 2ND 1ST 4th 3rd 2nd 1st
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
High................................................ 40 1/4 33 3/4 29 5/16 26 9/16 22 1/2 20 5/16 17 3/4 18 13/16
Low................................................. 29 7/8 26 3/4 22 21 3/16 19 11/16 16 1/2 16 11/16 16 13/16
</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 27, 1998, there were 9,150 stockholders of record.
Recent FASB Pronouncements
During 1997, the Financial Accounting Standards Board issued
several new Statement of Financial Accounting Standards (SFAS). SFAS #128,
Earnings Per Share, establishes a revised format for reporting earnings per
share (EPS) which requires that both Basic and Diluted EPS be shown on the face
of the Income Statement for companies having a complex capital structure.
Mercshares implemented SFAS #128 effective for December 31, 1997. All prior
periods have been restated to give effect to the impact of implementation which
did not have a material effect on the EPS reported in any period. SFAS #129,
Disclosure of Information about Capital Structure, establishes consolidation of
reporting requirements under prior technical documents. This statement had no
impact on Mercshares as all prior requirements are currently implemented in
presenting capital structure data.
SFAS #130, Reporting Comprehensive Income, establishes standards for reporting
and display of comprehensive income and its components in financial statements.
It is effective for years beginning after December 15, 1997. SFAS #131,
Disclosures about Segments of an Enterprise and Related Information, establishes
standards for the reporting of information about operating segments of public
businesses. It is effective for years beginning after December 15, 1997.
Mercshares has not determined the extent of additional information to be
reported under the requirements of these two statements. However, Mercshares
expects to follow industry standards in compiling and reporting the required
data.
26 [Logo Appears Here] 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, 1997 and 1996, 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, 1997. 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, 1997 and
1996, and the consolidated results of their operations and their cash flows for
each of the three years in the period ended December 31, 1997, in conformity
with generally accepted accounting principles.
/s/ Coopers & Lybrand L.L.P.
____________________________
Baltimore, Maryland
January 21, 1998
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 27
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
(Dollars in thousands, except per share data) 1997 1996
==========================================================================================================================
<S><C>
ASSETS
Cash and due from banks................................................................ $ 337,234 $ 257,337
Interest-bearing deposits in other banks............................................... 100 100
Investment securities held-to-maturity (1),(2)......................................... 24,310 26,279
Investment securities available-for-sale (1),(2)....................................... 1,607,313 1,596,687
Federal funds sold..................................................................... 1,452 27,942
Securities purchased under resale agreements........................................... 75,000
Loans (3).............................................................................. 4,978,522 4,582,712
Less: allowance for loan losses (1),(3)................................................ (106,097) (97,718)
---------- ----------
Loans, net..................................................................... 4,872,425 4,484,994
---------- ----------
Bank premises and equipment, net (1),(4)............................................... 82,899 80,738
Other real estate owned, net (1)....................................................... 2,627 3,316
Excess cost over equity in affiliated banks, net (1)................................... 36,230 28,276
Other assets........................................................................... 131,079 137,012
---------- ----------
Total.................................................................................. $7,170,669 $6,642,681
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing deposits...................................................... $1,205,563 $1,090,347
Interest-bearing deposits......................................................... 4,488,348 4,249,308
---------- ----------
Total deposits................................................................. 5,693,911 5,339,655
Short-term borrowings (6).............................................................. 402,734 336,655
Accrued expenses and other liabilities................................................. 89,004 80,940
Long-term debt (7)..................................................................... 50,016 49,395
---------- ----------
Total liabilities.............................................................. 6,235,665 5,806,645
---------- ----------
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 130,000,000 shares;
issued 71,874,297 shares in 1997 and 47,435,322 shares in 1996...................... 143,749 94,872
Capital surplus........................................................................ 62,089 97,154
Retained earnings...................................................................... 717,978 641,212
Unrealized gains (losses) on securities, net of taxes.................................. 11,188 2,798
---------- ----------
Total stockholders' equity..................................................... 935,004 836,036
---------- ----------
Total.................................................................................. $7,170,669 $6,642,681
========== ==========
</TABLE>
See notes to consolidated financial statements
28 [Logo Appears Here] 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) 1997 1996 1995
================================================================================================================
<S><C>
INTEREST INCOME
Interest and fees on loans (1)................................. $434,033 $400,800 $379,888
-------- -------- --------
Interest and dividends on investment securities:
Taxable interest income..................................... 93,053 90,934 81,269
Tax-exempt interest income.................................. 641 706 663
Dividends................................................... 1,125 609 467
Other investment income..................................... 423 563 271
-------- -------- --------
95,242 92,812 82,670
-------- -------- --------
Other interest income.......................................... 4,695 4,527 4,717
-------- -------- --------
Total interest income.................................... 533,970 498,139 467,275
-------- -------- --------
INTEREST EXPENSE
Interest on deposits (5)....................................... 177,369 170,763 163,556
Interest on short-term borrowings.............................. 17,220 14,199 15,123
Interest on long-term debt..................................... 3,332 2,596 1,808
-------- -------- --------
Total interest expense................................... 197,921 187,558 180,487
-------- -------- --------
NET INTEREST INCOME............................................ 336,049 310,581 286,788
Provision for loan losses (1),(3).............................. 13,703 14,666 7,988
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES............ 322,346 295,915 278,800
-------- -------- --------
NONINTEREST INCOME
Trust division services (1).................................... 51,547 46,244 44,273
Service charges on deposit accounts............................ 16,890 16,234 15,764
Other fees..................................................... 26,399 24,178 19,975
Investment securities gains and (losses) (2)................... (1,491) 74 (1,715)
Other income................................................... 5,308 2,698 2,609
-------- -------- --------
Total noninterest income................................. 98,653 89,428 80,906
-------- -------- --------
NONINTEREST EXPENSES
Salaries....................................................... 102,263 97,538 92,931
Employee benefits (12)......................................... 22,300 23,245 24,581
Net occupancy expense of bank premises (1),(4)................. 12,246 11,846 11,106
Furniture and equipment expenses (1),(4)....................... 20,417 17,645 16,893
Communications and supplies.................................... 11,804 10,809 9,778
FDIC insurance premium expense................................. 668 288 6,346
Other expenses................................................. 43,706 37,044 32,062
-------- -------- --------
Total noninterest expenses............................... 213,404 198,415 193,697
-------- -------- --------
Income before income taxes............................ 207,595 186,928 166,009
Applicable income taxes (1),(10)...................... 75,552 69,528 61,577
-------- -------- --------
NET INCOME......................................... $132,043 $117,400 $104,432
======== ======== ========
NET INCOME PER SHARE OF COMMON STOCK (9):
BASIC....................................................... $ 1.85 $ 1.64 $ 1.46
DILUTED..................................................... $ 1.84 $ 1.64 $ 1.46
</TABLE>
See notes to consolidated financial statements
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 29
<PAGE>
STATEMENT OF CONSOLIDATED CASH FLOWS
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
(Dollars in thousands) 1997 1996 1995
=============================================================================================================================
<S><C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fees on loans.................................................. $ 432,491 $ 401,081 $ 377,105
Interest and dividends on investment securities............................. 94,822 92,986 82,931
Other interest income....................................................... 4,319 4,581 4,672
Noninterest income.......................................................... 101,133 85,277 79,530
Interest paid............................................................... (195,259) (188,272) (174,929)
Noninterest expenses paid................................................... (188,179) (174,884) (182,741)
Income taxes paid........................................................... (81,578) (74,719) (62,168)
--------- --------- ---------
Net cash provided by operating activities............................. 167,749 146,050 124,400
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held-to-maturity.......... 3,469 1,490 188,948
Proceeds from maturities of investment securities available-for-sale........ 519,512 630,120 268,819
Proceeds from sales of investment securities available-for-sale............. 34,019 65,434 78,232
Purchases of investment securities held-to-maturity......................... (535) (7,391) (40,953)
Purchases of investment securities available-for-sale....................... (543,950) (753,013) (384,740)
Net increase in customer loans.............................................. (344,958) (293,255) (239,462)
Proceeds from sales of other real estate owned.............................. 3,181 3,343 10,629
Capital expenditures........................................................ (14,109) (10,611) (9,657)
Proceeds from sales of buildings............................................ 6,610
--------- --------- ---------
Net cash used in investing activities................................. (336,761) (363,883) (128,184)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest-bearing deposits................................ 102,314 107,326 3,710
Net decrease in checking plus interest and savings accounts................. (8,350) (17,911) (184,309)
Net increase in certificates of deposit..................................... 192,503 80,859 405,705
Net increase (decrease) in short-term borrowings............................ 66,779 55,013 (74,626)
Proceeds from issuance of long-term debt.................................... 25,000
Repayment of long-term debt................................................. (79) (1,228) (5,937)
Proceeds from issuance of shares............................................ 7,026 5,846 4,486
Repurchase of common shares................................................. (12,295) (28,578) (45,685)
Dividends paid.............................................................. (55,277) (46,579) (41,013)
--------- --------- ---------
Net cash provided by financing activities............................. 292,621 179,748 62,331
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (1).................... 123,609 (38,085) 58,547
Cash and cash equivalents at beginning of year.............................. 285,379 323,464 257,146
Adjustment for acquired banks............................................... 4,798 7,771
--------- --------- ---------
Cash and cash equivalents at end of year.................................... $ 413,786 $ 285,379 $ 323,464
========= ========= =========
</TABLE>
See notes to consolidated financial statements
30 [Logo Appears Here] 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) 1997 1996 1995
=============================================================================================================================
<S><C>
Net income.................................................................. $132,043 $117,400 $104,432
-------- -------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization......................................... 8,268 8,236 7,912
Provision for loan losses............................................. 13,703 14,666 7,988
Amortization of excess cost over equity in affiliates................. 2,347 1,975 1,276
Provision for deferred taxes (benefit)................................ 1,868 (5,369) 672
Investment securities (gains) and losses.............................. 1,491 (74) 1,715
Write-downs of other real estate owned................................ 333 230 1,401
Gains on sales of other real estate owned............................. (457) (564) (3,572)
Gains on sales of buildings........................................... (1,382)
(Increase) decrease in interest receivable............................ (2,358) 509 (2,567)
(Increase) decrease in other receivables.............................. 2,828 (3,513) 481
(Increase) decrease in other assets................................... 3,539 3,402 (4,195)
Increase (decrease) in interest payable............................... 2,662 (714) 5,558
Increase in accrued expenses.......................................... 10,758 9,688 4,562
Increase (decrease) in taxes payable.................................. (7,894) 178 (1,263)
-------- -------- --------
Total adjustments.................................................. 35,706 28,650 19,968
-------- -------- --------
Net cash provided by operating activities................................... $167,749 $146,050 $124,400
======== ======== ========
</TABLE>
See notes to consolidated financial statements
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 31
<PAGE>
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED
DECEMBER 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Unrealized
Gains
Common Capital Retained (Losses) on
(Dollars in thousands, except per share data) Stock Surplus Earnings Securities
=============================================================================================================================
<S><C>
BALANCE, DECEMBER 31, 1994 ................................................. $ 96,228 $ 22,988 $606,972 $(2,271)
Net income.................................................................. 104,432
Cash dividends paid:
Common stock ($.57 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 ($.65 per share)............................................ (46,579)
Issuance of 142,929 shares for dividend
reinvestment and stock purchase plan..................................... 287 3,526
Issuance of 24,941 shares for employee stock
purchase dividend reinvestment plan...................................... 50 650
Issuance of 61,052 shares for employee stock option plan.................... 122 1,211
Purchase of 1,066,051 shares under stock repurchase plan.................... (2,132) (26,446)
Vested stock options ....................................................... 2,106
Transfer to capital surplus................................................. 50,000 (50,000)
Change in unrealized gains (losses) on securities........................... (7,985)
-------- -------- -------- -------
BALANCE, DECEMBER 31, 1996 ................................................. 94,872 97,154 641,212 2,798
Net income.................................................................. 132,043
Cash dividends paid:
Common stock ($.77 per share)............................................ (55,277)
Issuance of 119,759 shares for dividend
reinvestment and stock purchase plan..................................... 239 3,890
Issuance of 22,326 shares for employee stock
purchase dividend reinvestment plan...................................... 45 715
Issuance of 117,233 shares for employee stock option plan................... 234 1,937
Purchase of 394,175 shares under stock repurchase plan...................... (788) (11,507)
Issuance of 872,374 shares for bank acquisitions............................ 1,744 16,223
Issuance of 23,701,458 shares for a 3 for 2 stock split..................... 47,403 (47,437)
Vested stock options (13)................................................... 1,114
Change in unrealized gains (losses) on securities .......................... 8,390
-------- -------- -------- -------
BALANCE, DECEMBER 31, 1997 (9) ............................................. $143,749 $ 62,089 $717,978 $11,188
======== ======== ======== =======
</TABLE>
See notes to consolidated financial statements
32 [Logo Appears Here] 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
$18,220,000 and $15,873,000 at December 31, 1997 and 1996, respectively.
