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, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-5127
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Mercantile Bankshares Corporation
---------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-0898572
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State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Two Hopkins Plaza, P. O. Box 1477, Baltimore, Maryland 21203
- ------------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (410) 237-5900
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
---- ----
Securities registered pursuant to section 12(g) of the Act:
Common Stock ($2 par value)
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(Title of class)
Preferred Stock Purchase Rights
-------------------------------
(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 26, 1999, the aggregate market value of shares of Common
Stock held by non-affiliates of Registrant (including fiduciary accounts
administered by affiliates) was $2,503,849,635 based on the last sale price on
the Nasdaq National Market on February 26, 1999.
As of February 26, 1999, 69,536,010 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, 1998, 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 was incorporated under the laws of
Maryland on May 27, 1969. It is a bank holding company registered under the Bank
Holding Company Act of 1956. Mercantile Bankshares Corporation is referred to in
this report as "Mercshares" or "Registrant."
Mercshares directly owns all of the outstanding stock of 21 Affiliated
Banks and directly or indirectly owns all of the outstanding stock of certain
other Affiliates. For purposes of segment reporting, two operating components
have been identified. They are (1) the lead bank, Mercantile-Safe Deposit and
Trust Company (including its Banking and Trust Divisions), and (2) twenty
Community Banks. The entities making up each component are identified below,
with headquarters locations.
<TABLE>
<CAPTION>
Lead Bank and Affiliates
------------------------
<S> <C>
Mercantile-Safe Deposit and Trust Company Baltimore, Maryland
Mercantile Mortgage Corporation
Hopkins Plaza Agency, Inc.
MBC Leasing Corp.
MBC Agency, Inc.
Mercantile Life Insurance Company
<CAPTION>
Community Banks
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The Annapolis Banking and Trust Company Annapolis, Maryland
Bank of Southern Maryland LaPlata, Maryland
Calvert Bank and Trust Company Prince Frederick, Maryland
The Chestertown Bank of Maryland Chestertown, Maryland
The Citizens National Bank Laurel, Maryland
County Banking & Trust Company Elkton, Maryland
The Fidelity Bank Frostburg, Maryland
The First National Bank of St. Mary's Leonardtown, Maryland
The Forest Hill State Bank Bel Air, Maryland
Fredericktown Bank & Trust Company Frederick, Maryland
Peninsula Bank Princess Anne, Maryland
The Peoples Bank of Maryland Denton, Maryland
Potomac Valley Bank Gaithersburg, Maryland
St. Michaels Bank St. Michaels, Maryland
The Sparks State Bank Sparks, Maryland
Westminster Bank and Trust Company
of Carroll County Westminster, Maryland
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Baltimore Trust Company Selbyville, Delaware
Farmers & Merchants Bank - Eastern Shore Onley, Virginia
The National Bank of Fredericksburg Fredericksburg, Virginia
Marshall National Bank and Trust Company Marshall, Virginia
</TABLE>
For certain financial, personnel and office location information
concerning the companies listed above, see pages 53 to 59 of the Registrant's
Annual Report to Stockholders for the year ended December 31, 1998, 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. Acquisitions are normally subject to regulatory
approval.
Operations
Mercantile-Safe Deposit and Trust Company and the Community 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. Mercantile-Safe Deposit and Trust Company
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, 1998, assets under
the investment supervision of the Trust Division had an estimated value of $13.6
billion, assets held in its personal and corporate custody accounts had an
estimated value of $25 billion and assets held in escrow accounts had an
estimated value of $16.3 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
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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 reinsures the insurance provided by MBC Agency, Inc.
MBC Realty, LLC owns and operates various properties used by
MercantileSafe Deposit and Trust Company.
For segment reporting information, see the following portions of the
Registrant's Annual Report to Stockholders for the year ended December 31, 1998,
which information is incorporated by reference herein: Note 15 of Notes to
Financial Statements on pages 43 and 44 of the Annual Report, and information
under the caption "Segment Reporting" on page 12 of the Annual Report.
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, 1998, as follows:
<TABLE>
<CAPTION>
Disclosure Required by Guide 3 Reference to 1998 Annual Report
- ------------------------------ --------------------------------
<S> <C>
(I) Distribution of Assets,
Liabilities and Stockholder
Equity; Interest Rates and
Interest Differentials ...............Analysis of Interest Rates and Interest
...............Differentials (pages 8-9)
...............Rate/Volume Analysis (page 10)
...............Non-performing Assets (pages 16-17)
(II) Investment Portfolio ...............Bond Investment Portfolio (page 13)
(III) Loan Portfolio ...............Year-End Loan Data (page 49)
...............Loan Maturity Schedule (page 19)
...............Asset/Liability and Liquidity
...............Management (pages 18,20-21)
...............Non-performing Assets (pages 16-17)
(IV) Summary of Loan Loss
Experience ...............Allowance for Loan Losses
...............(pages 15-16)
and Credit Risk Analysis (page 14)
...............Allocation of Allowance for Loan Losses
(page 15)
(V) Deposits ...............Analysis of Interest Rates and Interest
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Differentials (pages 8-9)
...............Notes to Financial Statements, Note
5 - Deposits (page 35)
(VI) Return on Equity
and Assets ...............Return on Equity and Assets (page 51)
(VII) Short-Term Borrowings ...............Notes to Financial Statements, Note
6 (page 36)
</TABLE>
5
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Employees
At December 31, 1998, Mercshares and its Affiliates had approximately 924
officers and 1,880 other employees. Of these, Mercantile-Safe Deposit and Trust
Company employed 417 officers and 584 other employees and the Community Banks
had 506 officers and 1,270 other employees.
Competition
The banking business, in all of its phases, is highly competitive. Within
their service areas, Mercantile-Safe Deposit and Trust Company and the Community
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. There is also competition for
commercial and retail banking business from banks and financial institutions
located outside our 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 continue to increase.
While Mercshares is the second largest bank holding company headquartered
in Maryland, it is the largest independent bank holding company in the state.
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Mercantile-Safe Deposit and Trust Company is the fourth largest commercial bank
in Maryland. During 1998, Mercshares also competed with Maryland-based bank
subsidiaries of the first, second, fourth and tenth largest bank holding
companies in the United States as well as banking subsidiaries of other
non-Maryland bank holding companies. Measured in terms of assets under
investment supervision, Mercantile-Safe Deposit and Trust Company believes it is
one of the largest trust institutions in the southeastern United States.
Mercantile-Safe Deposit and Trust Company 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.
The 20 Community Banks ranged in asset size from $43 million to $598
million, at December 31, 1998. They face competition in their own local service
areas as well as from the larger competitors mentioned above.
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
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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.
Further, under Section 106 of the 1970 Amendments to the Act and the
Board's Regulations, bank subsidiaries of bank holding companies are limited in
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.
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.
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Affiliated Banks
All Affiliated Banks, with the exception of The Citizens National Bank,
Baltimore Trust Company, Farmers & Merchants Bank - Eastern Shore, The First
National Bank of St. Mary's, The National Bank of Fredericksburg and Marshall
National Bank and Trust Company 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 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, The Annapolis Banking and Trust Company, The Forest Hill
State Bank and St. Michaels Bank are members of the Federal Reserve System, and
are thereby subject to regulation by the Board of Governors of that System.
The Citizens National Bank, The First National Bank of St. Mary's, The
National Bank of Fredericksburg and Marshall National Bank and Trust Company 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.
Farmers & Merchants Bank - Eastern Shore is a Virginia bank, 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. 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.
Baltimore Trust Company is a Delaware bank, subject to the banking laws of
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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
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.
Other Banking Legislation
The 1994 Interstate Act made a number of major changes having a
significant effect on the operations of banks. Although there were numerous
provisions, the principal elements include those summarized below.
Bank holding companies that are adequately capitalized and managed are
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permitted to acquire banks in any state. Adequately capitalized and managed
banks are able to engage in interstate branching by merging banks in different
states.
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). 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.
Subsidiaries of the same bank holding company may act as agents for one
another in receiving deposits, closing and servicing loans and accepting loan
payments without being deemed branches, but the new authority does not extend to
originating or approving loans or opening deposit accounts.
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Generally, foreign banks are allowed to engage in interstate banking in
the same way as domestic banks without establishing U. S. bank subsidiaries.
There are many other provisions of the 1994 Interstate Act, such as
prohibitions against interstate branches being operated primarily to produce
deposits, requiring hearings on closing of certain branches, and requiring
separate evaluations and ratings of a bank's Community Reinvestment Act
performance in each state in which it operates, and separate evaluations for
each metropolitan area and for the remaining non-metropolitan area in which the
bank maintains a branch. The 1994 Interstate Act has had a substantial impact on
the manner in which the banking business in the United States is conducted.
The Riegle Community Development and Regulatory Improvement Act was also
enacted in 1994. It contains a number of provisions affecting the operations of
financial institutions. Among these provisions were those that, (1) established
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) removed certain impediments to the securitization of small business loans
and leases in an effort to improve access to capital by small businesses, (3)
reduced administrative requirements, previously imposed by regulations, of
financial institutions to the extent consistent with safe and sound banking
practices, (4) reduced and revised reporting requirements relating to money
laundering, and (5) ameliorated certain provisions of Section 39 of the Federal
Deposit Insurance Act relating to the establishment of regulatory requirements
with respect to asset quality.
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 required certain payments by banks to help pay interest
on the bonds that funded the initial capitalization of SAIF and mandated
regulatory actions to prevent the shifting of deposits from SAIF to the Bank
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Insurance Fund ("BIF").
In addition, in the past few years, all of the Federal bank regulatory
agencies have undertaken to clarify, modernize and expedite many of their
regulations and procedures. In this regard, the Board of Governors of the
Federal Reserve System has adopted numerous changes to its 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. It has also adopted significant changes designed to
facilitate entry of holding companies into the securities business within the
confines of the Glass-Steagall Act.
Recently a variety of proposals have been considered by Congress for
changes in the regulation of financial institutions, some of which could
substantially alter Glass-Steagall Act restrictions and permit further
consolidation among the commercial banking and investment industries. Such
proposals have been controversial and the outcome is unpredictable.
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. For information concerning this matter, see
the text under the captions "Year 2000 Issues" and "Cautionary Statement" on
pages 23 and 24 of the Registrant's Annual Report to Stockholders for the year
ended December 31, 1998, which information is incorporated by reference herein.
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
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results deemed appropriate by its Board of Governors, including efforts to
combat unemployment, recession or inflationary pressures. Among the instruments
of monetary policy used to implement these objectives are open market operations
in the purchase and sale of U.S. Government securities, changes in the discount
rate charged on bank borrowings and changes in reserve requirements against bank
deposits. These means are used in varying combinations to influence the general
level of interest rates and the general availability of credit. More
specifically, actions by the Board of Governors of the Federal Reserve influence
the levels of interest rates paid on deposits and other bank funding sources and
charged on bank loans as well as the level of availability of bank funds with
which loans and investments can be made.