Mercshares and its affiliates use the accrual basis of accounting. 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 1997
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.
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.
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 33
<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,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------- --------------------------------------------
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>
Securities held-to-maturity
U.S. Treasury...................
U.S. government agencies........
States and political subdivisions $ 11,081 $ 77 $ 28 $ 11,130 $ 13,551 $ 128 $ 37 $ 13,642
Other bonds, notes
and debentures................. 8 8 7 7
---------- ------- ------ ---------- ---------- ------- ------ ----------
Total bonds.................... 11,089 77 28 11,138 13,558 128 37 13,649
Other investments............... 13,221 13,221 12,721 6 12,727
---------- ------- ------ ---------- ---------- ------- ------ ----------
Total ....................... $ 24,310 $ 77 $ 28 $ 24,359 $ 26,279 $ 134 $ 37 $ 26,376
========== ======= ====== ========== ========== ======= ====== ==========
Securities available-for-sale
U.S. Treasury................... $1,562,943 $10,366 $ 895 $1,572,414 $1,567,754 $ 3,881 $5,455 $1,566,180
U.S. government agencies........ 17,932 32 86 17,878 15,537 10 210 15,337
States and political subdivisions 732 25 757 35 1 36
Other bonds, notes
and debentures................. 5,862 10 54 5,818 7,716 1 91 7,626
---------- ------- ------ ---------- ---------- ------- ------ ----------
Total bonds.................... 1,587,469 10,433 1,035 1,596,867 1,591,042 3,893 5,756 1,589,179
Other investments............... 2,075 8,371 10,446 1,286 6,222 7,508
---------- ------- ------ ---------- ---------- ------- ------ ----------
Total........................ $1,589,544 $18,804 $1,035 $1,607,313 $1,592,328 $10,115 $5,756 $1,596,687
========== ======= ====== ========== ========== ======= ====== ==========
</TABLE>
34 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
The amortized cost and market values of the bond investment portfolio by
contractual maturity at December 31, 1997 and 1996 are shown below:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
Amortized Market Amortized Market
(Dollars in thousands) Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
Securities held-to-maturity
Within 1 year........................................................ $ 3,585 $ 3,584 $ 2,904 $ 2,915
1-5 years............................................................ 7,246 7,282 10,240 10,306
5-10 years........................................................... 250 264 407 421
After 10 years....................................................... 8 8 7 7
---------- ---------- ---------- ----------
Total ............................................................ $ 11,089 $ 11,138 $ 13,558 $ 13,649
========== ========== ========== ==========
Securities available-for-sale
Within 1 year........................................................ $ 483,700 $ 484,125 $ 517,513 $ 517,783
1-5 years............................................................ 1,099,006 1,108,003 1,068,349 1,066,261
5-10 years........................................................... 3,563 3,538 3,156 3,119
After 10 years....................................................... 1,200 1,201 2,024 2,016
---------- ---------- ---------- ----------
Total ............................................................ $1,587,469 $1,596,867 $1,591,042 $1,589,179
========== ========== ========== ==========
</TABLE>
At December 31, 1997 and 1996, no single issue of investment securities exceeded
ten percent of stockholders' equity.
At December 31, 1997 and 1996, securities with an amortized cost of
$586,186,000 and $470,914,000, 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 1997,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
1997 1996 1995
-------------------- ---------------------- ---------------------
Gross Gross Gross Gross Gross Gross
Realized Realized Realized Realized Realized Realized
(Dollars in thousands) Gains Losses Gains Losses Gains Losses
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Debt securities
Available-for-sale............. $1,284 $ 2 $14 $ 910
Non-debt securities
Held-to-maturity............... 422
Available-for-sale............. $43 250 86 $83 466
--- ------ --- --- --- ------
Total......................... $43 $1,534 $88 $14 $83 $1,798
=== ====== === === === ======
</TABLE>
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 35
<PAGE>
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans at December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
Bank affiliates:
Commercial...................................................................................... $1,632,589 $1,506,358
Construction.................................................................................... 485,773 372,467
Mortgage........................................................................................ 2,175,425 2,066,185
Consumer........................................................................................ 644,703 614,656
---------- ----------
Total......................................................................................... 4,938,490 4,559,666
---------- ----------
Bank-related affiliates:
Commercial...................................................................................... 304 304
Construction.................................................................................... 23,031 7,540
Mortgage........................................................................................ 16,697 15,202
---------- ----------
Total......................................................................................... 40,032 23,046
---------- ----------
Total loans................................................................................. $4,978,522 $4,582,712
========== ==========
</TABLE>
At December 31, 1997 and 1996, $28,456,000 and $20,457,000 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>
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
Allowance of acquired banks.......................................................... 1,373 1,373
Provision charged to operating expense............................................... 13,208 495 13,703
Recoveries........................................................................... 2,654 2,654
Charge-offs.......................................................................... (9,351) (9,351)
-------- ------ --------
BALANCE, DECEMBER 31, 1997............................................................. $104,592 $1,505 $106,097
======== ====== ========
</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, 1997 and 1996 is shown below. Refer to Note 1C for an expanded
discussion on impaired loans.
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S><C>
Impaired loans with a valuation allowance.............................................................. $ 2,785 $ 2,649
Impaired loans with no valuation allowance............................................................. 20,805 13,128
-------- -------
Total impaired loans................................................................................. $ 23,590 $15,777
======== =======
Allowance for loan losses applicable to impaired loans................................................. $ 1,317 $ 1,194
Allowance for loan losses applicable to other than impaired loans...................................... 104,780 96,524
-------- -------
Total allowance for loan losses...................................................................... $106,097 $97,718
======== =======
Year-to-date interest income on impaired loans recorded on the cash basis.............................. $ 1,207 $ 672
======== =======
Year-to-date average recorded investment in impaired loans during the period........................... $ 22,600 $19,300
======== =======
Quarter-to-date interest income on impaired loans recorded on the cash basis........................... $ 367 $ 34
======== =======
Quarter-to-date average recorded investment in impaired loans during the period........................ $ 24,300 $18,400
======== =======
</TABLE>
36 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------
<S><C>
Land................................................................................................... $ 18,651 $ 18,402
Buildings and leasehold improvements................................................................... 95,482 94,826
Equipment.............................................................................................. 54,011 50,893
-------- --------
168,144 164,121
Accumulated depreciation and amortization.............................................................. (85,245) (83,383)
-------- --------
Bank premises and equipment, net....................................................................... $ 82,899 $ 80,738
======== ========
</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 1997, 1996 and 1995 was:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Bank premises*............................................................................. $ 4,211 $4,108 $4,114
Equipment/software expense................................................................. 6,344 4,465 3,999
------- ------ ------
Total rental expense..................................................................... $10,555 $8,573 $8,113
======= ====== ======
</TABLE>
*Amounts do not reflect offset for rental income.
At December 31, 1997, the aggregate minimum rental commitments under
noncancelable operating leases are as follows: 1998-$8,616,000; 1999-$7,197,000;
2000-$5,590,000; 2001-$4,040,000; 2002-$3,564,000; thereafter-$12,068,000.
5. DEPOSITS
Included in time deposits are certificates of deposit issued in denominations of
$100,000 or more which totaled $744,489,000 and $636,951,000 at December 31,
1997 and 1996, respectively. Other time deposits issued in denominations of
$100,000 or more totaled $1,335,000 at December 31, 1997 and 1996.
At December 31, 1997, 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, 1997 or less 6 months 12 months months
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Time certificates of deposit--
$100,000 or more..................................... $744,489 $384,221 $79,077 $74,954 $206,237
======== ======== ======= ======= ========
Other time deposits--
$100,000 or more..................................... $ 1,335 $ 1,335
======== ========
</TABLE>
Interest on deposits for the years ended December 31, 1997, 1996 and 1995
consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S><C>
Savings deposits..................................................................... $ 57,702 $ 58,187 $ 64,732
Certificates of deposit ($100,000 or more)........................................... 39,378 33,374 28,967
Other time deposits.................................................................. 80,289 79,202 69,857
-------- -------- --------
Total interest on deposits......................................................... $177,369 $170,763 $163,556
======== ======== ========
</TABLE>
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 37
<PAGE>
6. SHORT-TERM BORROWINGS
The following table summarizes Mercshares' short-term borrowings and their
weighted average interest rates at December 31, 1997 and 1996.
<TABLE>
<CAPTION>
Year-end During year
------------------ -------------------------------
1997 (Dollars in thousands) Amount Rate Highest Average Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Federal funds purchased and securities
sold under repurchase agreements............................ $229,414 5.37% $253,001 $214,020 4.72%
Commercial paper.............................................. 168,693 4.90 168,693 137,471 5.10
Other short-term borrowings................................... 4,627 5.20 4,627 2,109 5.00
-------- --------
Total..................................................... $402,734 5.17% $353,600 4.87%
======== ==== ======== ====
<CAPTION>
1996 (Dollars in thousands)
- ---------------------------
<S><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%
======== ==== ======== ====
</TABLE>
Other short-term borrowings include notes payable to the U.S. Treasury and
borrowings from the Federal Home Loan Bank. During 1997 and 1996, commercial
paper borrowings were partially supported by back-up lines of credit which
ranged from a low of $35,000,000 to a high of $39,500,000. Unused lines of
credit at December 31, 1997 were $35,000,000. 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, 1997 and 1996 consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
3% Unsecured debenture............................................................................ $ 190 $ 237
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 25,000
Other............................................................................................. 826 158
------- -------
Total long-term debt.......................................................................... $50,016 $49,395
======= =======
</TABLE>
The 3% debenture is payable in five equal annual payments beginning July 1, 1997
with the final payment due 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:
1998-$9,082,000; 1999-$7,551,000; 2000-$7,552,000; 2001-$8,431,000;
2002-$8,300,000.