The monetary policies of bank regulatory and other authorities have
affected the operating results of commercial banks in the past and are expected
to continue to do so in the future. In view of changing conditions in the
national economy, in the money markets, and in the relationships of
international currencies, as well as the effect of legislation and of actions by
monetary and 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 Mercshares and Mercantile-Safe Deposit and Trust
Company are located in a 21-story building at Hopkins Plaza in Baltimore owned
by MBC Realty, LLC, a wholly owned subsidiary of Mercshares. At December 31,
1998, these offices occupied approximately 142,000 square feet (together with
about 11,000 square feet leased in a nearby building). At December 31, 1998,
Mercantile-Safe Deposit and Trust Company 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, LLC. Of the 18 banking and bank-related offices
occupied by Mercantile-Safe Deposit and Trust Company, four are owned in fee,
four are owned subject to ground leases and ten are leased with aggregate annual
rentals of approximately $1,346,000, not including rentals for the main office
and adjacent premises owned by MBC Realty, LLC.
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Of the 161 banking offices of the Community Banks, 91 are owned in fee,
15 are owned subject to ground leases and 55 are leased, with aggregate annual
rentals of approximately $3,558,000 as of December 31, 1998.
ITEM 3. LEGAL PROCEEDINGS
There was no matter which is required to be disclosed in this Item 3
pursuant to the instructions contained in the form for this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders which is required to be
disclosed pursuant to the instructions contained in the form for this Report.
SPECIAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers of Registrant are:
<TABLE>
<CAPTION>
Name Position Age
- ---- -------- ---
<S> <C> <C>
H. Furlong Baldwin Chairman of the Board, President 67
and Chief Executive Officer
J. Marshall Reid (1) President and Chief 53
Operating Officer (Mercantile-
Safe Deposit and Trust Company)
Jack E. Steil Executive Vice President. 52
Chairman - Credit Policy
(Mercantile-Safe Deposit
and Trust Company)
Alan D. Yarbro General Counsel and Secretary 57
Terry L. Troupe Chief Financial Officer and
Treasurer 51
Robert W. Johnson Senior Vice President 56
O. James Talbott, II Senior Vice President 55
- ---------------------------
</TABLE>
(1) Mr. Reid is an officer of Mercantile-Safe Deposit and Trust Company. He is
included above as an executive officer because he participates 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 Mercantile-Safe Deposit and Trust Company since 1976.
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Mr. Reid was elected President and Chief Operating Officer of
Mercantile-Safe Deposit and Trust Company in September, 1997. He joined
Mercantile-Safe Deposit and Trust Company 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 Mercantile-Safe Deposit
and Trust Company in September, 1997. He had previously served Mercantile-Safe
Deposit and Trust Company as an Executive Vice President since 1994, and as
Senior Vice President from 1988 to 1994. In March, 1999, Mr. Steil was elected
an Executive Vice President of Mercshares.
Mr. Yarbro has been General Counsel of Mercshares and Mercantile-Safe
Deposit and Trust Company 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 Mercantile-
Safe Deposit and Trust Company, 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 Mercantile-Safe Deposit and Trust Company since
1982.
Mr. Talbott has been a Senior Vice President of Mercshares since 1989. He
has been a Vice President of Mercantile-Safe Deposit and Trust Company since
1977.
Hugh W. Mohler was an Executive Vice President of Mercshares and
Mercantile-Safe Deposit and Trust Company from 1994 until February, 1999, when
he relinquished these positions with eligibility for retirement. He is no longer
an executive officer.
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
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information appearing under the captions "Dividends" and "Recent Common Stock
Prices" on page 23 of the Registrant's Annual Report to Stockholders for the
year ended December 31, 1998.
The following information is given in response to Item 701 of
Regulation S-K. In December, 1998, two directors of Mercshares received an
aggregate of 850 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 outside
directors, currently 16 in number. 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, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The information required by this Item 7 is incorporated by reference to
the information appearing under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 6 to 24 of
the Registrant's Annual Report to Stockholders for the year ended December 31,
1998.
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 auditors' report
thereon are incorporated by reference to pages 25 to 48 of the Registrant's
Annual Report to Stockholders for the year ended December 31, 1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
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FINANCIAL DISCLOSURE
There was no matter which is required to be disclosed in this Item 9
pursuant to the instructions contained in the form for this Report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 with respect to the Executive
Officers of Registrant appears in Part I of this Report.
The remaining information required by this Item 10 is incorporated by
reference to the definitive proxy statement of Registrant filed with the
Securities and Exchange Commission under Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to
the definitive proxy statement of Registrant filed with the Securities and
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.
18
<PAGE>
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.
19
<PAGE>
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
20
<PAGE>
Incentive Compensation Plan, as amended through March 10,
1998 (Incorporated by reference to Registrant's Annual
Report on From 10-K for the year ended December 31, 1997,
Exhibit 10 A, Commission File No. 0-5127).
B. Dividend Reinvestment and Stock Purchase Plan of
Mercantile Bankshares Corporation (Incorporated by
reference to the Plan text included in the Form S-3
Registration No. 33-44376.)
C. Executive Employment Agreement dated March 24, 1982,
between Mercantile Bankshares Corporation, Mercantile-Safe
Deposit and Trust Company and H. Furlong Baldwin, as
amended by Agreements dated March 13, 1984 and December
13, 1988 (Incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989,
Exhibit 10 D, Commission File No. 0-5127), as amended by
Agreement dated January 29, 1997 (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), as amended by Agreement dated January
28, 1999 (filed herewith).
D. Deferred Compensation Agreement, including supplemental
pension and thrift plan arrangements, dated September 30,
1982, between Mercantile-Safe Deposit and Trust Company
and H. Furlong Baldwin, as amended by Agreements dated as
of October 24, 1983, March 13, 1984, January 1, 1987,
December 8, 1987 and January 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
21
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through January 1, 1984 (Incorporated by reference to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989, Exhibit 10 G, Commission File No.
0-5127), as amended and restated by amendment effective
December 31, 1995 (Incorporated by reference to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, Exhibit 10 F, Commission File No.
0-5127).
F. Mercantile Bankshares Corporation Employee Stock Purchase
Dividend Reinvestment Plan dated February 13, 1995
(Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994, Exhibit
10 I, Commission File No. 0-5127).
G. Executive Severance Agreement dated as of December 31,
1989 between Mercantile Bankshares Corporation and
Mercantile-Safe Deposit and Trust Company, and H. Furlong
Baldwin (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 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).
H. 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).
I. 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).
22
<PAGE>
J. 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).
K. 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).
L. Mercantile Bankshares Corporation Option Agreement with
each of H. Furlong Baldwin (dated August 22, 1995 for
80,000 options) and Hugh W. Mohler (dated August 22, 1995
for 30,000 options) the Net Operating Income of each being
that of Mercantile-Safe Deposit and Trust Company,
(Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995, Exhibit
10 Q, Commission File No. 0-5127).
M. 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).
N. 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).
O. Executive Severance Agreement, dated as of April 24, 1996,
between Mercantile Bankshares Corporation and Alan D.
Yarbro
23
<PAGE>
(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).
P. 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).
Q. Agreement dated February 24, 1999 among Mercantile
Bankshares Corporation, Mercantile-Safe Deposit and Trust
Company and Hugh W. Mohler (filed herewith).
R. Mercantile Bankshares Corporation Option Agreement with J.
Marshall Reid, dated August 21, 1995 (filed herewith).
S. Mercantile Bankshares Corporation Option Agreement with
Jack E. Steil, dated August 21, 1995 (filed herewith).
(13) Annual Report to security holders for the year ended December 31,
1998 (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 9, 1999 (filed herewith)
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
24
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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 25 of the
Registrant's Annual Report to Stockholders for the year ended December 31,
1998.
Consolidated Financial Statements and related notes are incorporated by
reference to the Registrant's Annual Report to Stockholders for the year
ended December 31, 1998, and may be found on the pages of said Report as
indicated in parentheses:
Consolidated Balance Sheets, December 31, 1998 and 1997 (page 26)
Statement of Consolidated Income for the years ended December 31, 1998,
1997 and 1996 (page 27)
Statement of Consolidated Cash Flows for the years ended December 31,
1998, 1997 and 1996 (pages 28 and 29)
Statement of Changes in Consolidated Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996 (page 30)
Notes to Consolidated Financial Statements (pages 31 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, 1998.
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.
25
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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 25, 1999
---------------------------------------
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 25, 1999
- ------------------------------------
H. Furlong Baldwin, Chairman of the
Board, President and Chief Executive Officer
Principal Financial Officer
/S/ Terry L. Troupe March 25, 1999
- ------------------------------------
Terry L. Troupe
Chief Financial Officer
Principal Accounting Officer
/S/ Jerry F. Graham March 25, 1999
- ------------------------------------
Jerry F. Graham
Vice President and Controller
A majority of the Board of Directors: Cynthia A. Archer, H. Furlong Baldwin,
Thomas M. Bancroft, Jr., Richard O. Berndt, William R. Brody, George L. Bunting,
Jr., B. Larry Jenkins, Mary Junck, Robert A. Kinsley, William J. McCarthy,
Morton B. Plant, Christian H. Poindexter, Donald J. Shepard.
By: /S/ H. Furlong Baldwin March 25, 1999
--------------------------------
H. Furlong Baldwin
For Himself and as Attorney-in-Fact
26
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 17 to 15, will be effective at the Commencement of the Annual
Meeting of Stockholders to be held April 28, 1999, at 10:30 a.m.
Exhibit (3) B
BYLAWS
MERCANTILE BANKSHARES CORPORATION
ARTICLE I
SECTION 1. Annual Meeting. The annual meeting of the stockholders of the
Corporation for the election of directors and the transaction of such other
business as may properly come before the meeting shall be held at the time and
on the day in April of each year as shall be fixed from time to time by the
Board of Directors or by the Executive Committee. Notice of the time and place
of such annual meeting shall be given to each stockholder in the manner provided
in Section 1 of Article X of these bylaws not less than ten days nor more than
ninety days before the meeting.
SECTION 2. Special Meetings. Special meetings of the stockholders may be
called at any time by the Board of Directors, the Chairman of the Board, the
Vice-Chairman of the Board, the President, or as otherwise provided by law.
Notice of the time, place and purpose of each special meeting of stockholders
shall be given to each stockholder in the manner provided in Section 1 of
Article X of these bylaws not less than ten days nor more than ninety days
before the meeting. No business shall be transacted at a special meeting except
that specified in the notice.
SECTION 3. Removal of Directors. At any special meeting of the
stockholders called in the manner provided for by this Article, the
stockholders, by a majority of the votes entitled to be cast by the stockholders
entitled to vote thereon, may remove any director or directors from office and
may elect a successor or successors to fill any resulting vacancies from the
remainder of his or their terms.
SECTION 4. Voting; Proxies; Record Date. At all meetings of stockholders
any stockholder shall be entitled to vote by proxy. Such proxy shall be in
writing and signed by the stockholder or by his duly authorized attorney in
fact. It shall be dated but need not be sealed, witnessed or
<PAGE>
acknowledged. The Board of Directors may fix the record date for the
determination of stockholders entitled to vote in the manner provided in Article
IX, Section 4 of these bylaws.
SECTION 5. Quorum. If at any annual or special meeting of stockholders a
quorum shall fail to attend, those attending in person or by proxy may, by
majority of the votes entitled to be cast, adjourn the meeting from time to
time, not exceeding sixty days in all, and thereupon any business may be
transacted which might have been transacted at the meeting originally called had
the same been held at the time so called.
SECTION 6. Filing Proxies. At all meetings of stockholders, the proxies
shall be filed with and be verified by the Secretary of the Corporation or, if
the meeting shall so decide, by the Secretary of the meeting.