38 [Logo Appears Here] 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, 1997, include $2,146,596,000 in adjustable rate loan commitments
and $144,945,000 in fixed rate loan commitments. Fixed rate commitments are at
current market rates with $106,530,000 expiring within one year and the
remaining $38,415,000 expiring on various dates through February 2003. Total
commitments to extend credit at December 31, 1996, included $1,942,475,000 in
adjustable rate loan commitments and $98,247,000 in fixed rate loan commitments.
Fixed rate commitments, at December 31, 1996, were 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.
Standby letters of credit are commitments issued to guarantee the performance
of a customer to a third party. Outstanding letters of credit were $130,607,000
at December 31, 1997 and $129,081,000 at December 31, 1996.
9. STOCKHOLDERS' EQUITY
In June 1997, the Company declared a three-for-two stock split in the form of a
stock dividend on the Company's common stock, payable June 30, 1997. Shares,
average shares and per share amounts in the accompanying financial statements
and notes thereto have been adjusted to give effect to the split. The par value
of $2.00 per share has been assigned to additional shares of common stock issued
in connection with the stock split, and the aggregate value of these shares, net
of fractional shares paid in cash, was credited to common stock and a similar
amount charged to capital surplus.
Year-to-date basic earnings per share amounts are based on the weighted
average number of common shares outstanding during the period or 71,465,976
shares for 1997, 71,475,492 shares for 1996 and 71,651,531 shares for 1995.
Mercshares adopted the provisions of Statement of Financial Accounting
Standards No. 128, Earnings Per Share, on December 31, 1997. Implementation of
this pronouncement did not have a material effect on Mercshares' financial
statements. This Statement specifies the computation, presentation, and
disclosure requirements for earnings per share (EPS). The following tables
provide a reconciliation between the computation of basic EPS and Diluted EPS
for the years ended December 31, 1997, 1996 and 1995:
<TABLE>
<CAPTION>
Net Common
1997 (In thousands, except per share data) Income Shares EPS
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
Basic EPS.............................................................................. $132,043 71,466 $1.85
Effect of dilutive options............................................................. 438
-------- ------
Diluted EPS............................................................................ $132,043 71,904 $1.84
======== ======
<CAPTION>
Net Common
1996 (In thousands, except per share data) Income Shares EPS
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
Basic EPS.............................................................................. $117,400 71,475 $1.64
Effect of dilutive options............................................................. 139
-------- ------
Diluted EPS............................................................................ $117,400 71,614 $1.64
======== ======
<CAPTION>
Net Common
1995 (In thousands, except per share data) Income Shares EPS
- ------------------------------------------------------------------------------------------------------------------------------------
<S><C>
Basic EPS.............................................................................. $104,432 71,652 $1.46
Effect of dilutive options............................................................. 46
-------- ------
Diluted EPS............................................................................ $104,432 71,698 $1.46
======== ======
</TABLE>
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 39
<PAGE>
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 1,186,714 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
917,854 shares. The Company reserves the right to amend, modify, suspend or
terminate the Plan at any time at its discretion.
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 $40
(subject to adjustment). The rights, which do not carry voting or dividend
rights, may be redeemed by Mercshares at $.0022 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 9,000,000 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 3,291,353 shares at
December 31, 1997.
Cash dividends paid to the holding company (Mercantile Bankshares
Corporation) by its consolidated subsidiaries for the years ended 1997, 1996,
and 1995 were $97,522,000, $85,363,000 and $50,291,000, respectively. The amount
of dividends that Mercshares' affiliates could have paid to the holding company
without approval from bank regulators at December 31, 1997 was $562,287,000.
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 41) of total Tier I capital
(as defined in the regulations) to risk-weighted assets (as defined). Management
believes, as of December 31, 1997, that Mercshares and its bank affiliates
exceed all capital adequacy requirements to which they are subject.
As of December 31, 1997, 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
41. There are no conditions or events since the last notifications that
management believes have changed the affiliate banks' category.
40 [Logo Appears Here] 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>
AS OF DECEMBER 31, 1997:
Total Capital
(as percentage of Risk Weighted Assets):
MERCSHARES CONSOLIDATED........................ $947,763 19.36% 8.00% (1)
Mercantile-Safe Deposit & Trust Co............. $321,210 15.75% 8.00% 10.00%
Tier I Capital
(as percentage of Risk Weighted Assets):
MERCSHARES CONSOLIDATED........................ $886,029 18.10% 4.00% (1)
Mercantile-Safe Deposit & Trust Co............. $295,537 14.49% 4.00% 6.00%
Tier I Capital
(as percentage of Quarter-to-Date Average Assets):
MERCSHARES CONSOLIDATED........................ $886,029 12.61% 4.00% (1)
Mercantile-Safe Deposit & Trust Co............. $295,537 11.03% 4.00% 5.00%
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%
</TABLE>
(1) Mercshares is not subject to this requirement.
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 41
<PAGE>
10. INCOME TAXES
Applicable income taxes on net income for 1997, 1996 and 1995 consist of the
following:
<TABLE>
<CAPTION>
1997 1996 1995
--------------------------- ------------------------- --------------------------
(Dollars in thousands) Federal State Total Federal State Total Federal State Total
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Current tax expense...................... $67,756 $5,928 $73,684 $66,498 $8,399 $74,897 $53,035 $7,870 $60,905
Deferred tax expense (benefit)........... 1,338 530 1,868 (4,338) (1,031) (5,369) 486 186 672
------- ------ ------- ------- ------ ------- ------- ------ -------
Total.................................. $69,094 $6,458 $75,552 $62,160 $7,368 $69,528 $53,521 $8,056 $61,577
======= ====== ======= ======= ====== ======= ======= ====== =======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Deferred tax assets:
Allowance for loan losses........................................................................ $40,638 $36,902
Accrued employee benefits........................................................................ 13,304 11,657
Accrued other expenses........................................................................... 1,078 2,118
Write-downs of other real estate owned........................................................... 348 351
Depreciation..................................................................................... 80
Other........................................................................................... 824 648
------- -------
Total deferred tax assets...................................................................... 56,192 51,756
------- -------
Deferred tax liabilities:
Net unrealized gains on available-for-sale securities............................................ 6,630 1,561
Depreciation..................................................................................... 6,283
Prepaid items.................................................................................... 199 177
Other............................................................................................ 11 12
------- -------
Total deferred tax liabilities................................................................. 13,123 1,750
------- -------
Net deferred tax assets........................................................................ $43,069 $50,006
======= =======
</TABLE>
A reconciliation between actual tax expense and taxes computed at the statutory
federal rate of 35% for the three years ended December 31, 1997 follows:
<TABLE>
<CAPTION>
1997 1996 1995
------------------ ----------------- -------------------
% of % of % of
Pretax Pretax Pretax
(Dollars in thousands) Amount Income Amount Income Amount Income
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Tax computed at statutory rate....................... $72,658 35.0% $65,425 35.0% $58,103 35.0%
Increases (decreases) in tax resulting from:
Tax-exempt interest income......................... (2,519) (1.2) (2,500) (1.3) (2,426) (1.5)
State income taxes, net of Federal
income tax benefit............................... 4,200 2.0 4,748 2.5 5,233 3.2
Other, net......................................... 1,213 .6 1,855 1.0 667 .4
------- ---- ------- ---- ------- ----
Actual tax expense............................... $75,552 36.4% $69,528 37.2% $61,577 37.1%
======= ==== ======= ==== ======= ====
</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, 1997 and 1996,
loans to executive officers and directors of Mercshares and its principal
affiliates, including loans to their related interests, totalled $84,066,000 and
$101,985,000, respectively. During 1997, loan additions and loan deletions were
$27,795,000 and $45,714,000, respectively.
42 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
12. EMPLOYEE BENEFITS
Mercshares is sponsor of an employees' cash balance pension plan. 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 $160,000 (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, 1997, 1996 and 1995 was $1,656,000, $1,767,000 and
$2,782,000, respectively. The following tables set forth the financial status of
the cash balance pension plan at December 31, 1997 and 1996 and the composition
of total net pension expense for 1997, 1996 and 1995.
<TABLE>
<CAPTION>
At December 31,
--------------------------
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Accumulated benefit obligation:
Vested............................................................................................ $ 87,677 $ 80,197
Nonvested......................................................................................... 833 597
-------- --------
Total........................................................................................... $ 88,510 $ 80,794
======== ========
Plan assets at fair value........................................................................... $108,108 $ 90,691
Less: Projected benefit obligation.................................................................. (97,945) (90,039)
-------- --------
Plan assets greater than projected benefit obligation............................................... 10,163 652
Plus: Unrecognized net (gain) loss.................................................................. (10,766) 637
Less: Unrecognized prior service cost............................................................... (350) (277)
Unamortized net asset from adoption of SFAS No. 87.................................................. (2,777) (3,472)
-------- --------
Pension expense accrued....................................................................... $ (3,730) $ (2,460)
======== ========
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------------------------
(Dollars in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Total net pension expense:
Service cost.................................................................... $ 2,988 $ 2,906 $ 2,441
Interest cost................................................................... 6,537 6,002 5,652
Actual return on assets......................................................... (19,497) (10,498) (13,867)
Net amortization and deferral................................................... 11,628 3,357 8,556
------- ------- -------
Total......................................................................... $ 1,656 $ 1,767 $ 2,782
======= ======= =======
Assumptions:
Discount rate................................................................... 7.0% 7.0% 7.0%
Average increase in future compensation levels.................................. 4.5% 4.5% 4.5%
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.
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 $160,000 (as adjusted under the Internal Revenue
Code) and who are approved
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 43
<PAGE>
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 the contributory thrift plan in 1997, 1996 and 1995 was $4,480,000,
$4,135,000 and $3,935,000, 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) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Actuarial present value of accumulated postretirement benefits obligation (APBO):
Retirees........................................................................................ $5,999 $6,039
Active fully eligible plan participants......................................................... 1,347 1,210
Other active plan participants.................................................................. 1,733 1,630
------ ------
Total APBO.................................................................................... 9,079 8,879
Plan assets....................................................................................... 0 0
------ ------
APBO in excess of plan assets..................................................................... 9,079 8,879
Unrecognized net loss............................................................................. (206) (146)
Unrecognized net obligation from the adoption of SFAS No. 106..................................... 0 0
------ ------
Postretirement benefits accrued................................................................. $8,873 $8,733
====== ======
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------
(Dollars in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Total postretirement benefits expense:
Service cost--benefits earned during the year................................... $127 $121 $ 74
Interest cost--projected benefits obligation.................................... 643 628 600
Amortization of unrecognized loss............................................... 12 46
Amortization of transition obligation........................................... 110 110
---- ---- ----
Total ........................................................................ $782 $905 $784
==== ==== ====
Discount rate used in determining the actual present value of APBO................ 7.0% 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 2,902,500 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
1997,1996 and 1995 follows:
<TABLE>
<CAPTION>
Options issued Weighted average
and outstanding exercise price
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Balance, December 31, 1994................................................................ 0
Granted .................................................................................. 1,564,725 $14.583
Terminated/forfeited...................................................................... (39,185) 14.583
Exercised................................................................................. (21,210) 14.583
---------
Balance, December 31, 1995................................................................ 1,504,330 14.583
Granted .................................................................................. 189,000 17.304
Terminated/forfeited...................................................................... (124,779) 14.988
Exercised................................................................................. (92,047) 14.583
---------
Balance, December 31, 1996................................................................ 1,476,504 14.90
Granted .................................................................................. 22,500 27.00
Terminated/forfeited...................................................................... (15,278) 14.719
Exercised................................................................................. (163,674) 14.583
---------
Balance, December 31, 1997................................................................ 1,320,052 15.143
=========
Options exercisable at December 31, 1997.................................................. 1,001,303 14.946
</TABLE>
44 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
At December 31, 1997, the exercise price of options outstanding ranged from
$14.583 to $27.00 and the weighted average remaining contractual life of the
options outstanding was 7.4 years. The weighted average fair value of options
granted during 1997, 1996 and 1995 was $12.45, $7.97 and $3.19, respectively.
Compensation cost associated with the options granted and expected to vest for
1997, 1996 and 1995 was $1,027,000, $1,114,000 and $2,106,000, respectively.
The weighted average fair value of all of the options granted during the
periods reported 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 1997, the Corporation completed its affiliations with Home Bank, Newark,
Maryland (Home) and Farmers Bank of Mardela Springs, Maryland (Farmers) in
tax-free exchanges of stock. Shareholders of Home received 700,003 shares of
Mercshares common stock for the 179,488 shares outstanding of Home common stock
and cash in lieu of any fractional share. Shareholders of Farmers received
172,553 shares of Mercshares common stock for the 92,028 shares outstanding of
Farmers common stock and cash in lieu of any fractional share. Home Bank and
Farmers Bank were merged into Peninsula Bank, a Mercshares affiliate on
Maryland's Eastern Shore. Both transactions were accounted for as purchases.
The results of operations of Home Bank and Farmers Bank subsequent to the
date of affiliation are included in Mercshares' Statement of Consolidated
Income. The results of operations of Home Bank and Farmers Bank prior to the
date of affiliation are not material to Mercshares' results of operations.
In November 1997, Mercshares announced its plan of affiliation with Marshall
National Bank and Trust Company, Marshall, Virginia (Marshall) in a tax-free
exchange of stock. Shareholders of Marshall will receive up to 677,198 shares of
Mercshares common stock for all outstanding shares of Marshall 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 Marshall's
shareholders and approval by various regulatory agencies is substantially
complete. It is anticipated that this affiliation will be completed during the
spring of 1998.
The results of operations of Marshall prior to the affiliation date are not
expected to be material to Mercshares' results of operations. For the year ended
December 31, 1997, Marshall reported net income of $1,001,000 and average total
assets of $76,750,000.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following is a summary of the unaudited quarterly results of operations:
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------
1997 (Dollars in thousands, except per share data) Dec. 31 Sept. 30 June 30 March 31
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
Net interest income.......................................................... $86,233 $85,615 $83,980 $80,221
Provision for loan losses.................................................... 3,760 3,518 3,012 3,413
Net income................................................................... 32,720 34,764 32,545 32,014
Per share of common stock:
Basic..................................................................... .46 .48 .46 .45
Diluted................................................................... .45 .48 .46 .45
</TABLE>
<TABLE>
<CAPTION>
Three months ended
------------------------------------------------
1996 (Dollars in thousands, except per share data) Dec. 31 Sept. 30 June 30 March 31
- -----------------------------------------------------------------------------------------------------------------------------------
<S><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:
Basic..................................................................... .42 .43 .40 .39
Diluted................................................................... .42 .43 .40 .39
</TABLE>
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 45
<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, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
1997 1996
--------------------------- -------------------------
Book Fair Book Fair
(Dollars in thousands) Value Value Value Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
ASSETS
Cash and short-term investments........................................ $ 413,786 $ 413,786 $ 285,379 $ 285,379
Investment securities.................................................. 1,631,623 1,631,672 1,622,966 1,623,063
Loans.................................................................. 4,978,522 4,582,712
Less: allowance for loan losses........................................ (106,097) (97,718)
---------- ----------
Loans, net....................................................... 4,872,425 4,951,233 4,484,994 4,560,889
---------- ---------- ---------- ----------
Total financial assets........................................... $6,917,834 $6,996,691 $6,393,339 $6,469,331
========== ========== ========== ==========
LIABILITIES
Deposits............................................................... $5,693,911 $5,706,744 $5,339,655 $5,332,033
Short-term borrowings.................................................. 402,734 402,734 336,655 336,655
Long-term debt......................................................... 50,016 48,156 49,395 50,143
---------- ---------- ---------- ----------
Total financial liabilities...................................... $6,146,661 $6,157,634 $5,725,705 $5,718,831
========== ========== ========== ==========
</TABLE>
The following methods and assumptions were used to estimate the fair value
disclosures for financial instruments as of December 31, 1997 and 1996:
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.
46 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
17. MERCANTILE BANKSHARES CORPORATION (PARENT CORPORATION ONLY) FINANCIAL
INFORMATION
<TABLE>
<CAPTION>
BALANCE SHEETS
DECEMBER 31,
(Dollars in thousands, except per share data) 1997 1996
===================================================================================================================================
<S><C>
ASSETS
Cash.................................................................................................. $ 4,160 $ 5,973
Investment in bank affiliates......................................................................... 836,794 781,477
Investment in bank-related affiliates................................................................. 26,507 23,595
Interest-bearing deposit with bank affiliate.......................................................... 51,000 28,000
Securities purchased under resale agreements with bank affiliate...................................... 168,693 116,679
Loans and advances to bank-related affiliates......................................................... 33,370 19,000
Investment securities available-for-sale.............................................................. 2,038 1,250
Excess cost over equity in affiliates................................................................. 36,230 28,276
Other assets.......................................................................................... 926 496
---------- ----------
Total............................................................................................. $1,159,718 $1,004,746
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Commercial paper.................................................................................... $ 168,693 $ 116,679
Accounts payable and other liabilities.............................................................. 7,021 3,031
Long-term debt...................................................................................... 49,000 49,000
---------- ----------
Total liabilities................................................................................. 224,714 168,710
---------- ----------
Stockholders' Equity:
Preferred stock, no par value; authorized 2,000,000 shares;
issued and outstanding--None
Common stock, $2 par value; authorized 130,000,000 shares;
issued 71,874,297 shares in 1997 and 47,435,322 shares in 1996 ................................... 143,749 94,872
Capital surplus..................................................................................... 62,089 97,154
Retained earnings................................................................................... 717,978 641,212
Unrealized gains (losses) on securities............................................................. 11,188 2,798
---------- ----------
Total stockholders' equity........................................................................ 935,004 836,036
---------- ----------
Total........................................................................................... $1,159,718 $1,004,746
========== ==========
</TABLE>
<TABLE>
<CAPTION>
STATEMENT OF INCOME
(Dollars in thousands)
-------------------------------------
For the Years Ended December 31, 1997 1996 1995
===================================================================================================================================
<S><C>
INCOME
Dividends from bank affiliates............................................................ $ 95,506 $ 83,478 $ 49,810
Dividends from bank-related affiliates.................................................... 2,016 1,885 481
Interest-bearing deposit with bank affiliate.............................................. 2,212 849 1,154
Interest on securities purchased under resale agreements with bank affiliate.............. 7,004 6,019 4,381
Interest on loans to bank-related affiliates.............................................. 1,233 801 894
Other income.............................................................................. 51 31
-------- ------- -------
Total income.......................................................................... 108,022 93,063 56,720
-------- ------- -------
EXPENSES
Amortization of excess cost over equity in affiliates..................................... 2,347 1,975 1,276
Interest on short-term borrowings......................................................... 7,004 6,388 4,627
Interest on long-term debt................................................................ 3,268 2,546 1,693
Other expenses............................................................................ 3,938 2,875 2,452
-------- ------- -------
Total expenses........................................................................ 16,557 13,784 10,048
-------- ------- -------
Income before income tax benefit and equity in
undistributed net income of affiliates.................................................. 91,465 79,279 46,672
Income tax (benefit)...................................................................... (424) (372) (94)
-------- ------- -------
91,889 79,651 46,766
Equity in undistributed net income of:
Bank affiliates......................................................................... 39,152 36,939 55,816
Bank-related affiliates................................................................. 1,002 810 1,850
-------- ------- -------
NET INCOME............................................................................ $132,043 $117,400 $104,432
======== ======== ========
</TABLE>
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 47
<PAGE>
17. MERCANTILE BANKSHARES CORPORATION (PARENT CORPORATION ONLY) FINANCIAL
INFORMATION (cont.)