SECTION 7. Place of Meetings. All meetings of stockholders shall be held
at the principal office of the Corporation in the State of Maryland or at such
other place either within or without the State of Maryland as may be designated
in the notice of the meeting.
SECTION 8. Order of Business. At all meetings of stockholders, any
stockholder present and entitled to vote in person or by proxy shall be entitled
to require, by written request to the Chairman of the meeting, that the order of
business shall be as follows:
(1) Organization.
(2) Proof of notice of meeting or of waivers thereof.
(The certificate of the Secretary of the Corporation, or 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.
2
<PAGE>
(4) If an annual meeting or a special meeting called for that purpose,
reading of unapproved minutes of preceding meetings and action thereon.
(5) Reports.
(6) The election of directors if an annual meeting or a special meeting
called to elect directors, or to remove directors and elect their successors.
(7) Unfinished business.
(8) New Business.
(9) Adjournment.
SECTION 9. Advance Notice of Matters to be Presented at an Annual
Meeting of Stockholders.
At an annual meeting of the stockholders, 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
3
<PAGE>
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 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.
4
<PAGE>
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. 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)
5
<PAGE>
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 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 fifteen directors. The number of
directors may be
6
<PAGE>
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
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
7
<PAGE>
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 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.
8
<PAGE>
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 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.
9
<PAGE>
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 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
10
<PAGE>
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.
SECTION 6. Treasurer. The Treasurer shall perform such duties as may be
assigned to him
11
<PAGE>
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
12
<PAGE>
be fixed in the resignation, and then from that time. The acceptance of a
resignation shall not be required to make it effective unless the resignation so
provides.
ARTICLE VI
COMMERCIAL PAPER, ETC.
All bills, notes, checks, drafts and commercial paper of all kinds to be
executed by the Corporation as maker, acceptor, endorser, or otherwise, and all
assignments and transfers of stock, contracts or written obligations of the
Corporation, and all negotiable instruments shall be made in the name of the
Corporation and shall be signed by the President, the Treasurer or such other
person or persons as the Board of Directors may from time to time designate.
ARTICLE VII
FISCAL YEAR.
The fiscal year of the Corporation shall cover such period of twelve
months as the Board of Directors may determine. In the absence of any such
determination the accounts of the Corporation shall be kept on a calendar year
basis.
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
13
<PAGE>
signatures if the certificate is countersigned by the Transfer Agent, and sealed
with the seal of the Corporation.
SECTION 2. Transfers. No transfers of stock shall be recognized or
binding upon the Corporation until recorded on the books of the Corporation upon
surrender and cancellation of certificates for a like number of shares.
SECTION 3. Form of Certificates; Procedure. The Board of Directors shall
have power and authority to determine the form of stock certificates (except in
so far as prescribed by law), and to make all such rules and regulations, as
they may deem expedient concerning the issue, transfer and registration of said
certificates, and to appoint one or more transfer agents or registrars to
countersign and register the same.
SECTION 4. Record Dates for Dividends and Stockholders' Meetings. The
Board of Directors may fix the time, not exceeding twenty days preceding the
date of any meeting of stockholders, any dividend payment date or any date for
the allotment of rights, during which the books of the Corporation shall be
closed against transfers of stock, or the Board of Directors may fix a date not
exceeding ninety days preceding the date of any meeting of 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
14
<PAGE>
shares. A new certificate may be issued upon satisfactory proof of the loss, or
destruction, and delivery to this Corporation of a bond which shall be in such
form, contain such terms and provisions, and have such surety or sureties as the
officers of this Corporation may direct.
ARTICLE X
NOTICE.
SECTION 1. Notice to Stockholders. Whenever by law or these bylaws
notice is required to be given to any stockholder, such notice may be given to
each stockholder by leaving the same with him or at his residence or usual place
of business, or by mailing it, postage prepaid, and addressed to him at his
address as it appears on the books of the Corporation. Such leaving or mailing
of notice shall be deemed the time of giving such notice.
SECTION 2. Notice to Directors and Officers. Whenever by law or these
bylaws notice is required to be given to any director or officer, such notice
may be given in any one of the following ways: by personal notice to such
director or officer, by telephone communication with such director or officer
personally, by wire addressed to such director or officer at his then address or
at his address as it appears on the books of the Corporation, or by depositing
the same in writing in the post office or in a letter box in a post-paid, sealed
wrapper addressed 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
15
<PAGE>
meeting either before or after the holding thereof, waive such notice.
ARTICLE XI
VOTING OF STOCK IN OTHER CORPORATIONS.
Any stock in other corporations, which may from time to time be held by
the Corporation may be represented and voted at any meeting of stockholders of
such other corporations by the Chairman of the Board, Vice-Chairman of the
Board, President, or a Vice President or by proxy or proxies appointed by any
one of said officers or otherwise pursuant to authorization thereunto given by a
resolution of the Board of Directors adopted by a vote of the majority of the
Directors.
ARTICLE XII
AMENDMENTS.
These bylaws may be added to, altered, amended, repealed or suspended by
a majority vote of the entire Board of Directors at any regular meeting of the
Board or at any special meeting called for that purpose. Any action of the Board
of Directors in adding to, altering, amending, repealing or suspending these
bylaws shall be reported to the stockholders at the next annual meeting and may
be changed or rescinded by majority vote of all of the stock then outstanding
and entitled to vote. In no event shall the Board of Directors have any power to
amend this Article.
16
Exhibit (10) C
Fourth Amendment to Executive Employment Agreement
with H. Furlong Baldwin
<PAGE>
Exhibit (10) C
FOURTH AMENDMENT TO
EXECUTIVE EMPLOYMENT AGREEMENT
THIS FOURTH AMENDMENT to EXECUTIVE EMPLOYMENT AGREEMENT is made this
28th day of January, 1999, by and between MERCANTILE BANKSHARES CORPORATION and
MERCANTILE-SAFE DEPOSIT AND TRUST COMPANY, both Corporations of the State of
Maryland, 2 Hopkins Plaza, Baltimore, Maryland 21201 (collectively, the
"Employer"), and H. Furlong Baldwin, of Baltimore, Maryland (the "Executive").
WHEREAS, Employer and Executive entered into an Executive Employment
Agreement dated March 24, 1982, which was amended by a first Amendment on March
13, 1984, by a Second Amendment on December 13, 1988, and by a Third Amendment
on January 29, 1997 (collectively, the "Agreement"); and
WHEREAS, the Agreement is scheduled to terminate on February 1, 1999,
subject to extension at the request of Employer.
WHEREAS, Employer has requested an extension, to which Executive has
agreed.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, receipt of which is hereby acknowledged, and in further
consideration of the mutual covenants contained in the Agreement, the parties do
hereby agree that the Agreement is hereby amended as follows:
FIRST AND ONLY CHANGE
Paragraph 2 shall be deleted in its entirety and the following
substituted in lieu thereof:
"2. Term. The current term of Executive's employment, now
scheduled to terminate on February 1, 1999, shall be extended to
and shall terminate on February 1, 2000.
<PAGE>
In all other respects, the provisions of the Agreement, as heretofore
amended, remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties have executed this Fourth Amendment to
Executive Employment Agreement the day and year first written above.
WITNESS OR ATTEST: MERCANTILE BANKSHARES
CORPORATION
/s/ Alan D. Yarbro By: /s/ O. James Talbott, II
------------------ ------------------------
Alan D. Yarbro, Secretary O. James Talbott, II,
Senior Vice President
MERCANTILE-SAFE DEPOSIT
AND TRUST COMPANY
/s/ Alan D. Yarbro By: /s/ J. Marshall Reid
------------------ --------------------
Alan D. Yarbro, Secretary J. Marshall Reid,
President
/s/ Alan D. Yarbro /s/ H. Furlong Baldwin
------------------ ----------------------
H. Furlong Baldwin
Exhibit (10) Q
Agreement dated February 24, 1999
with Hugh W. Mohler
<PAGE>
Exhibit (10) Q
AGREEMENT AND GENERAL RELEASE
This is an Agreement and General Release (Agreement) between
Mercantile Bankshares Corporation and Mercantile-Safe Deposit and Trust Company
(the Companies) and Hugh W. Mohler (Mr. Mohler). It embodies the mutual
agreement of the parties for Mr. Mohler's retirement from his employment with
the Companies. The parties agree as follows:
1. The Companies will pay Mr. Mohler, in bi-weekly payments, his
current regular salary which is $295,000 annually (less all lawful deductions).
Mr. Mohler shall be entitled to these bi-weekly payments for the period from the
effective date of this Agreement to February 1, 2000. In the event that Mr.
Mohler accepts other employment, any remaining balance of the amount due him
under this paragraph shall be paid to him in a lump sum (less all lawful
deductions) within a reasonable time after Mr. Mohler notifies the Companies of
his obtaining other employment.
2. The Companies will provide Mr. Mohler his current level of
employee benefits for the same period set forth in Paragraph 1 for salary
payments. In accordance with the salary payment period, these benefits shall
cease upon acceptance of other employment except to the extent that Mr. Mohler
is entitled to such benefits under the Companies' retirement program. The
Companies will provide these benefits to Mr. Mohler in the following areas:
dental coverage, medical coverage, life insurance coverage, pension benefits,
thrift plan, employee assistance program, blood program, and checking account
benefits. Payment for benefits and premiums for benefit coverage will continue
to be made in the same manner as prior to this Agreement, and allowable
<PAGE>
deductions from Mr. Mohler's pay shall be made for such payments. The Companies
and Mr. Mohler will continue to make payment for benefits and benefit premiums
in substantially the same proportion as before this Agreement. The level of
benefits specified in this paragraph shall be at the same level as if Mr. Mohler
remained employed in his current capacities for the Companies, except that the
parties expressly agree that if any of the benefit programs or plans change for
comparable employees of the Companies, Mr. Mohler's level of benefits and
proportional share of payments or premiums will change in a like manner.
3. With respect to the Supplemental Executive Retirement Plans
(SERPs), Mr. Mohler shall receive a lump sum payment for the amounts vested as
of February 1, 1999 or such earlier date as he retires from the Companies, for
the cash balance SERP and for the 401(K)SERP, and any accrued interest thereon
pursuant to the SERPs. If Mr. Mohler has not accepted other employment by
February 1, 2000, the Companies will further supplement his retirement benefits
with a lump sum payment of $25,000.
Mr. Mohler is a participant for 1998 in the Annual Incentive
Compensation Plan of Mercantile Bankshares Corporation and Affiliates ("AICP").
The AICP incentive compensation will be payable in the first quarter of 1999.
Mr. Mohler will not be eligible for AICP participation for the year 1999 or
thereafter.
4. The Companies will provide to Mr. Mohler the title, free and
clear of any liens, to the automobile currently provided for his use. The
Companies shall be responsible for transfer taxes incurred in this transfer of
title. Mr. Mohler will be solely responsible for any insurance coverage on or
related to the vehicle. The Companies will
<PAGE>
cease any insurance coverage on the automobile as of five days following the
effective date of this Agreement. In addition, the parties expressly agree that
the Companies will cease all travel and accident coverage applicable to Mr.
Mohler, and will cease the payment of any club dues for Mr. Mohler, as of the
effective date of this Agreement. Mr. Mohler's Caves Valley membership
privileges have terminated.