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
(Dollars in thousands)
Increase (decrease) in cash and cash equivalents --------------------------------
For the Years Ended December 31, 1997 1996 1995
===================================================================================================================================
<S><C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Dividends from affiliates...................................................................... $ 97,522 $ 85,363 $ 50,291
Interest on securities purchased under resale agreements with bank affiliate................... 7,004 6,019 4,381
Interest on loans to bank-related affiliates................................................... 1,157 604 973
Other income................................................................................... 3,025 3,576 1,513
Interest paid.................................................................................. (10,272) (8,934) (6,402)
Other expenses................................................................................. 664 (1,409) (3,854)
Income taxes (paid) benefit.................................................................... (48) (951) (350)
-------- -------- --------
Net cash provided by operating activities.................................................. 99,052 84,268 46,552
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net (increase) decrease in loans to affiliates................................................. (14,370) (5,000) 16,500
Net (increase) decrease in other investments................................................... (1,038) (250) 525
Investment in affiliates....................................................................... (1,910) (350)
-------- -------- --------
Net cash provided by (used in) investing activities........................................ (17,318) (5,250) 16,675
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in commercial paper.................................................... 52,013 (8,800) 51,170
Proceeds from issuance of long-term debt....................................................... 25,000
Repayment of long-term debt.................................................................... (5,000)
Proceeds from issuance of shares............................................................... 7,026 5,846 4,486
Repurchase of common shares.................................................................... (12,295) (28,578) (45,685)
Dividends paid................................................................................. (55,277) (46,579) (41,013)
-------- -------- --------
Net cash used in financing activities...................................................... (8,533) (53,111) (36,042)
-------- -------- --------
Net increase (decrease) in cash and cash equivalents........................................... 73,201 25,907 27,185
Cash and cash equivalents at beginning of year................................................. 150,652 124,745 97,567
Adjustment for affiliation..................................................................... (7)
-------- -------- --------
Cash and cash equivalents at end of year....................................................... $223,853 $150,652 $124,745
======== ======== ========
</TABLE>
<TABLE>
<CAPTION> (Dollars in thousands)
Reconciliation of net income to net cash provided by operating activities --------------------------------
For the Years Ended December 31, 1997 1996 1995
===================================================================================================================================
<S><C>
Net income..................................................................................... $132,043 $117,400 $104,432
-------- -------- --------
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of affiliates............................................. (40,154) (37,749) (57,666)
Amortization of excess cost over equity in affiliates........................................ 2,347 1,975 1,276
(Increase) decrease in interest receivable................................................... (76) (197) 79
Decrease in other receivables................................................................ 762 2,696 357
Decrease in interest payable................................................................. (53)
Increase (decrease) in accrued expenses...................................................... 4,602 1,466 (1,429)
Decrease in taxes payable.................................................................... (472) (1,323) (444)
-------- -------- --------
Total adjustments.......................................................................... (32,991) (33,132) (57,880)
-------- -------- --------
Net cash provided by operating activities...................................................... $ 99,052 $ 84,268 $ 46,552
======== ======== ========
</TABLE>
48 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
FIVE YEAR SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(Dollars in thousands, except per share data) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
NET INTEREST INCOME.................................... $ 336,049 $ 310,581 $ 286,788 $ 262,956 $ 246,482
========== ========== ========== ========== ==========
NET INCOME............................................. $ 132,043 $ 117,400 $ 104,432 $ 90,441 $ 83,468
========== ========== ========== ========== ==========
NET INCOME PER SHARE OF COMMON STOCK
Basic*................................................. $1.85 $1.64 $1.46 $1.25 $1.16
Diluted*............................................... $1.84 $1.64 $1.46 $1.25 $1.15
TOTAL ASSETS........................................... $7,170,669 $6,642,681 $6,349,103 $5,938,225 $5,789,620
========== ========== ========== ========== ==========
LONG-TERM DEBT......................................... $ 50,016 $ 49,395 $ 25,623 $ 31,470 $ 32,350
========== ========== ========== ========== ==========
PROVISION FOR LOAN LOSSES.............................. $ 13,703 $ 14,666 $ 7,988 $ 7,056 $ 12,969
========== ========== ========== ========== ==========
PER SHARE CASH DIVIDENDS
Common*................................................ $.77 $.65 $.57 $.49 $.43
CASH DIVIDENDS DECLARED AND PAID
On common stock........................................ $ 55,277 $ 46,579 $ 41,013 $ 34,982 $ 30,173
YEAR END LOAN DATA
Commercial, financial and agricultural................. $1,632,893 $1,506,662 $1,393,145 $1,311,064 $1,240,951
Real estate-construction............................... 508,804 380,007 363,570 318,531 318,401
Real estate-mortgage:
Commercial........................................... 1,178,728 1,087,434 965,640 832,290 728,290
1-4 family residential............................... 1,013,394 993,953 969,235 866,004 831,236
Home equity lines...................................... 156,603 144,284 130,934 132,512 135,917
Consumer............................................... 488,100 470,372 478,746 477,694 466,552
---------- ---------- ---------- ---------- ----------
Total loans........................................ 4,978,522 4,582,712 4,301,270 3,938,095 3,721,347
Less:
Allowance for loan losses............................ (106,097) (97,718) (91,398) (91,257) (92,567)
---------- ---------- ---------- ---------- ----------
Loans, net......................................... $4,872,425 $4,484,994 $4,209,872 $3,846,838 $3,628,780
========== ========== ========== ========== ==========
</TABLE>
*In June 1997, the Company declared a three-for-two stock split in the form of a
stock dividend on its common stock. All per share amounts above have been
adjusted to give effect to the split.
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 49
<PAGE>
FIVE YEAR STATISTICAL SUMMARY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(Dollars in thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
AVERAGE BALANCE SHEET STATISTICS
Average loans:
Commercial (including time &demand) loans............ $1,659,900 $1,438,900 $1,351,600 $1,235,800 $1,186,600
Mortgage and construction loans...................... 2,523,900 2,348,200 2,116,400 1,927,800 1,829,200
Consumer loans....................................... 637,700 624,400 611,300 601,600 631,200
---------- ---------- ---------- ---------- ----------
Total loans........................................ 4,821,500 4,411,500 4,079,300 3,765,200 3,647,000
---------- ---------- ---------- ---------- ----------
Federal funds sold..................................... 78,700 80,300 62,700 12,200 37,600
Securities purchased under resale agreements........... 5,400 5,300 20,000 15,700
Average securities:
U.S. government obligations.......................... 1,551,200 1,564,600 1,491,900 1,675,900 1,588,700
States and political subdivisions.................... 13,100 14,700 13,500 14,100 15,600
Other investments*................................... 22,900 17,700 10,300 10,600 7,900
---------- ---------- ---------- ---------- ----------
Total securities................................... 1,587,200 1,597,000 1,515,700 1,700,600 1,612,200
---------- ---------- ---------- ---------- ----------
Total earning assets............................. $6,492,800 $6,094,100 $5,677,700 $5,478,000 $5,312,500
========== ========== ========== ========== ==========
Average deposits:
Noninterest-bearing deposits......................... $1,069,000 $ 982,200 $ 888,900 $ 890,100 $ 845,500
Savings deposits..................................... 2,198,800 2,214,700 2,200,200 2,410,400 2,390,600
Time deposits........................................ 2,181,200 2,021,400 1,777,500 1,392,000 1,389,100
---------- ---------- ---------- ---------- ----------
Total deposits..................................... $5,449,000 $5,218,300 $4,866,600 $4,692,500 $4,625,200
========== ========== ========== ========== ==========
Average borrowed funds:
Short-term borrowings................................ $ 353,600 $ 292,900 $ 280,900 $ 314,400 $ 286,100
Long-term debt....................................... 49,900 39,600 27,900 31,900 22,000
---------- ---------- ---------- ---------- ----------
Total borrowed funds............................... $ 403,500 $ 332,500 $ 308,800 $ 346,300 $ 308,100
========== ========== ========== ========== ==========
AVERAGE RATES**
Loans:
Commercial (including time & demand) loans........... 9.09% 9.32% 9.76% 8.32% 7.60%
Mortgage and construction loans...................... 9.08 9.06 9.12 8.47 8.38
Consumer loans....................................... 9.06 9.27 9.59 8.66 8.71
Total loans........................................ 9.08 9.17 9.40 8.45 8.19
Federal funds sold..................................... 5.57 5.22 5.72 3.93 2.94
Securities purchased under resale agreements........... 5.63 6.13 5.63 3.18
Securities:
U.S. government obligations.......................... 6.00 5.82 5.45 5.15 5.49
States and political subdivisions.................... 7.74 7.59 7.75 7.79 8.26
Other investments*................................... 8.23 7.20 8.01 7.25 12.33
Total securities................................... 6.05 5.84 5.49 5.19 5.55
Composite rate earned............................ 8.29% 8.24% 8.30% 7.43% 7.34%
==== ==== ==== ==== ====
Deposits:
Savings deposits..................................... 2.62% 2.63% 2.94% 2.72% 2.87%
Time deposits........................................ 5.49 5.57 5.56 4.36 4.43
Total interest-bearing deposits.................... 4.05 4.03 4.11 3.32 3.44
Borrowed funds:
Short-term borrowings................................ 4.87 4.85 5.38 3.85 2.73
Long-term debt....................................... 6.67 6.55 6.48 6.66 7.00
Total borrowed funds............................... 5.09 5.05 5.48 4.11 3.04
Composite rate paid.............................. 4.14% 4.11% 4.21% 3.39% 3.41%
==== ==== ==== ==== ====
</TABLE>
*Includes interest-bearing deposits in other banks.
**Presented on a tax equivalent basis.
50 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
RETURN ON EQUITY AND ASSETS
Average total assets................................... $6,828,800 $6,436,300 $6,000,400 $5,801,600 $5,638,600
========== ========== ========== ========== ==========
Average stockholders' equity........................... $ 886,400 $ 810,500 $ 753,500 $ 704,400 $ 651,100
========== ========== ========== ========== ==========
Return on average total assets......................... 1.93% 1.82% 1.74% 1.56% 1.48%
Return on average stockholders' equity................. 14.90% 14.48% 13.86% 12.84% 12.82%
Average stockholders' equity as a percentage
of average total assets.............................. 12.98% 12.59% 12.56% 12.14% 11.55%
Dividends paid per share as a percentage
of basic net income per share........................ 41.6% 39.6% 39.0% 39.2% 37.1%
SOURCES OF INCOME
Commercial (including time & demand) loans............. 23.3% 22.2% 23.4% 20.5% 18.7%
Mortgage and construction loans........................ 36.2 36.2 35.1 33.3 32.8
Consumer loans......................................... 9.1 9.8 10.7 10.6 11.8
Federal funds sold..................................... .7 .7 .7 .1 .2
Securities purchased under resale agreements........... .1 .2 .1
Securities............................................. 15.1 15.8 15.1 18.1 19.1
----- ----- ----- ----- -----
Total interest income.............................. 84.4 84.8 85.2 82.6 82.7
Trust division services................................ 8.1 7.9 8.1 8.9 8.9
Other income........................................... 7.5 7.3 6.7 8.5 8.4
----- ----- ----- ----- -----
Total income....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
NET INTEREST INCOME
(Taxable Equivalent)
Interest earned:
Loans................................................ $ 437,829 $404,530 $383,523 $318,132 $298,612
Federal funds sold................................... 4,389 4,195 3,587 479 1,107
Securities purchased under resale agreements......... 301 325 1,126 499
Taxable securities................................... 94,937 92,211 82,094 87,200 88,185
Tax-exempt securities................................ 1,012 1,115 1,046 1,099 1,289
---------- ---------- ---------- ---------- ----------
Total interest income.............................. 538,468 502,376 471,376 406,910 389,692
---------- ---------- ---------- ---------- ----------
Interest paid:
Savings deposits..................................... 57,702 58,187 64,732 65,488 68,587
Time deposits........................................ 119,667 112,576 98,824 60,709 61,511
---------- ---------- ---------- ---------- ----------
Total interest-bearing deposits.................... 177,369 170,763 163,556 126,197 130,098
Short-term borrowings................................ 17,220 14,199 15,123 12,111 7,824
Long-term debt....................................... 3,332 2,596 1,808 2,125 1,539
---------- ---------- ---------- ---------- ----------
Total interest expense............................. 197,921 187,558 180,487 140,433 139,461
---------- ---------- ---------- ---------- ----------
Net interest income.............................. $ 340,547 $ 314,818 $ 290,889 $ 266,477 $ 250,231
========== ========== ========== ========== ==========
</TABLE>
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 51
<PAGE>
FIVE YEAR SUMMARY OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
For the Years Ended December 31,
------------------------------------------------------------------
(Dollars in thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------------------------
<S><C>
INTEREST INCOME
Interest and fees on loans............................. $434,033 $400,800 $379,888 $315,094 $295,450
Interest and dividends on securities................... 95,242 92,812 82,670 87,766 88,805
Other interest income.................................. 4,695 4,527 4,717 529 1,688
-------- -------- -------- -------- --------
Total interest income.............................. 533,970 498,139 467,275 403,389 385,943
-------- -------- -------- -------- --------
INTEREST EXPENSE
Interest on deposits................................... 177,369 170,763 163,556 126,197 130,098
Interest on short-term borrowings...................... 17,220 14,199 15,123 12,111 7,824
Interest on long-term debt............................. 3,332 2,596 1,808 2,125 1,539
-------- -------- -------- -------- --------
Total interest expense............................. 197,921 187,558 180,487 140,433 139,461
-------- -------- -------- -------- --------
NET INTEREST INCOME.................................... 336,049 310,581 286,788 262,956 246,482
Provision for loan losses.............................. 13,703 14,666 7,988 7,056 12,969
-------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES........................... 322,346 295,915 278,800 255,900 233,513
-------- -------- -------- -------- --------
NONINTEREST INCOME
Trust division services................................ 51,547 46,244 44,273 43,360 41,673
Service charges on deposit accounts.................... 16,890 16,234 15,764 15,655 16,367
Other income........................................... 30,216 26,950 20,869 25,792 22,660
-------- -------- -------- -------- --------
Total noninterest income........................... 98,653 89,428 80,906 84,807 80,700
-------- -------- -------- -------- --------
NONINTEREST EXPENSES
Salaries and employee benefits......................... 124,563 120,783 117,512 110,870 106,437
Net occupancy and equipment expenses................... 32,663 29,491 27,999 24,848 24,200
FDIC insurance premium expense......................... 668 288 6,346 10,911 10,699
Other expenses......................................... 55,510 47,853 41,840 47,192 36,906
-------- -------- -------- -------- --------
Total noninterest expenses......................... 213,404 198,415 193,697 193,821 178,242
-------- -------- -------- -------- --------
Income before income taxes............................. 207,595 186,928 166,009 146,886 135,971
Applicable income taxes................................ 75,552 69,528 61,577 56,445 52,503
-------- -------- -------- -------- --------
NET INCOME............................................. $132,043 $117,400 $104,432 $ 90,441 $ 83,468
======== ======== ======== ======== ========
</TABLE>
52 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
PRINCIPAL AFFILIATES
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] ROBERT E. HENEL, JR. GEORGE R. BENSON, JR.
THE ANNAPOLIS PRESIDENT AND CLARENCE A. BLACKWELL
BANKING AND CHIEF EXECUTIVE OFFICER BENNETT CRAIN, JR.
TRUST COMPANY CAROLYN D. O'LEARY RALPH W. CROSBY
EXECUTIVE VICE PRESIDENT FRANCIS E. GARDINER, JR.
Main Street and ERNEST R. AMADIO ROBERT E. HENEL, JR.
Church Circle SENIOR VICE PRESIDENT JOHN K. HOPKINS
Annapolis, WILLIAM A. BUSIK JOHN R. MOSES
Maryland 21401 SENIOR VICE PRESIDENT JAMES O. OLFSON
410/268-3366 MILDRED L. HENRY JOHN W. RENARD
SENIOR VICE PRESIDENT PATRICIA A. ROCHE, PH.D.
11 Offices RANDALL M. ROBEY
SENIOR VICE PRESIDENT AND
CHARTERED IN 1904 CHIEF FINANCIAL OFFICER
CHARLES E. RUCH, JR.
SENIOR VICE PRESIDENT
LYNDALL R. WARD
SENIOR VICE PRESIDENT
PAMELA A. BOWEN
VICE PRESIDENT AND
CORPORATE SECRETARY
BALANCE SHEET (Dollars in thousands) December 31, 1997
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $249,424
from banks $ 12,906
Short-term borrowings 17,430
Earning assets 283,893
Other liabilities and
Allowance for accrued expenses 1,445
loan losses (2,882)
Long-term debt --
Other assets 5,913
-------- Stockholders' equity 31,531
--------
Total assets $299,830 Total liabilities
======== and equity $299,830
========
Net income $ 5,286
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[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 Total deposits $216,224
from banks $ 5,485
Short-term borrowings 7,485
Earning assets 258,184
Other liabilities and
Allowance for accrued expenses 3,083
loan losses (3,031)
Long-term debt --
Other assets 7,328
-------- Stockholders' equity 41,174
--------
Total assets $267,966 Total liabilities
======== and equity $267,966
========
Net income $ 5,635
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[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 $159,279
from banks $ 4,757
Short-term borrowings --
Earning assets 178,710
Other liabilities and
Allowance for accrued expenses 1,078
loan losses (2,616)
Long-term debt --
Other assets 4,319
-------- Stockholders' equity 24,813
--------
Total assets $185,170 Total liabilities
======== and equity $185,170
========
Net income $ 3,728
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] HAROLD J. KAHL GORDON F. BOWEN
CALVERT BANK AND 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
JANICE M. LOMAX
CORPORATE SECRETARY
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $153,558
from banks $ 5,063
Short-term borrowings --
Earning assets 165,555
Other liabilities and
Allowance for accrued expenses 1,102
loan losses (2,239)
Long-term debt --
Other assets 3,524
-------- Stockholders' equity 17,243
--------
Total assets $171,903 Total liabilities
======== and equity $171,903
========
Net income $ 3,846
========
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 53
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] R. RAYMOND TARRACH EDWARD M. ATHEY
THE CHESTERTOWN PRESIDENT AND EDWARD S. GILLESPIE
BANK OF MARYLAND CHIEF EXECUTIVE OFFICER GEORGE H. GODFREY
RUSSELL W. CARLOW CLARENCE A. HAWKINS
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
8 Offices OFFICER
CHARTERED IN 1904
BALANCE SHEET (Dollars in thousands) December 31, 1997
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $139,815
from banks $ 4,763
Short-term borrowings 6,744
Earning assets 166,964
Other liabilities and
Allowance for accrued expenses 1,117
loan losses (2,030)
Long-term debt --
Other assets 4,524
-------- Stockholders' equity 26,545
--------
Total assets $174,221 Total liabilities
======== and equity $174,221
========
Net income $ 3,561
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] PETER W. FLOECKHER, JR. LARRY P. BORMEL
THE CITIZENS PRESIDENT AND WILLIAM H. CARTER, JR.
NATIONAL BANK CHIEF EXECUTIVE OFFICER CHARLES E. CASTLE, JR.
GLENN L. WILSON JOHN N. FAIGLE
517 Main Street EXECUTIVE VICE PRESIDENT PETER W. FLOECKHER, JR.
Laurel, AND SENIOR CREDIT OFFICER MARTIN L. GOOZMAN
Maryland 20707 JOSEPH F. PIPITONE THOMAS E. LYNCH, SR.
301/725-3100 SENIOR VICE PRESIDENT, HUGH W. MOHLER
301/953-3044 COMMUNITY BANKING, AND MICHELE K. RYAN
Baltimore: SECRETARY
410/792-7626
17 Offices
CHARTERED IN 1890
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $445,066
from banks $ 19,582
Short-term borrowings 39,330
Earning assets 523,757
Other liabilities and
Allowance for accrued expenses 3,450
loan losses (6,046)
Long-term debt --
Other assets 17,919
-------- Stockholders' equity 67,366
--------
Total assets $555,212 Total liabilities
======== and equity $555,212
========
Net income $ 9,418
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[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 $254,089
from banks $ 8,611
Short-term borrowings 1,440
Earning assets 274,635
Other liabilities and
Allowance for accrued expenses 1,431
loan losses (4,215)
Long-term debt --
Other assets 8,694
-------- Stockholders' equity 30,765
--------
Total assets $287,725 Total liabilities
======== and equity $287,725
========
Net income $ 4,856
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] ROBERT L. SIMPSON CHARLES W. DICKINSON, IV
THE EASTVILLE PRESIDENT AND CROXTON GORDON
BANK CHIEF EXECUTIVE OFFICER RUSSELL KELLAM
CHARLES W. DICKINSON, IV KATHERINE T. MEARS
16485 Lankford Highway VICE PRESIDENT AND SECRETARY ROBERT L. SIMPSON
P.O. Box 7 FAY S. WEBB C. A. TURNER, III
Eastville, ASSISTANT CASHIER
Virginia 23347
757/678-5187
1 Office
CHARTERED IN 1920
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $22,868
from banks $ 603
Short-term borrowings --
Earning assets 29,133
Other liabilities and
Allowance for accrued expenses 142
loan losses (586)
Long-term debt --
Other assets 589
------- Stockholders' equity 6,729
-------
Total assets $29,739 Total liabilities
======= and equity $29,739
=======
Net income $ 654
=======
54 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] GEORGE N. MCMATH KELLY B. CONKLIN
FARMERS & CHAIRMAN OF THE BOARD GENE H. CROCKETT
MERCHANTS BANK- H. B. REW, JR. JEFFERY L. DAVIS
EASTERN SHORE PRESIDENT AND M. CARTER DAVIS, JR.
CHIEF EXECUTIVE OFFICER JOHN H. DUER, III
25275 Lankford Highway TED D. DUER W. REVELL LEWIS, III
P.O. Box 623 EXECUTIVE VICE PRESIDENT AND THOMAS J. MAPP, JR.
Onley, CHIEF ADMINISTRATIVE OFFICER NORMAN JAMES MARSHALL
Virginia 23418 JULIE M. BADGER GEORGE N. MCMATH
757/787-4111 VICE PRESIDENT AND H. B. REW, JR.
757/824-3052 CHIEF FINANCIAL OFFICER THOMAS N. RICHARDSON
ROBERT J. BLOXOM RICHARD W. YOUNG
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, 1997
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $110,493
from banks $ 3,458
Short-term borrowings 555
Earning assets 131,077
Other liabilities and
Allowance for accrued expenses 614
loan losses (2,438)
Long-term debt --
Other assets 4,062
-------- Stockholders' equity 24,497
--------
Total assets $136,159 Total liabilities
======== and equity $136,159
========
Net income $ 2,099
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] C. JOSEPH CUNNINGHAM, III C. JOSEPH CUNNINGHAM, III
THE FIDELITY BANK PRESIDENT AND STEVEN V. HASE
CHIEF EXECUTIVE OFFICER HUGH A. MCMULLEN
59 East Main Street JAMES A. POLAND
Frostburg, F. EMMETT SMITH
Maryland 21532 KAREN O. SULLIVAN
301/689-1111 DAVID W. TURNBULL
3 Offices
CHARTERED IN 1902
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $34,010
from banks $ 826
Short-term borrowings 425
Earning assets 38,085
Other liabilities and
Allowance for accrued expenses 180
loan losses (408)
Long-term debt --
Other assets 869
------- Stockholders' equity 4,757
-------
Total assets $39,372 Total liabilities
======= and equity $39,372
=======
Net income $ 510
=======
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[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 ELMER BROWN
CHIEF EXECUTIVE OFFICER EDWARD S. BURROUGHS
41615 Park Avenue GEORGE A. FERGUSON JOHN A. CANDELA
P.O. Box 655 SENIOR VICE PRESIDENT, FORD L. DEAN
Leonardtown, CASHIER, SENIOR OPERATIONS FRANCES P. EAGAN
Maryland 20650 OFFICER AND SECRETARY TO GEORGE A. FERGUSON
301/475-8081 THE BOARD JOSEPH M. GOUGH, JR.
DAN KUBICAN ROGER D. HILL
8 Offices SENIOR VICE PRESIDENT AND JOSEPH F. MITCHELL
SENIOR LOAN OFFICER EDMUND W. WETTENGEL
CHARTERED IN 1903 GENEVIEVE M. HUNT
SENIOR VICE PRESIDENT
AND CONTROLLER
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $237,972
from banks $ 5,881
Short-term borrowings 2,856
Earning assets 272,053
Other liabilities and
Allowance for accrued expenses 1,435
loan losses (3,195)
Long-term debt --
Other assets 6,316
-------- Stockholders' equity 38,792
--------
Total assets $281,055 Total liabilities
======== and equity $281,055
========
Net income $ 6,974
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[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 C. RAY MANN
Maryland 21014 SENIOR VICE PRESIDENT PAUL E. PEAK
410/838-6131 BARBARA LEE RUDOLPH
Baltimore: R. EDWARD SCHUELER, JR.