5. The Companies will provide Mr. Mohler with outplacement
assistance. This assistance will include the provision of an office, telephone
and secretarial assistance for a period of six months at an outside facility.
6. Mr. Mohler's positions as an officer of the Companies, as an
officer or director of any subsidiaries of the Companies, and as a member of
committees of the Companies and subsidiaries, have terminated. Mr. Mohler shall,
after the effective date of this Agreement, not be required to perform any
executive or line management responsibilities for the Companies but he shall
make himself available for transitional activities during the period specified
for salary payments in paragraph 2 of this Agreement.
7. Mr. Mohler agrees that the benefits listed in paragraphs 1
through 5 are not benefits to which he is otherwise entitled by reason of his
employment, and that in consideration of the promises set forth in paragraphs 1
through 5, he will, and hereby does, forever and irrevocably release and
discharge the Companies, their officers, directors, employees, agents,
subsidiaries, affiliates, predecessors, successors, purchasers, assigns, and
representatives, of any and all grievances, claims, demands, debts, defenses,
actions or causes of action, obligations, damages, and liabilities whatsoever
which he now has, has had, or may have, whether the same be at law, in equity,
or mixed, in any
<PAGE>
way arising from or relating to any act, occurrence, or transaction before the
date of this Agreement. This is a General Release. Mr. Mohler expressly
acknowledges that this General Release includes, but is not limited to, Mr.
Mohler's intent to release the Companies from any claim of age, race, sex,
religion, national origin or any other claim of employment discrimination under
the Age Discrimination in Employment Act (29 U.S.C. ss.2000 et seq.), the
Employee Retirement Income Security Act (29 U.S.C. ss.1001 et seq.), Article 49B
of the Maryland Annotated Code, and any other law prohibiting employment
discrimination. Mr. Mohler agrees not to sue the Companies or to join in any
lawsuit against the Companies, or any other person or entity specified in this
paragraph, concerning any matter which arose on or before the date of this
Agreement. Mr. Mohler agrees that he shall not be regarded as the prevailing
party for any purpose, including, but not limited to, determining responsibility
for or entitlement to attorneys' fees, under any statute or otherwise.
8. Mr. Mohler will retire from his employment with the Companies
on or before February 1, 2000 or such earlier time as he accepts other
employment. Mr. Mohler has received this Agreement on January 22, 1999. Mr.
Mohler understands that he has twenty-one (21) days from his receipt of this
Agreement to consider his decision to sign it. By signing this Agreement, Mr.
Mohler expressly acknowledges that his decision to sign this Agreement was of
his own free will. Mr. Mohler understands that he may revoke this Agreement for
up to and including seven (7) days after his execution of the Agreement, and
that the Agreement shall not become effective until the expiration of seven days
from its execution, the effective date of this Agreement.
<PAGE>
Mr. Mohler has been advised by the Companies to consult an attorney regarding
the terms of this Agreement before signing it.
9. Mr. Mohler expressly acknowledges and understands that this
Agreement is not an admission of liability under any statute or otherwise by the
Companies, and does not admit any violation of Mr. Mohler's legal rights, but is
solely entered into as an exchange for the terms described above.
10. This Agreement shall be binding upon and inure to the benefit
of the assigns, heirs, executors, and administrators of Mr. Mohler and the
Companies, their officers, directors, employees, agents, subsidiaries,
affiliates, predecessors, successors, purchasers, assigns, and representatives,
that this Agreement contains the entire agreement and understanding of the
parties, that there are no additional promises or terms among the parties other
than those contained herein, and that this Agreement shall not be modified
except in writing signed by each of the parties.
11. This Agreement shall in all respects be interpreted,
enforced, and governed under the laws of the State of Maryland. The language of
all parts of this Agreement shall in all cases be construed as a whole,
according to its fair meaning, and not strictly for or against any of the
parties.
12. Mr. Mohler represents that he has read this Agreement, that
he understands all of its terms, and that he enters into this Agreement
voluntarily and with knowledge of its effect.
2-24-99 /s/ Hugh W. Mohler
------- ------------------
Date Hugh W. Mohler
<PAGE>
Mercantile Bankshares Corporation
February 24, 1999 By: /s/ H. Furlong Baldwin
- ----------------------------- ----------------------------------------
Date H. Furlong Baldwin, Chairman,
President and Chief Executive
Officer
Mercantile-Safe Deposit and Trust
Company
February 24, 1999 By: /s/ H. Furlong Baldwin
- ----------------------------- ----------------------------------------
Date H. Furlong Baldwin, Chairman
And Chief Executive Officer
Exhibit (10) R
Option Agreement dated August 21, 1995
with J. Marshall Reid
<PAGE>
Exhibit (10) R
MERCANTILE BANKSHARES CORPORATION
This Option Agreement is entered into this 21st day of August 21,
1995, by and between Mercantile Bankshares Corporation ("MBC"), a Maryland
corporation, and J. Marshall Reid ("Grantee").
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement, the definitions set forth in
Sections 1.1 through 1.27 shall be applicable.
Section 1.1 Affiliate. "Affiliate" shall mean: (i) any
corporation in which MBC owns, directly or indirectly, within the meaning of
ss.424(f) of the Code, fifty percent (50%) or more of the total combined voting
power of all classes of stock of such corporation on a Grant Date; and (ii) any
parent corporation of MBC, within the meaning of ss.424(e) of the Code.
Section 1.2 Agreement. "Agreement" shall mean this Option
Agreement and shall include the applicable provisions of the Plan which is
hereby incorporated into and made a part of the Agreement.
Section 1.3 Anniversary Date. "Anniversary Date" shall mean the
first four (4) anniversaries of the Grant Date.
Section 1.4 Anniversary Date Option Amount. "Anniversary Date
Option Amount" shall mean twenty-five percent (25%) of the Option Amount.
Section 1.5 Base Year. "Base Year" shall mean the 1994 calendar
year.
Section 1.6 Board. "Board" shall mean the Board of Directors of
MBC.
Section 1.7 Calculation Year. "Calculation Year" shall mean the
calendar year ending immediately prior to the calendar year in which an
Anniversary Date falls.
<PAGE>
Section 1.8 Code. "Code" shall mean the Internal Revenue Code of
1986, as amended, and any regulations issued thereunder.
Section 1.9 Committee. "Committee" shall mean the Committee
appointed pursuant to Section 3.3 of the Plan.
Section 1.10 Disability. "Disability" shall mean Grantee's
inability to engage in any substantial gainful activity, by reason of any
medically determined physical or mental impairment that may be expected to
result in death or that has lasted or may be expected to last for a continuous
period of not less than twelve (12) months, as determined by the Committee based
on proof of the existence of such disability in such form and manner and at such
times as the Committee may require.
Section 1.11 Earnings. "Earnings" shall mean the earnings per
share of Stock for a calendar year (including the Base Year), as reported in the
Annual Report to Shareholders for such calendar year and as may be adjusted by
the Committee in its discretion.
Section 1.12 Earnings AGR. "Earnings AGR" shall mean the annual
rate of growth in Earnings, expressed as a percentage (rounded up to the nearest
whole percent), determined in accordance with the following formula:
(A-B) (100)
-----------
B
where "A" equals Earnings for the Calculation Year, and "B" equals Earnings for
the calendar year immediately preceding the Calculation Year.
Section 1.13 Earnings CGR. "Earnings CGR" shall mean the
compounded growth rate of Earnings and shall be determined by calculating the
rate of interest at which Earnings for the Base Year would have to be invested
to yield the Earnings for
2
<PAGE>
the Calculation Year in question, assuming such interest compounded annually
during the period commencing with the first day of the calendar year immediately
succeeding the Base Year and ending on the last day of such Calculation Year.
Section 1.14 Exercise Date. "Exercise Date" shall mean the date
on which the Committee receives the written notice required under Section 3.4 of
this Agreement that Grantee has exercised the Option.
Section 1.15 Fair Market Value. "Fair Market Value" of a share of
Stock on the Grant Date or Exercise Date, as the case may be, shall mean the
last reported sale price per share of Stock, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on a national securities exchange or included for quotation on the
NASDAQ-National Market, or if the Stock is not so listed or admitted to trading
or included for quotation, the last quoted price, or if the Stock is not so
quoted, the average of the high bid and low asked prices, regular way, in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System or, if such system is no longer in
use, the principal other automated quotations system that may then be in use or,
if the Stock is not quoted by any such organization, the average of the closing
bid and asked prices, regular way, as furnished by a professional market maker
making a market in the Stock as selected in good faith by the Committee or by
such other source or sources as shall be selected in good faith by the
Committee; provided, however, that the determination of Fair Market Value shall
be made by the Committee in good faith in accordance with the Code. If, as the
case may be, the Grant Date or the Exercise Date is not a trading day, the
determination shall be
3
<PAGE>
made as of the next preceding trading day. As used herein, the term "trading
day" shall mean a day on which public trading of securities occurs and is
reported in the principal consolidated reporting system referred to above, or if
the Stock is not listed or admitted to trading on a national securities exchange
or included for quotation on the NASDAQNational Market, any day other than a
Saturday, a Sunday or a day on which banking institutions in the State of New
York are closed.
Section 1.16 Grant Date. "Grant Date" shall mean March 14, 1995.
Section 1.17 Incentive Stock Option. "Incentive Stock Option"
shall mean an option as defined in ss.422(b) of the Code.
Section 1.18 Net Operating Income. "Net Operating Income" shall
mean the dollar amount of net after tax operating income for a calendar year for
Mercantile-Safe Deposit and Trust Company, as reported to the Board and as may
be adjusted by the Committee in its discretion.
Section 1.19 Net Operating Income AGR. "Net Operating Income AGR"
shall mean the annual rate of growth in Net Operating Income, expressed as a
percentage (rounded up to the nearest whole percent), determined in accordance
with the following formula:
(A-B)(100)
----------
B
where "A" equals Net Operating Income for the Calculation Year, and "B" equals
Net Operating Income for the calendar year immediately preceding the Calculation
Year.
Section 1.20 Net Operating Income CGR. "Net Operating Income CGR"
shall mean the compounded growth rate of Net Operating Income, determined by
calculating the rate of interest at which Base Year Net Operating Income would
have to be invested
4
<PAGE>
to yield the Net Operating Income for the Calculation Year in question, assuming
such interest compounded annually during the period commencing with the first
day of the calendar year immediately succeeding the Base Year and ending on the
last day of such Calculation Year.
Section 1.21 Normal Retirement Date. "Normal Retirement Date"
shall mean the first day of the month coincident with or next following the date
on which Grantee attains age sixty-five (65).
Section 1.22 Option. "Option" shall mean an option to acquire
Stock and, as is hereby designated by the Committee in accordance with and to
the fullest extent permitted by the Code and other applicable law, shall mean an
Incentive Stock Option.
Section 1.23 Option Amount. "Option Amount" shall mean 30,000
shares of Stock.
Section 1.24 Option Price. "Option Price" shall mean the price
per share of Stock at which the Option may be exercised.
Section 1.25 Plan. "Plan" shall mean the Mercantile Bankshares
Corporation Omnibus Stock Plan.
Section 1.26 Retirement. "Retirement" shall mean early or normal
retirement in accordance with the terms of The Cash Balance Plan for Employees
of Mercantile Bankshares Corporation and Participating Affiliates, as it may
exist from time to time, or any successor plan.