410/879-1475 GREGORY A. SZOKA
F. D. WHITEFORD
7 Offices
CHARTERED IN 1913
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $203,644
from banks $ 4,336
Short-term borrowings 16,411
Earning assets 239,196
Other liabilities and
Allowance for accrued expenses 1,371
loan losses (3,595)
Long-term debt --
Other assets 7,028
-------- Stockholders' equity 25,539
--------
Total assets $246,965 Total liabilities
======== and equity $246,965
========
Net income $ 4,522
========
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 55
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[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, 1997
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $173,945
from banks $ 3,126
Short-term borrowings 5,424
Earning assets 202,543
Other liabilities and
Allowance for accrued expenses 1,485
loan losses (3,577)
Long-term debt --
Other assets 5,969
-------- Stockholders' equity 27,207
--------
Total assets $208,061 Total liabilities
======== and equity $208,061
========
Net income $ 3,560
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] H. FURLONG BALDWIN CYNTHIA A. ARCHER
MERCANTILE-SAFE CHAIRMAN OF THE BOARD AND H. FURLONG BALDWIN
DEPOSIT & CHIEF EXECUTIVE OFFICER THOMAS M. BANCROFT, JR.
TRUST COMPANY J. MARSHALL REID RICHARD O. BERNDT
PRESIDENT AND JAMES A. BLOCK, M.D.
2 Hopkins Plaza CHIEF OPERATING OFFICER WILLIAM R. BRODY, M.D.
Baltimore, JACK E. STEIL GEORGE L. BUNTING, JR.
Maryland 21201 CHAIRMAN, CREDIT POLICY MARTIN L. GRASS
410/237-5900 KENNETH A. BOURNE, JR. FREEMAN A. HRABOWSKI, III
EXECUTIVE VICE PRESIDENT B. LARRY JENKINS
18 Offices HUGH W. MOHLER MARY JUNCK
EXECUTIVE VICE PRESIDENT ROBERT A. KINSLEY
CHARTERED IN 1864 CHARLES E. SIEGMANN WILLIAM J. MCCARTHY
EXECUTIVE VICE PRESIDENT MORRIS W. OFFIT
DAVID C. TAIT MORTON B. PLANT
EXECUTIVE VICE PRESIDENT CHRISTIAN H. POINDEXTER
MALCOLM C. WILSON J. MARSHALL REID
EXECUTIVE VICE PRESIDENT WILLIAM C. RICHARDSON
TERRY L. TROUPE DONALD J. SHEPARD
CHIEF FINANCIAL OFFICER BRIAN B. TOPPING
ALAN D. YARBRO CALMAN J. ZAMOISKI, JR.
GENERAL COUNSEL AND SECRETARY
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $2,038,228
from banks $ 271,576
Short-term borrowings 334,833
Earning assets 2,417,001
Other liabilities and
Allowance for accrued expenses 48,540
loan losses (40,440)
Long-term debt --
Other assets 71,367
---------- Stockholders' equity 297,903
----------
Total assets $2,719,504 Total liabilities
========== and equity $2,719,504
==========
Net income $ 52,750
==========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[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 CHARLES T. LEWIS
2403 Fall Hill Avenue WILLIAM E. MILBY CHARLES A. MCCORMACK
Fredericksburg, EXECUTIVE VICE PRESIDENT WILLIAM E. MILBY
Virginia 22401 AND CASHIER J. WILLIAM POOLE
540/899-3200 JOHN B. DANIEL WILLIAM J. VAKOS
SENIOR VICE PRESIDENT WILLIAM B. YOUNG
8 Offices LLOYD B. HARRISON
SENIOR VICE PRESIDENT
CHARTERED IN 1865 RONALD L. PEARSON
SENIOR VICE PRESIDENT
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $228,437
from banks $ 11,321
Short-term borrowings 1,896
Earning assets 239,972
Other liabilities and
Allowance for accrued expenses 1,941
loan losses (2,978)
Long-term debt --
Other assets 9,512
-------- Stockholders' equity 25,553
--------
Total assets $257,827 Total liabilities
======== and equity $257,827
========
Net income $ 4,041
========
56 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] JEFFREY F. TURNER RALPH L. CHAPMAN
PENINSULA PRESIDENT AND WILLIAM E. ESHAM, JR.
BANK CHIEF EXECUTIVE OFFICER FRANK B. HANNA, SR.
WILLIAM T. STURGIS HENRY H. HANNA, III
11738 Somerset Avenue EXECUTIVE VICE PRESIDENT CHARLES R. JENKINS, SR.
P.O. Box 219 AND SENIOR LOAN OFFICER JOHN R. LERCH
Princess Anne, F. DENNIS PARKER RALPH L. MASON, JR.
Maryland 21853 SENIOR VICE PRESIDENT AND FREDERICK T. PARKER
410/651-2400 REGIONAL OFFICER GEORGE A. PURNELL
DEBORAH S.ABBOTT E. SCOTT TAWES
23 Offices VICE PRESIDENT AND CASEY I. TODD
REGIONAL OFFICER JEFFREY F. TURNER
CHARTERED IN 1889 JOHN J. SIMSON ROBERT B. TWILLEY, JR.
VICE PRESIDENT AND
REGIONAL OFFICER
W. THOMAS MEARS
VICE PRESIDENT AND
REGIONAL OFFICER
JERRY C. BRIELE
VICE PRESIDENT AND
TREASURER
MICHAEL R. WALSH
VICE PRESIDENT AND
SECRETARY
BALANCE SHEET (Dollars in thousands) December 31, 1997
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $422,192
from banks $ 14,605
Short-term borrowings 7,290
Earning assets 466,976
Other liabilities and
Allowance for accrued expenses 4,977
loan losses (9,270)
Long-term debt 95
Other assets 16,541
-------- Stockholders' equity 54,298
--------
Total assets $488,852 Total liabilities
======== and equity $488,852
========
Net income $ 8,331
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[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 $72,886
from banks $ 2,486
Short-term borrowings 845
Earning assets 79,874
Other liabilities and
Allowance for accrued expenses 352
loan losses (1,008)
Long-term debt 700
Other assets 3,280
------- Stockholders' equity 9,849
-------
Total assets $84,632 Total liabilities
======= and equity $84,632
=======
Net income $ 1,458
=======
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] JAMES J. CROMWELL STEPHEN E. CHASE
POTOMAC CHAIRMAN OF THE BOARD JAY MILTON CLOGG
VALLEY BANK KENNETH C. COOK KENNETH C. COOK
PRESIDENT AND JAMES J. CROMWELL
702 Russell Avenue CHIEF EXECUTIVE OFFICER BRUCE MACKEY
Gaithersburg, ANDREW F. FLOTT WILLIAM C. MOYER
Maryland 20877 SENIOR VICE PRESIDENT AND REX L. STURM
301/963-7600 FINANCE DIVISION MANAGER C. CLIFTON VEIRS, III
FRANCIS R. MASSICOTTE
6 Offices SENIOR VICE PRESIDENT AND
CORPORATE SECRETARY
CHARTERED IN 1959 WILLIAM W. WEST
SENIOR VICE PRESIDENT AND
CHIEF LENDING OFFICER
ARREL E. GODFREY
SENIOR VICE PRESIDENT
PATRICIA S. OLIPHANT
SENIOR VICE PRESIDENT
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $168,193
from banks $ 9,609
Short-term borrowings 20,080
Earning assets 197,030
Other liabilities and
Allowance for accrued expenses 1,403
loan losses (3,416)
Long-term debt --
Other assets 3,905
-------- Stockholders' equity 17,452
--------
Total assets $207,128 Total liabilities
======== and equity $207,128
========
Net income $ 3,028
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] WILLIAM W. DUNCAN, JR. WILLIAM W. DUNCAN, JR.
ST. MICHAELS PRESIDENT AND PAMELA P. GARDNER
BANK CHIEF EXECUTIVE OFFICER MARY B. HOFF
R. IVAN THAMERT J. BRENT RAUGHLEY
213 Talbot Street EXECUTIVE VICE PRESIDENT NORMAN M. SHANNAHAN, III
P.O. Box 70 CLIFFORD L. HILK R. IVAN THAMERT
St. Michaels, SENIOR VICE PRESIDENT AND JOHN R. VALLIANT
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 $109,584
from banks $ 2,563
Short-term borrowings 1,580
Earning assets 121,950
Other liabilities and
Allowance for accrued expenses 863
loan losses (4,647)
Long-term debt --
Other assets 3,970
-------- Stockholders' equity 11,809
--------
Total assets $123,836 Total liabilities
======== and equity $123,836
========
Net income $ 2,356
========
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 57
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] CHARLES E. ENSOR, SR. LINDA I. ALEXANDER
THE SPARKS CHAIRMAN OF THE BOARD CHARLES E. ENSOR, SR.
STATE BANK RICHARD F. PRICE JAMES J. HARTENSTEIN
VICE CHAIRMAN J. DAVID LAWSON
14804 York Road BRADLEY G. MOORE BRADLEYG. 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
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, 1997
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $170,699
from banks $ 3,725
Short-term borrowings 5,585
Earning assets 196,428
Other liabilities and
Allowance for accrued expenses 2,134
loan losses (3,010)
Long-term debt 31
Other assets 6,299
-------- Stockholders' equity 24,993
--------
Total assets $203,442 Total liabilities
======== and equity $203,442
========
Net income $ 4,014
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] JOHN C. SCHAEFFER ROBERT R. BOWMAN
WESTMINSTER BANK CHAIRMAN OF THE BOARD DANIEL S. DULANY
AND TRUST FERDINAND A. RUPPEL, JR. TODD L. HERRING
COMPANY OF PRESIDENT AND ROBERT L. JONES
CARROLL COUNTY CHIEF EXECUTIVE OFFICER G. THOMAS MULLINIX
MARK G. POHLHAUS MARLIN L. RITTASE
71 East Main Street EXECUTIVE VICE PRESIDENT FERDINAND A. RUPPEL, JR.
Westminster, JOHN C. SCHAEFFER
Maryland 21157 MERHLE B. WARFIELD, JR.
410/848-9300
10 Offices
CHARTERED IN 1898
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $206,822
from banks $ 7,108
Short-term borrowings 4,885
Earning assets 230,796
Other liabilities and
Allowance for accrued expenses 1,302
loan losses (2,966)
Long-term debt --
Other assets 6,046
-------- Stockholders' equity 27,975
--------
Total assets $240,984 Total liabilities
======== and equity $240,984
========
Net income $ 4,031
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] EDWARD K. DUNN, JR. H. FURLONG BALDWIN
MERCANTILE CHAIRMAN OF THE BOARD RICHARD O. BERNDT
MORTGAGE PAUL W. PARKS MICHAEL S. CORDES
CORPORATION PRESIDENT AND EDWARD K. DUNN, JR.
CHIEF EXECUTIVE OFFICER WILLIAM J. MCCARTHY
20 South Charles Street, MICHAEL S. CORDES PAUL W. PARKS
3rd Floor EXECUTIVE VICE PRESIDENT AND CHRISTIAN H. POINDEXTER
Baltimore, CHIEF OPERATING OFFICER J. MARSHALL REID
Maryland 21201 EDWARD J. MURN, III CALMAN J. ZAMOISKI, JR.