Section 1.27 Stock. "Stock" shall mean shares of MBC's authorized
but unissued common stock, par value of Two Dollars ($2.00) per share.
5
<PAGE>
ARTICLE 2
GRANT OF OPTION
Section 2.1 Grant of Option. On the Grant Date, MBC, pursuant to
the Plan, granted to Grantee an Option to purchase shares of Stock, not to
exceed the Option Amount, at an Option Price of Twenty-one Dollars and
Eighty-seven and one-half Cents ($21.875) per share.
Section 2.2 Term of Option. The Option granted pursuant to
Section 2.1 shall expire on March 13, 2005, unless all or a portion of the
Option terminates earlier pursuant to other provisions of this Agreement.
ARTICLE 3
RESTRICTIONS ON EXERCISE
Section 3.1 Termination of Option or Portion of Option. The
Option shall become exercisable, if at all, only on an Anniversary Date. The
extent to which the Option shall become exercisable on any Anniversary Date
shall be determined pursuant to the provisions of Sections 3.2 and 3.3 of the
Agreement; provided that, except as otherwise provided under Section 4.4 of the
Agreement, in no case shall the Option become exercisable on any one (1)
Anniversary Date for more than the Anniversary Date Option Amount. To the extent
that, by application of the provisions of Sections 3.2 or 3.3 of the Agreement,
no portion of the Option becomes exercisable on an Anniversary Date, or the
Option becomes exercisable for less than the Anniversary Date Option Amount on
such Anniversary Date, the Option shall terminate with respect to that number of
shares of Stock that is equal to the difference between the Anniversary Date
Option Amount and the number of shares of Stock as to which the Option becomes
exercisable on such Anniversary Date.
6
<PAGE>
Section 3.2 Attainment of Earnings CGR. No portion of the Option
shall become exercisable on an Anniversary Date unless the Earnings CGR for the
Calculation Year applicable to that Anniversary Date equals or exceeds five
percent (5%). If such Earnings CGR equals or exceeds five percent (5%), the
portion of the Anniversary Date Option Amount that shall become exercisable on
such Anniversary Date shall be determined pursuant to the provisions of Section
3.3 of the Agreement.
Section 3.3 Determination of Exercisable Portion of Anniversary
Date Option Amount.
(a) Amounts Dependent on Earnings. Subject to the provisions of the
first sentence of Section 3.2 of the Agreement, if the Earnings AGR for the
Calculation Year applicable to an Anniversary Date equals or exceeds six percent
(6%), Grantee may, on and after such Anniversary Date, exercise the Option with
respect to that percentage of the Anniversary Date Option Amount that
corresponds to the Earnings AGR in the following chart.
Anniversary Date Option
Earnings AGR Amount That May Be Exercised
------------ ----------------------------
6% 10%
7% 20%
8% 30%
9% 40%
10% 50%
(b) Amounts Dependent on Net Operating Income. Subject to the provisions
of the first sentence of Section 3.2 of the Agreement, if, and only if, the Net
Operating Income CGR for the Calculation Year applicable to an Anniversary Date
equals or exceeds five percent (5%) and if the Net Operating Income AGR for such
Calculation Year equals or exceeds six percent (6%), Grantee may, on and after
such Anniversary
7
<PAGE>
Date, exercise the Option with respect to that percentage of the Anniversary
Date Option Amount that corresponds to the Net Operating Income AGR in the
following chart.
Anniversary Date Option
Net Operating Income AGR Amount That May Be Exercised
- ------------------------ ----------------------------
6% 10%
7% 20%
8% 30%
9% 40%
10% 50%
Section 3.4 Manner of Exercise. The Option may be exercised, in
whole or in part, by delivering written notice to the Committee in such form as
the Committee may require from time to time. Such notice shall specify the
number of shares of Stock subject to the Option as to which the Option is being
exercised, and shall be accompanied by full payment of the Option Price of the
shares of Stock as to which the Option is being exercised. Payment of the Option
Price may be made either in cash or shares of Stock (including shares of Stock
acquired upon the exercise of an option) having a total Fair Market Value on the
Exercise Date equal to the Option Price multiplied by the number of shares of
Stock as to which the Option is being exercised. The Option may be exercised
only in multiples of whole shares and no partial shares shall be issued. If, as
of the fourth Anniversary Date, the total number of shares as to which the
Option is exercisable includes a partial share, the Option for such partial
share, whether or not previously designated by the Committee as an Incentive
Stock Option, shall be deemed to be a non-Incentive Stock Option. On the first
date, on or after the fourth Anniversary Date, that the Fair Market Value of a
share of Stock equals or exceeds the Option Price, Grantee shall be deemed to
have simultaneously exercised the Option for such partial share and to have sold
same to MBC for such Fair Market
8
<PAGE>
Value. MBC shall remit to Grantee, in payment of the purchase price of such
partial share, the excess, if any, of the Fair Market Value of such partial
share over the Option Price.
Section 3.5 Issuance of Shares and Payment of Cash upon Exercise.
Upon exercise of the Option, in whole or in part, in accordance with the terms
of the Agreement, and upon payment of the Option Price for the shares of Stock
as to which the Option is exercised, MBC shall issue to Grantee the number of
shares of Stock so paid for, in the form of fully paid and non-assessable Stock.
Section 3.6 Loan or Guaranty. Solely at the discretion of the
Committee, and upon Grantee's written request, MBC may, but shall not be
required to, assist Grantee in the exercise of the Option by making a loan to
Grantee or by guaranteeing a third-party loan to Grantee. Such a loan or
guaranty shall be conditioned upon prior receipt by the Committee of
satisfactory assurances of Grantee's net worth and repayment ability. Subject to
Regulations G and U of the Federal Reserve Board, any such loan or guaranty may
be in an amount up to one hundred percent (100%) of the Option Price of the
shares of Stock as to which the Option is being exercised. All loans shall bear
interest at a rate determined by the Committee based upon loans of similar
maturity, but in no event shall the interest rate be less than the rate
necessary to avoid the imputation of interest or original issue discount under
the provisions of the Code. All other terms of any loan or guaranty (including
terms of repayment) shall be established by the Committee, subject to
Regulations G and U of the Federal Reserve Board and all other applicable
federal and state laws and regulations.
9
<PAGE>
ARTICLE 4
TERMINATION OF OPTION
Section 4.1 Termination of Employment For Reason Other Than
Death, Disability, or Retirement. The Option granted to Grantee shall terminate
with respect to any shares of Stock as to which the Option has not been
exercised as of the date Grantee is no longer employed by either MBC or an
Affiliate for any reason other than Grantee's death, Disability or Retirement,
whether or not the Option was exercisable on such date.
Section 4.2 Upon Grantee's Death. In the event that upon
Grantee's date of death any portion of the Option is exercisable, then Grantee's
executor, personal representative or the person to whom the Option shall have
been transferred by will or the laws of descent and distribution, as the case
may be, may exercise all or any part of the portion of the Option exercisable as
of the date of death, provided such exercise occurs within twelve (12) months
after the date Grantee dies, but not later than the end of the stated term of
the Option. Upon Grantee's death, the portion of the Option, if any, that has
not become exercisable as of the date of Grantee's death shall terminate on the
date of Grantee's death.
Section 4.3 Termination of Employment By Reason of Disability. In
the event that Grantee ceases to be an employee of MBC or an Affiliate by reason
of Disability, the portion of the Option, if any, that has become exercisable as
of the date of Disability may be exercised in whole or in part at any time on or
after the date of Disability, but not later than the end of the stated term of
the Option or as otherwise provided by the provisions of Section 4.2 of the
Agreement. Upon Grantee's termination of employment by reason of Disability, the
portion of the Option, if any, that has not become
10
<PAGE>
exercisable as of the date of Disability shall terminate on the date of
Disability.
Section 4.4 Termination of Employment By Reason of Retirement.
(a) Early Retirement.
(i) Exercisable Portion of Option. In the event that
Grantee ceases to be an employee of MBC or an Affiliate by reason of Retirement
at any time prior to Grantee's Normal Retirement Date, the portion of the
Option, if any, that has become exercisable as of the date of Retirement may be
exercised in whole or in part at any time on or after the date of Retirement,
but not later than the end of the stated term of the Option or as otherwise
provided by the provisions of Section 4.2 of the Agreement.
(ii) Non-exercisable Portion of Option. In the event
that Grantee ceases to be an employee of MBC or an Affiliate by reason of
Retirement at any time prior to Grantee's Normal Retirement Date, the portion of
the Option, if any, that has not become exercisable as of the date of Retirement
shall terminate on the date of Retirement.
(b) Normal Retirement Date.
(i) Exercisable Portion of Option. In the event that
Grantee ceases to be an employee of MBC or an Affiliate by reason of Retirement,
the portion of the Option, if any, that has become exercisable as of the date of
Retirement may be exercised in whole or in part at any time on or after the date
of Retirement, but not later than the end of the stated term of the Option or as
otherwise provided by the provisions of Section 4.2 of the Agreement.
(ii) Non-exercisable Portion of Option. In the event
that upon the occurrence of Grantee's Normal Retirement Date all or a portion of
the Option has not become exercisable solely because one (1) or more of the
first four (4) Anniversary
11
<PAGE>
Dates have not occurred (hereinafter referred to as the "Remaining Portion"),
then such Remaining Portion shall become exercisable, if at all, on the
Anniversary Date coincident with or immediately following Grantee's Normal
Retirement Date. In all cases, the Remaining Portion shall not include any
portion of the Option that has terminated pursuant to the provisions of Sections
3.1, 3.2, 3.3, 4.1, 4.2 or 4.3 of the Agreement. The extent to which the
Remaining Portion shall become exercisable shall be determined pursuant to the
provisions of Sections 3.2 and 3.3 of the Agreement; provided, however, that the
term "Remaining Portion" shall be substituted for the term "Anniversary Date
Option Amount" in all places noted therein. The amount, if any, of the Remaining
Portion of the Option that becomes exercisable on such Anniversary Date may be
exercised in whole or in part at any time on or after such Anniversary Date, but
not later than the end of the stated term of the Option or as otherwise provided
by the provisions of Section 4.2 of the Agreement. Notwithstanding anything in
the Agreement to the contrary, the provisions of this Section 4.4(b)(ii) of the
Agreement shall apply as of the occurrence of Grantee's Normal Retirement Date,
regardless of whether Grantee continues to be an employee of MBC or an Affiliate
after such date.
ARTICLE 5
MISCELLANEOUS
Section 5.1 Non-Guarantee of Employment. Nothing in the Plan or
the Agreement shall be construed as a contract of employment between MBC (or an
Affiliate) and Grantee, or as a contractual right of Grantee to continue in the
employ of MBC or an Affiliate, or as a limitation of the right of MBC or an
Affiliate to discharge Grantee at any time.
Section 5.2 No Rights of Stockholder. Grantee shall not have
any of the rights
12
<PAGE>
of a stockholder with respect to the shares of Stock that may be issued upon the
exercise of the Option until such shares of Stock have been issued to him upon
the due exercise of the Option.
Section 5.3 Notice of Disqualifying Disposition. If Grantee makes
a disposition (as that term is defined in ss.424(c) of the Code) of any shares
of Stock acquired pursuant to the exercise of an Incentive Stock Option within
two (2) years of the Grant Date or within one (1) year after the shares of Stock
are transferred to Grantee, Grantee shall notify the Committee of such
disposition in writing.