410/347-8940 EXECUTIVE VICE PRESIDENT FOR
MULTI-FAMILY FINANCE
12 Offices WILLIAM L. WILCOX, JR.
EXECUTIVE VICE PRESIDENT
INCORPORATED IN 1972 FOR PRODUCTION
KEVIN J. MICHNO
SENIOR VICE PRESIDENT
FOR ORIGINATION AND
INFORMATION SERVICES
JOHN M. SCHWANKY
SENIOR VICE PRESIDENT
FOR SERVICING
KEVIN P. MCCARTHY
VICE PRESIDENT FOR CONSTRUCTION
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $ --
from banks $ 2,664
Short-term borrowings 32,000
Earning assets 39,728
Other liabilities and
Allowance for accrued expenses 3,659
loan losses (1,505)
Long-term debt --
Other assets 4,626
------- Stockholders' equity 9,854
-------
Total assets $45,513 Total liabilities
======= and equity $45,513
=======
Net income $ 1,100
=======
58 [Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] TERRY L. TROUPE KENNETH A. BOURNE, JR.
MBC AGENCY, INC. PRESIDENT WILLIAM J. MCCARTHY
ALAN D. YARBRO HUGH W. MOHLER
2 Hopkins Plaza SECRETARY TERRY L. TROUPE
Baltimore, WILLIAM T. SKINNER, JR.
Maryland 21201 VICE PRESIDENT AND TREASURER
410/347-8294 DENNIS W. KREINER
ASSISTANT SECRETARY
BALANCE SHEET (Dollars in thousands) December 31, 1997
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $ --
from banks $ 486
Short-term borrowings --
Earning assets 3,177
Other liabilities and
Allowance for accrued expenses 2,072
loan losses --
Long-term debt --
Other assets 56
------ Stockholders' equity 1,647
------
Total assets $3,719 Total liabilities
====== and equity $3,719
======
Net income $ 486
======
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] RONALD D. METTAM KENNETH A. BOURNE, JR.
MBC REALTY, INC. PRESIDENT RONALD D. METTAM
VERNON D. CONWAY CHARLES E. SIEGMANN
2 Hopkins Plaza SENIOR VICE PRESIDENT TERRY L. TROUPE
Baltimore, ALAN D. YARBRO ALAN D. YARBRO
Maryland 21201 SECRETARY
410/237-5377 WILLIAM T. SKINNER, JR.
TREASURER
LARRY D. SMITH
ASSISTANT TREASURER
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $ --
from banks $ 32
Short-term borrowings 1,370
Earning assets --
Other liabilities and
Allowance for accrued expenses 2,155
loan losses --
Long-term debt 190
Other assets 18,366
------- Stockholders' equity 14,683
-------
Total assets $18,398 Total liabilities
======= and equity $18,398
=======
Net income $ 1,413
=======
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] JOSEPH M. SANTOS KENNETH A. BOURNE, JR.
MBC LEASING PRESIDENT DAVID R. BOWEN
CORP. W. KEITH MOORE J. MARSHALL REID
(a subsidiary of VICE PRESIDENT JOSEPH M. SANTOS
Mercantile-Safe SCOTT H. KRIEGER TERRY L. TROUPE
Deposit & Trust TREASURER AND
Company) ASSISTANT SECRETARY
DENNIS W. KREINER
2 Hopkins Plaza SECRETARY
P.O. Box 1451 MARY L. ROBERTS
Baltimore, ASSISTANT VICE PRESIDENT
Maryland 21203
410/237-5855
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- --------------------------------
Cash and due Total deposits $ --
from banks $ 10
Short-term borrowings 75,158
Earning assets 77,299
Other liabilities and
Allowance for accrued expenses 1,078
loan losses --
Long-term debt --
Other assets --
------- Stockholders' equity 1,073
-------
Total assets $77,309 Total liabilities
======= and equity $77,309
=======
Net income $ 685
=======
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 59
<PAGE>
MERCANTILE BANKSHARES CORPORATION
OFFICERS
H. FURLONG BALDWIN
CHAIRMAN OF THE BOARD,
PRESIDENT AND CHIEF
EXECUTIVE OFFICER
HUGH W. MOHLER
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
CYNTHIA A. ARCHER
SENIOR VICE PRESIDENT OF THE
INTERMODAL SERVICE GROUP
OF CONSOLIDATED RAIL
CORPORATION
+H. FURLONG BALDWIN
CHAIRMAN OF THE BOARD,
PRESIDENT 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 MANAGE-
MENT COMPANY
(solid triangle)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
MARY JUNCK
PRESIDENT OF TIMES MIRROR
EASTERN NEWSPAPERS
*ROBERT A. KINSLEY
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE
OFFICER OF KINSLEY
CONSTRUCTION, INC., A
GENERAL AND HEAVY
CONSTRUCTION FIRM
+WILLIAM J. MCCARTHY
PRINCIPAL OF WILLIAM
J. MCCARTHY, P.C., A
PARTNER IN THE LAW FIRM
OF VENABLE, BAETJER AND
HOWARD, LLP
+(solid triangle)MORRIS W. OFFIT
CHAIRMAN OF THE BOARD
AND CHIEF EXECUTIVE
OFFICER OF OFFITBANK,
A PRIVATE BANK OFFERING
INTEGRATED INVESTMENT
SERVICES
MORTON B. PLANT
CHAIRMAN OF THE BOARD OF
KEYWELL CORPORATION, A
RECYCLER OF HIGH TEMPERA-
TURE ALLOY SCRAP METAL
+(solid triangle)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
+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
+(solid triangle)CALMAN J. ZAMOISKI, JR.
CHAIRMAN OF THE BOARD OF
INDEPENDENT DISTRIBUTORS,
INCORPORATED, GENERAL
WHOLESALE DISTRIBUTORS
+ Member of Executive
Committee
* Member of Audit
Committee
(solid triangle) Member of Compensation
Committee
LISTING AS OF JANUARY 1998
60
<PAGE>
CORPORATE INFORMATION
CORPORATE PROFILE
Mercantile Bankshares Corporation is a multibank holding company organized in
1969 under the laws of Maryland. On January 1, 1998, 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 173 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, including home equity lines of credit, are made to
individuals to meet a variety of consumer needs.
In addition to banking services, fixed annuities are available through
affiliates.
CORPORATE BANKING
Each banking affiliate 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 and 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
From its headquarters in Baltimore, Mercantile Mortgage Corporation offers
construction loans and multi-family housing loans to real estate developers and
home builders in Maryland and northern Virginia. A full menu of consumer
mortgage loans is offered through affiliate banking offices.
ACCOUNTANTS
Coopers & Lybrand L.L.P.
217 East Redwood Street
Baltimore, Maryland 21202-3316
ANNUAL MEETING OF SHAREHOLDERS
10:30 A.M., Wednesday,
April 29, 1998
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 BANKSHARES
INVESTOR RELATIONS
P.O. Box 1477
Baltimore, Maryland 21203
410/347-8374
http://www.mercantile.net
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
[Logo Appears Here] MERCANTILE BANKSHARES CORPORATION
Baltimore, Maryland
Exhibit 21
Subsidiaries of The Registrant
<PAGE>
Exhibit (21)
(21) SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION
<S><C>
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
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
</TABLE>
Each of the foregoing subsidiaries conducts business under its corporate name.
Exhibit 23
Consent of Independent Accountants
Exhibit (23)
<PAGE>
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference into the Registration
Statements of Mercantile Bankshares Corporation on Form S-3 (No. 33-44376) and
Forms S-8 (No. 33-44373, 33-44374 and 33-44375) of our report dated January 21,
1998, on our audits of the consolidated financial statements of Mercantile
Bankshares Corporation and Affiliates as of December 31, 1997 and 1996 and for
the years ended December 31, 1997, 1996 and 1995, which report is included in
this Annual Report on Form 10-K.
COOPERS & LYBRAND L.L.P.
Baltimore, Maryland
March 26, 1998
Exhibit 24
Power of Attorney
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 ALAN D. YARBRO, 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 1997, 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 10, 1998
<TABLE>
<S><C>
/s/ William C. Richardson Director /s/ Calman J. Zamoiski, Jr. Director
______________________________ ______________________________
William C. Richardson Calman J. Zamoiski, Jr.
/s/ Freeman A. Hrabowski, III Director /s/ Mary Junck Director
______________________________ ______________________________
Freeman A. Hrabowski, III Mary Junck
/s/ William R. Brody Director /s/ William J. McCarthy Director
______________________________ ______________________________
William R. Brody William J. McCarthy
/s/ Cynthia A. Archer Director /s/ George L. Bunting, Jr. Director
______________________________ ______________________________
Cynthia A. Archer George L. Bunting, Jr.
/s/ Robert A. Kinsley Director Director
______________________________ ______________________________
Robert A. Kinsley
/s/ B. Larry Jenkins Director Director
______________________________ ______________________________
B. Larry Jenkins
/s/ Donald J. Shepard Director Director
______________________________ ______________________________
Donald J. Shepard
/s/ Christian H. Poindexter Director Director
______________________________ ______________________________
Christian H. Poindexter
/s/ Morton B. Plant Director Director
______________________________ ______________________________
Morton B. Plant
/s/ James A. Block Director Director
______________________________ ______________________________
James A. Block
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This Schedule contains Summary Financial Information extracted from the Balance
Sheet as of December 31, 1997, from the Income Statement for the Year Ended
December 31, 1997 and from Management's Discussion and Analysis of Financial
Condition and Results of Operations for the Period Ended December 31, 1997, and
is qualified in its entirety by reference to such Financial Statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 337,234,000
<INT-BEARING-DEPOSITS> 100,000
<FED-FUNDS-SOLD> 1,452,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,607,313,000
<INVESTMENTS-CARRYING> 24,310,000
<INVESTMENTS-MARKET> 24,359,000
<LOANS> 4,978,522,000
<ALLOWANCE> 106,097,000
<TOTAL-ASSETS> 7,170,669,000
<DEPOSITS> 5,693,911,000
<SHORT-TERM> 402,734,000
<LIABILITIES-OTHER> 89,004,000
<LONG-TERM> 50,016,000
0
0
<COMMON> 143,749,000
<OTHER-SE> 791,255,000
<TOTAL-LIABILITIES-AND-EQUITY> 7,170,699,000
<INTEREST-LOAN> 434,033,000
<INTEREST-INVEST> 95,242,000
<INTEREST-OTHER> 4,695,000
<INTEREST-TOTAL> 533,970,000
<INTEREST-DEPOSIT> 177,369,000
<INTEREST-EXPENSE> 197,921,000
<INTEREST-INCOME-NET> 336,049,000
<LOAN-LOSSES> 13,703,000
<SECURITIES-GAINS> (1,491,000)
<EXPENSE-OTHER> 213,404,000
<INCOME-PRETAX> 207,595,000
<INCOME-PRE-EXTRAORDINARY> 207,595,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 132,043,000
<EPS-PRIMARY> 1.85
<EPS-DILUTED> 1.84
<YIELD-ACTUAL> 5.24
<LOANS-NON> 28,456,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 97,718,000
<CHARGE-OFFS> 9,351,000
<RECOVERIES> 2,654,000
<ALLOWANCE-CLOSE> 106,097,000
<ALLOWANCE-DOMESTIC> 106,097,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