Section 5.4 Withholding Taxes. MBC or any Affiliate shall have
the right to deduct from any compensation or any other payment of any kind
(including withholding the issuance of shares of Stock) due Grantee the amount
of any federal, state or local taxes required by law to be withheld as the
result of the exercise of the Option or the disposition (as that term is defined
in ss.424(c) of the Code) of shares of Stock acquired pursuant to the exercise
of the Option. In lieu of such deduction, MBC may require Grantee to make a cash
payment to MBC or an Affiliate equal to the amount required to be withheld. If
Grantee does not make such payment when requested, MBC may refuse to issue any
Stock certificate under the Plan until arrangements satisfactory to the
Committee for such payment have been made.
Section 5.5 Limitation on Exercise. Notwithstanding anything in
the Plan or Agreement to the contrary, the Committee may restrict the right to
exercise the Option to the extent that such exercise would trigger an "excess
parachute payment" (as that term is defined in ss.280G(b) of the Code) unless
Grantee shall have the right to receive such an excess parachute payment under
an agreement with MBC or an Affiliate.
Section 5.6 Nontransferability of Option. The Option shall be
nontransferable
13
<PAGE>
otherwise than by will or the laws of descent and distribution. During the
lifetime of Grantee, the Option may be exercised only by Grantee or, during the
period Grantee is under a legal disability, by Grantee's guardian or legal
representative.
Section 5.7 Agreement Subject to Charter and By-Laws. This
Agreement is subject to the Charter and By-Laws of MBC, and any applicable
federal or state laws, rules or regulations.
Section 5.8 Gender. As used herein the masculine shall include
the feminine as the circumstances may require.
Section 5.9 Headings. The headings in the Agreement are for
reference purposes only and shall not affect the meaning or interpretation of
the Agreement.
Section 5.10 Notices. All notices and other communications made
or given pursuant to the Agreement shall be in writing and shall be sufficiently
made or given if hand delivered or mailed by certified mail, addressed to
Grantee at the address contained in the records of MBC or an Affiliate, or to
MBC for the attention of its Secretary at its principal office.
ARTICLE 6
SCOPE OF AGREEMENT
Section 6.1 Entire Agreement; Modification. The Agreement
contains the entire agreement between the parties with respect to the subject
matter contained herein and may not be modified, except as provided in the Plan
or in a written document signed by each of the parties hereto.
14
<PAGE>
Section 6.2 Counterparts. The Agreement may be executed
simultaneously in one or more counterparts, each of which shall be deemed to be
an original and all of which together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have executed the Agreement as of
the date first above written.
ATTEST: MERCANTILE BANKSHARES CORPORATION
/s/ John A. O'Connor, Jr. By:/s/ Edward K. Dunn, Jr.
- ------------------------- --------------------------
John A. O'Connor, Jr. Edward K. Dunn, Jr.
WITNESS: GRANTEE
/s/ Alice K. Reid /s/ J. Marshall Reid
- ----------------- --------------------
J. Marshall Reid
15
Exhibit (10) S
Option Agreement dated August 21, 1995
with Jack E. Steil
<PAGE>
Exhibit (10) S
MERCANTILE BANKSHARES CORPORATION
OPTION AGREEMENT
This Option Agreement is entered into this 21st day of August 21,
1995, by and between Mercantile Bankshares Corporation ("MBC"), a Maryland
corporation, and Jack E. Steil ("Grantee").
ARTICLE 1
DEFINITIONS
For the purposes of this Agreement, the definitions set forth in
Sections 1.1 through 1.27 shall be applicable.
Section 1.1 Affiliate. "Affiliate" shall mean: (i) any
corporation in which MBC owns, directly or indirectly, within the meaning of
ss.424(f) of the Code, fifty percent (50%) or more of the total combined voting
power of all classes of stock of such corporation on a Grant Date; and (ii) any
parent corporation of MBC, within the meaning of ss.424(e) of the Code.
Section 1.2 Agreement. "Agreement" shall mean this Option
Agreement and shall include the applicable provisions of the Plan which is
hereby incorporated into and made a part of the Agreement.
Section 1.3 Anniversary Date. "Anniversary Date" shall mean the
first four (4) anniversaries of the Grant Date.
Section 1.4 Anniversary Date Option Amount. "Anniversary Date
Option Amount" shall mean twenty-five percent (25%) of the Option Amount.
Section 1.5 Base Year. "Base Year" shall mean the 1994 calendar
year.
Section 1.6 Board. "Board" shall mean the Board of Directors of
MBC.
Section 1.7 Calculation Year. "Calculation Year" shall mean the
calendar year ending immediately prior to the calendar year in which an
Anniversary Date falls.
<PAGE>
Section 1.8 Code. "Code" shall mean the Internal Revenue Code of
1986, as amended, and any regulations issued thereunder.
Section 1.9 Committee. "Committee" shall mean the Committee
appointed pursuant to Section 3.3 of the Plan.
Section 1.10 Disability. "Disability" shall mean Grantee's
inability to engage in any substantial gainful activity, by reason of any
medically determined physical or mental impairment that may be expected to
result in death or that has lasted or may be expected to last for a continuous
period of not less than twelve (12) months, as determined by the Committee based
on proof of the existence of such disability in such form and manner and at such
times as the Committee may require.
Section 1.11 Earnings. "Earnings" shall mean the earnings per
share of Stock for a calendar year (including the Base Year), as reported in the
Annual Report to Shareholders for such calendar year and as may be adjusted by
the Committee in its discretion.
Section 1.12 Earnings AGR. "Earnings AGR" shall mean the annual
rate of growth in Earnings, expressed as a percentage (rounded up to the nearest
whole percent), determined in accordance with the following formula:
(A-B) (100)
-----------
B
where "A" equals Earnings for the Calculation Year, and "B" equals Earnings for
the calendar year immediately preceding the Calculation Year.
Section 1.13 Earnings CGR. "Earnings CGR" shall mean the
compounded growth rate of Earnings and shall be determined by calculating the
rate of interest at which Earnings for the Base Year would have to be invested
to yield the Earnings for
2
<PAGE>
the Calculation Year in question, assuming such interest compounded annually
during the period commencing with the first day of the calendar year immediately
succeeding the Base Year and ending on the last day of such Calculation Year.
Section 1.14 Exercise Date. "Exercise Date" shall mean the date
on which the Committee receives the written notice required under Section 3.4 of
this Agreement that Grantee has exercised the Option.
Section 1.15 Fair Market Value. "Fair Market Value" of a share of
Stock on the Grant Date or Exercise Date, as the case may be, shall mean the
last reported sale price per share of Stock, regular way, or, in case no such
sale takes place on such day, the average of the closing bid and asked prices,
regular way, in either case as reported in the principal consolidated
transaction reporting system with respect to securities listed or admitted to
trading on a national securities exchange or included for quotation on the
NASDAQ-National Market, or if the Stock is not so listed or admitted to trading
or included for quotation, the last quoted price, or if the Stock is not so
quoted, the average of the high bid and low asked prices, regular way, in the
over-the-counter market, as reported by the National Association of Securities
Dealers, Inc. Automated Quotations System or, if such system is no longer in
use, the principal other automated quotations system that may then be in use or,
if the Stock is not quoted by any such organization, the average of the closing
bid and asked prices, regular way, as furnished by a professional market maker
making a market in the Stock as selected in good faith by the Committee or by
such other source or sources as shall be selected in good faith by the
Committee; provided, however, that the determination of Fair Market Value shall
be made by the Committee in good faith in accordance with the Code. If, as the
case may be, the Grant Date or the Exercise Date is not a trading day, the
determination shall be
3
<PAGE>
made as of the next preceding trading day. As used herein, the term "trading
day" shall mean a day on which public trading of securities occurs and is
reported in the principal consolidated reporting system referred to above, or if
the Stock is not listed or admitted to trading on a national securities exchange
or included for quotation on the NASDAQNational Market, any day other than a
Saturday, a Sunday or a day on which banking institutions in the State of New
York are closed.
Section 1.16 Grant Date. "Grant Date" shall mean March 14, 1995.
Section 1.17 Incentive Stock Option. "Incentive Stock Option"
shall mean an option as defined in ss.422(b) of the Code.
Section 1.18 Net Operating Income. "Net Operating Income" shall
mean the dollar amount of net after tax operating income for a calendar year for
Mercantile-Safe Deposit and Trust Company, as reported to the Board and as may
be adjusted by the Committee in its discretion.
Section 1.19 Net Operating Income AGR. "Net Operating Income AGR"
shall mean the annual rate of growth in Net Operating Income, expressed as a
percentage (rounded up to the nearest whole percent), determined in accordance
with the following formula:
(A-B)(100)
----------
B
where "A" equals Net Operating Income for the Calculation Year, and "B" equals
Net Operating Income for the calendar year immediately preceding the Calculation
Year.
Section 1.20 Net Operating Income CGR. "Net Operating Income CGR"
shall mean the compounded growth rate of Net Operating Income, determined by
calculating the rate of interest at which Base Year Net Operating Income would
have to be invested
4
<PAGE>
to yield the Net Operating Income for the Calculation Year in question, assuming
such interest compounded annually during the period commencing with the first
day of the calendar year immediately succeeding the Base Year and ending on the
last day of such Calculation Year.
Section 1.21 Normal Retirement Date. "Normal Retirement Date"
shall mean the first day of the month coincident with or next following the date
on which Grantee attains age sixty-five (65).
Section 1.22 Option. "Option" shall mean an option to acquire
Stock and, as is hereby designated by the Committee in accordance with and to
the fullest extent permitted by the Code and other applicable law, shall mean an
Incentive Stock Option.
Section 1.23 Option Amount. "Option Amount" shall mean 25,000
shares of Stock.
Section 1.24 Option Price. "Option Price" shall mean the price
per share of Stock at which the Option may be exercised.
Section 1.25 Plan. "Plan" shall mean the Mercantile Bankshares
Corporation Omnibus Stock Plan.
Section 1.26 Retirement. "Retirement" shall mean early or normal
retirement in accordance with the terms of The Cash Balance Plan for Employees
of Mercantile Bankshares Corporation and Participating Affiliates, as it may
exist from time to time, or any successor plan.
Section 1.27 Stock. "Stock" shall mean shares of MBC's authorized
but unissued common stock, par value of Two Dollars ($2.00) per share.
5
<PAGE>
ARTICLE 2
GRANT OF OPTION
Section 2.1 Grant of Option. On the Grant Date, MBC, pursuant to
the Plan, granted to Grantee an Option to purchase shares of Stock, not to
exceed the Option Amount, at an Option Price of Twenty-one Dollars and
Eighty-seven and one-half Cents ($21.875) per share.
Section 2.2 Term of Option. The Option granted pursuant to
Section 2.1 shall expire on March 13, 2005, unless all or a portion of the
Option terminates earlier pursuant to other provisions of this Agreement.
ARTICLE 3
RESTRICTIONS ON EXERCISE
Section 3.1 Termination of Option or Portion of Option. The
Option shall become exercisable, if at all, only on an Anniversary Date. The
extent to which the Option shall become exercisable on any Anniversary Date
shall be determined pursuant to the provisions of Sections 3.2 and 3.3 of the
Agreement; provided that, except as otherwise provided under Section 4.4 of the
Agreement, in no case shall the Option become exercisable on any one (1)
Anniversary Date for more than the Anniversary Date Option Amount. To the extent
that, by application of the provisions of Sections 3.2 or 3.3 of the Agreement,
no portion of the Option becomes exercisable on an Anniversary Date, or the
Option becomes exercisable for less than the Anniversary Date Option Amount on
such Anniversary Date, the Option shall terminate with respect to that number of
shares of Stock that is equal to the difference between the Anniversary Date
Option Amount and the number of shares of Stock as to which the Option becomes
exercisable on such Anniversary Date.
6
<PAGE>
Section 3.2 Attainment of Earnings CGR. No portion of the Option
shall become exercisable on an Anniversary Date unless the Earnings CGR for the
Calculation Year applicable to that Anniversary Date equals or exceeds five
percent (5%). If such Earnings CGR equals or exceeds five percent (5%), the
portion of the Anniversary Date Option Amount that shall become exercisable on
such Anniversary Date shall be determined pursuant to the provisions of Section
3.3 of the Agreement.
Section 3.3 Determination of Exercisable Portion of Anniversary
Date Option Amount.
(a) Amounts Dependent on Earnings. Subject to the provisions of the
first sentence of Section 3.2 of the Agreement, if the Earnings AGR for the
Calculation Year applicable to an Anniversary Date equals or exceeds six percent
(6%), Grantee may, on and after such Anniversary Date, exercise the Option with
respect to that percentage of the Anniversary Date Option Amount that
corresponds to the Earnings AGR in the following chart.
Anniversary Date Option
Earnings AGR Amount That May Be Exercised
------------ ----------------------------
6% 10%
7% 20%
8% 30%
9% 40%
10% 50%
(b) Amounts Dependent on Net Operating Income. Subject to the provisions
of the first sentence of Section 3.2 of the Agreement, if, and only if, the Net
Operating Income CGR for the Calculation Year applicable to an Anniversary Date
equals or exceeds five percent (5%) and if the Net Operating Income AGR for such
Calculation Year equals or exceeds six percent (6%), Grantee may, on and after
such Anniversary
7
<PAGE>
Date, exercise the Option with respect to that percentage of the Anniversary
Date Option Amount that corresponds to the Net Operating Income AGR in the
following chart.
Anniversary Date Option
Net Operating Income AGR Amount That May Be Exercised
- ------------------------ ----------------------------
6% 10%
7% 20%
8% 30%
9% 40%
10% 50%
Section 3.4 Manner of Exercise. The Option may be exercised, in
whole or in part, by delivering written notice to the Committee in such form as
the Committee may require from time to time. Such notice shall specify the
number of shares of Stock subject to the Option as to which the Option is being
exercised, and shall be accompanied by full payment of the Option Price of the
shares of Stock as to which the Option is being exercised. Payment of the Option
Price may be made either in cash or shares of Stock (including shares of Stock
acquired upon the exercise of an option) having a total Fair Market Value on the
Exercise Date equal to the Option Price multiplied by the number of shares of
Stock as to which the Option is being exercised. The Option may be exercised
only in multiples of whole shares and no partial shares shall be issued. If, as
of the fourth Anniversary Date, the total number of shares as to which the
Option is exercisable includes a partial share, the Option for such partial
share, whether or not previously designated by the Committee as an Incentive
Stock Option, shall be deemed to be a non-Incentive Stock Option. On the first
date, on or after the fourth Anniversary Date, that the Fair Market Value of a
share of Stock equals or exceeds the Option Price, Grantee shall be deemed to
have simultaneously exercised the Option for such partial share and to have sold
same to MBC for such Fair Market
8
<PAGE>
Value. MBC shall remit to Grantee, in payment of the purchase price of such
partial share, the excess, if any, of the Fair Market Value of such partial
share over the Option Price.
Section 3.5 Issuance of Shares and Payment of Cash upon Exercise.
Upon exercise of the Option, in whole or in part, in accordance with the terms
of the Agreement, and upon payment of the Option Price for the shares of Stock
as to which the Option is exercised, MBC shall issue to Grantee the number of
shares of Stock so paid for, in the form of fully paid and non-assessable Stock.
Section 3.6 Loan or Guaranty. Solely at the discretion of the
Committee, and upon Grantee's written request, MBC may, but shall not be
required to, assist Grantee in the exercise of the Option by making a loan to
Grantee or by guaranteeing a third-party loan to Grantee. Such a loan or
guaranty shall be conditioned upon prior receipt by the Committee of
satisfactory assurances of Grantee's net worth and repayment ability. Subject to
Regulations G and U of the Federal Reserve Board, any such loan or guaranty may
be in an amount up to one hundred percent (100%) of the Option Price of the
shares of Stock as to which the Option is being exercised. All loans shall bear
interest at a rate determined by the Committee based upon loans of similar
maturity, but in no event shall the interest rate be less than the rate
necessary to avoid the imputation of interest or original issue discount under
the provisions of the Code. All other terms of any loan or guaranty (including
terms of repayment) shall be established by the Committee, subject to
Regulations G and U of the Federal Reserve Board and all other applicable
federal and state laws and regulations.
9
<PAGE>
ARTICLE 4
TERMINATION OF OPTION
Section 4.1 Termination of Employment For Reason Other Than
Death, Disability, or Retirement. The Option granted to Grantee shall terminate
with respect to any shares of Stock as to which the Option has not been
exercised as of the date Grantee is no longer employed by either MBC or an
Affiliate for any reason other than Grantee's death, Disability or Retirement,
whether or not the Option was exercisable on such date.
Section 4.2 Upon Grantee's Death. In the event that upon
Grantee's date of death any portion of the Option is exercisable, then Grantee's
executor, personal representative or the person to whom the Option shall have
been transferred by will or the laws of descent and distribution, as the case
may be, may exercise all or any part of the portion of the Option exercisable as
of the date of death, provided such exercise occurs within twelve (12) months
after the date Grantee dies, but not later than the end of the stated term of
the Option. Upon Grantee's death, the portion of the Option, if any, that has
not become exercisable as of the date of Grantee's death shall terminate on the
date of Grantee's death.
Section 4.3 Termination of Employment By Reason of Disability. In
the event that Grantee ceases to be an employee of MBC or an Affiliate by reason
of Disability, the portion of the Option, if any, that has become exercisable as
of the date of Disability may be exercised in whole or in part at any time on or
after the date of Disability, but not later than the end of the stated term of
the Option or as otherwise provided by the provisions of Section 4.2 of the
Agreement. Upon Grantee's termination of employment by reason of Disability, the
portion of the Option, if any, that has not become
10
<PAGE>
exercisable as of the date of Disability shall terminate on the date of
Disability.
Section 4.4 Termination of Employment By Reason of Retirement.
(a) Early Retirement.
(i) Exercisable Portion of Option. In the event that Grantee
ceases to be an employee of MBC or an Affiliate by reason of Retirement
at any time prior to Grantee's Normal Retirement Date, the portion of
the Option, if any, that has become exercisable as of the date of
Retirement may be exercised in whole or in part at any time on or after
the date of Retirement, but not later than the end of the stated term of
the Option or as otherwise provided by the provisions of Section 4.2 of
the Agreement.
(ii) Non-exercisable Portion of Option. In the event that
Grantee ceases to be an employee of MBC or an Affiliate by reason of
Retirement at any time prior to Grantee's Normal Retirement Date, the
portion of the Option, if any, that has not become exercisable as of the
date of Retirement shall terminate on the date of Retirement.
(b) Normal Retirement Date.
(i) Exercisable Portion of Option. In the event that Grantee
ceases to be an employee of MBC or an Affiliate by reason of Retirement,
the portion of the Option, if any, that has become exercisable as of the
date of Retirement may be exercised in whole or in part at any time on
or after the date of Retirement, but not later than the end of the
stated term of the Option or as otherwise provided by the provisions of
Section 4.2 of the Agreement.
(ii) Non-exercisable Portion of Option. In the event that upon
the occurrence of Grantee's Normal Retirement Date all or a portion of
the Option has not become exercisable solely because one (1) or more of
the first four (4) Anniversary
11
<PAGE>
Dates have not occurred (hereinafter referred to as the "Remaining Portion"),
then such Remaining Portion shall become exercisable, if at all, on the
Anniversary Date coincident with or immediately following Grantee's Normal
Retirement Date. In all cases, the Remaining Portion shall not include any
portion of the Option that has terminated pursuant to the provisions of Sections
3.1, 3.2, 3.3, 4.1, 4.2 or 4.3 of the Agreement. The extent to which the
Remaining Portion shall become exercisable shall be determined pursuant to the
provisions of Sections 3.2 and 3.3 of the Agreement; provided, however, that the
term "Remaining Portion" shall be substituted for the term "Anniversary Date
Option Amount" in all places noted therein. The amount, if any, of the Remaining
Portion of the Option that becomes exercisable on such Anniversary Date may be
exercised in whole or in part at any time on or after such Anniversary Date, but
not later than the end of the stated term of the Option or as otherwise provided
by the provisions of Section 4.2 of the Agreement. Notwithstanding anything in
the Agreement to the contrary, the provisions of this Section 4.4(b)(ii) of the
Agreement shall apply as of the occurrence of Grantee's Normal Retirement Date,
regardless of whether Grantee continues to be an employee of MBC or an Affiliate
after such date.
ARTICLE 5
MISCELLANEOUS
Section 5.1 Non-Guarantee of Employment. Nothing in the Plan or the
Agreement shall be construed as a contract of employment between MBC (or an
Affiliate) and Grantee, or as a contractual right of Grantee to continue in the
employ of MBC or an Affiliate, or as a limitation of the right of MBC or an
Affiliate to discharge Grantee at any time.
Section 5.2 No Rights of Stockholder. Grantee shall not have any of the
rights
12
<PAGE>
of a stockholder with respect to the shares of Stock that may be issued upon the
exercise of the Option until such shares of Stock have been issued to him upon
the due exercise of the Option.
Section 5.3 Notice of Disqualifying Disposition. If Grantee makes a
disposition (as that term is defined in ss.424(c) of the Code) of any shares of
Stock acquired pursuant to the exercise of an Incentive Stock Option within two
(2) years of the Grant Date or within one (1) year after the shares of Stock are
transferred to Grantee, Grantee shall notify the Committee of such disposition
in writing.
Section 5.4 Withholding Taxes. MBC or any Affiliate shall have the right
to deduct from any compensation or any other payment of any kind (including
withholding the issuance of shares of Stock) due Grantee the amount of any
federal, state or local taxes required by law to be withheld as the result of
the exercise of the Option or the disposition (as that term is defined in
ss.424(c) of the Code) of shares of Stock acquired pursuant to the exercise of
the Option. In lieu of such deduction, MBC may require Grantee to make a cash
payment to MBC or an Affiliate equal to the amount required to be withheld. If
Grantee does not make such payment when requested, MBC may refuse to issue any
Stock certificate under the Plan until arrangements satisfactory to the
Committee for such payment have been made.
Section 5.5 Limitation on Exercise. Notwithstanding anything in the Plan
or Agreement to the contrary, the Committee may restrict the right to exercise
the Option to the extent that such exercise would trigger an "excess parachute
payment" (as that term is defined in ss.280G(b) of the Code) unless Grantee
shall have the right to receive such an excess parachute payment under an
agreement with MBC or an Affiliate.
Section 5.6 Nontransferability of Option. The Option shall be
nontransferable
13
<PAGE>
otherwise than by will or the laws of descent and distribution. During the
lifetime of Grantee, the Option may be exercised only by Grantee or, during the
period Grantee is under a legal disability, by Grantee's guardian or legal
representative.
Section 5.7 Agreement Subject to Charter and By-Laws. This Agreement is
subject to the Charter and By-Laws of MBC, and any applicable federal or state
laws, rules or regulations.
Section 5.8 Gender. As used herein the masculine shall include the
feminine as the circumstances may require.
Section 5.9 Headings. The headings in the Agreement are for reference
purposes only and shall not affect the meaning or interpretation of the
Agreement.
Section 5.10 Notices. All notices and other communications made or given
pursuant to the Agreement shall be in writing and shall be sufficiently made or
given if hand delivered or mailed by certified mail, addressed to Grantee at the
address contained in the records of MBC or an Affiliate, or to MBC for the
attention of its Secretary at its principal office.
ARTICLE 6
SCOPE OF AGREEMENT
Section 6.1 Entire Agreement; Modification. The Agreement contains the
entire agreement between the parties with respect to the subject matter
contained herein and may not be modified, except as provided in the Plan or in a
written document signed by each of the parties hereto.
14
<PAGE>
Section 6.2 Counterparts. The Agreement may be executed simultaneously
in one or more counterparts, each of which shall be deemed to be an original and
all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties have executed the Agreement as of
the date first above written.
ATTEST: MERCANTILE BANKSHARES CORPORATION
/s/ John A. O'Connor, Jr. By:/s/ Edward K. Dunn, Jr.
- ------------------------- -----------------------
John A. O'Connor, Jr. Edward K. Dunn, Jr.
WITNESS: GRANTEE
/s/ Ruth Nash /s/ Jack E. Steil
- ------------- -----------------
Jack E. Steil
15
Exhibit 13
Annual Report to Stockholders
For the Year Ended December 31, 1998
ANNUAL REPORT
1998
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
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
MARSHALL NATIONAL BANK AND 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) MERCANTILE BANKSHARES CORPORATION
<PAGE>
MERCANTILE BANKSHARES
CORPORATION IS A FAMILY OF
COMMUNITY BANKS.
Twenty-one locally managed and directed banks
deliver banking services to the individuals and businesses
in their communities.
EACH MEMBER BANK
HAS ITS OWN CORPORATE IDENTITY.
Affiliate banks operate under their own charters, retaining their
own names, managements and boards of directors.
EACH BANK IS DEDICATED TO ITS OWN MARKET AREA
AND EMPOWERED TO RESPOND
DIRECTLY TO ITS CUSTOMERS' BANKING NEEDS.
Customer-related decisions are made at the local level
by people focused on the citizens of the community in which
the bank operates. Affiliate banks can respond to
each individual's situation, nurturing customer relationships
through all phases of the economic cycle.
COMMUNITY BANKS ARE ABLE TO OFFER
THE STRENGTHS OF A MAJOR BANKING INSTITUTION.
As part of Mercantile Bankshares Corporation, affiliate banks benefit
from the Corporation's outstanding financial strength and
the specialized services available through the largest affiliate,
Mercantile-Safe Deposit & Trust Company.
CIVIC INVOLVEMENT IS AT THE HEART OF
COMMUNITY BANKING AND A SIGNIFICANT PRIORITY
AT MERCANTILE BANKSHARES AFFILIATES.
Each member bank maintains its historic commitment
to its community, contributing dollars and volunteering skills
to the civic and charitable organizations that make the
community a better place to live and work.
<PAGE>
(LOGO) MERCANTILE BANKSHARES CORPORATION
Baltimore, Maryland
<PAGE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Increase
(Dollars in thousands, except per share data) 1998 1997 (Decrease)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR
Net interest income.................... $ 353,365 $ 336,049 5.2%
Net income............................. 147,128 132,043 11.4
Cash dividends paid.................... 61,538 55,277 11.3
Basic net income per share............. 2.05 1.85 10.8
Dividend paid per common share......... .86 .77 11.7
Average loans.......................... 5,004,800 4,821,500 3.8
Average investment securities.......... 1,706,100 1,587,100 7.5
Average assets......................... 7,260,800 6,828,800 6.3
Average deposits....................... 5,715,000 5,449,000 4.9
Average stockholders' equity........... 967,300 886,400 9.1
---------- ---------- --------
AT YEAR END
Loans, net............................. $5,108,467 $4,872,425 4.8%
Investment securities.................. 1,907,541 1,631,623 16.9
Assets................................. 7,609,563 7,170,669 6.1
Deposits............................... 5,958,346 5,693,911 4.6
Stockholders' equity................... 999,359 935,004 6.9
Book value per common share............ 14.07 13.01 8.1
Market value per common share.......... 38 1/2 39 1/8 (1.6)
---------- ---------- --------
RATIOS
Return on average assets............... 2.03% 1.93%
Return on average stockholders' equity. 15.21 14.90
Average stockholders' equity/average assets 13.32 12.98
---------- ----------
STATISTICS
Banking offices........................ 179 173 6
Employees.............................. 2,804 2,889 (85)
Shareholders........................... 9,398 9,148 250
Average number of common shares
outstanding.......................... 71,662,051 71,465,976 196,075
Common shares outstanding.............. 71,026,927 71,874,297 (847,370)
---------- ---------- --------
</TABLE>
CONTENTS
Consolidated Financial Highlights....................................... 1
To Our Shareholders..................................................... 2
Review of Services...................................................... 4
Management's Discussion and Analysis of Financial Condition
and Results of Operations............................................... 6
Report of Independent Accountants....................................... 25
Consolidated Balance Sheets............................................. 26
Statement of Consolidated Income........................................ 27
Statement of Consolidated Cash Flows.................................... 28
Statement of Changes in Consolidated Stockholders' Equity............... 30
Notes to Consolidated Financial Statements.............................. 31
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) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
TO OUR SHAREHOLDERS
For the 23rd consecutive year, Mercantile Bankshares Corporation reported an
increase in consolidated net income. Net income per share was $2.05 in 1998, an
11% increase over the $1.85 per share in 1997. Total consolidated net income was
$147,128,000 compared to $132,043,000 in 1997, an increase of 11%. Per share
amounts are based on the weighted average number of common shares outstanding,
71,662,000 for 1998 and 71,466,000 for 1997.
Our history of profitability and capital strength has allowed us to increase
total cash dividends paid per share for 22 consecutive years. In June 1998, the
cash dividend was increased to $.22 a share for the quarter. Total cash
dividends paid per share in 1998 were $.86, a 12% increase over 1997. The
compound growth rate of per share dividends paid to shareholders over the last
10 years is 12%.
In 1998, return on average assets, a key measure of profitability, was 2.03%,
up from 1.93% in 1997, continuing to place us in the top tier of U.S. banks.
Average shareholders' equity increased by 9% to $967,300,000. The return on
average equity, which is constrained by our large equity base, increased to
15.21% in 1998 from 14.90% in 1997. 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 13.32% in 1998, up from 12.98% in 1997.
Management has been pursuing a strategy to enhance shareholder value by using
capital to finance growth, both internal and external, and, when capital is not
needed for that purpose, returning it to shareholders in dividends and
repurchase of shares. At their December 1998 meeting, the Board of Directors
authorized a new share repurchase of up to 3,000,000 shares of common stock.
This is in addition to approximately 1,400,000 shares which may be purchased
under the Corporation's previously announced programs. From December 1993 to
year end 1998, approximately 7,600,000 shares of common stock have been
repurchased.
Two banks were added to the Mercantile Bankshares system in 1998. The
affiliation of Marshall National Bank and Trust Company of Marshall, Virginia
was completed in March 1998. Marshall had total assets of $80,000,000 at the
time of affiliation. We welcome this solid and respected bank to the Mercantile
Bankshares family. In December 1998, another excellent bank, Marine Bank of
Chincoteague, Virginia was acquired and merged into the Mercantile Bankshares
affiliate, Farmers & Merchants Bank- Eastern Shore. At the time of acquisition,
total assets of Marine Bank were $20,000,000. Both bank acquisitions were
accounted for using the purchase method of accounting. Also in 1998, a
Mercantile affiliate, The Eastville Bank, with one banking office, was combined
into its neighbor bank on Virginia's Eastern Shore, Farmers & Merchants
Bank-Eastern Shore.
At December 31, 1998, total assets at Mercantile Bankshares Corporation were
$7,609,563,000 compared to $7,170,669,000 at December 31, 1997. On a daily
average basis, total assets rose 6% to $7,260,800,000. Average total loans rose
4% to $5,004,800,000. Total average investment securities rose 7% to
$1,706,100,000.
While the year 1998 saw a modest increase in the portfolio of average loans,
the ratios of loan types to total loans remained much the same as in previous
years. Average total mortgage and construction loans, which increased 2%, were
approximately 51% of the total loan portfolio. Average commercial loans, which
were approximately 36% of the entire loan portfolio, increased 8%. Average
consumer loans, 13% of the total average loan portfolio, increased 2%. Loan
volume showed signs of improvement as 1998 progressed and, if the trend
continues, we anticipate moderate increases in loan volume in 1999.
Worthy of mention are the results reported by MBC Leasing Corp., a subsidiary
of Mercantile-Safe Deposit & Trust Company that provides tax-oriented and
finance leases of various types of equipment. At December 31, 1998, as it
completed its second full year of operation, earning assets were $140,829,000,
up 82% over the prior year. Net income for MBC Leasing Corp. was up 126% in 1998
to $1,550,000.
Credit quality at Mercantile Bankshares, as measured by commonly used
statistics, remains high. At year end 1998, total non-performing loans were
$21,303,000 or .41% of total loans, down from .57% at year end 1997. Total
non-performing assets, which include other real estate owned as well as
non-performing loans, were $22,584,000 at year end 1998, down from $31,083,000
the prior year. Non-performing assets as a percentage of year end loans plus
other real estate owned was .43% at year end 1998 compared to .62% in 1997.
The provision for loan losses was $11,489,000 in 1998, down from $13,703,000
in 1997. In 1998, loans charged off, net of recoveries, totaled $6,597,000, down
from $6,697,000 charged off in 1997. The allowance for loan losses at December
31,1998 was $112,423,000 versus $106,097,000 in the prior year. At year end
1998, the allowance for loan losses as a percentage of non-performing loans was
527.73%, compared to 372.85% at year end 1997. The allowance for loan losses as
a percentage of total year end loans was 2.15%, up slightly from 2.13% the prior
year.
Average total deposits for the year ended December 31, 1998 were
$5,715,000,000, a 5% increase over 1997. The mix of interest-bearing versus
noninterest-bearing deposits has remained stable. In 1998, the ratio of average
demand deposits, which do
2 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
not bear interest, to average total deposits increased slightly from 20% to 21%.
The combination of savings, checking plus interest and money market accounts
remained steady at 40% of total average deposits. Certificates of deposit were
39% of average total deposits in 1998 compared to 40% the previous year.
Net interest income for 1998 increased 5% over 1997 to $353,365,000. While
average earning assets increased 6% in 1998, to $6,896,200,000, the net interest
margin on earning assets fell slightly to 5.20% compared to 5.24% in 1997. Net
interest rate spread, the difference between the yield realized on average
earning assets and interest rate paid for average interest-bearing funds, was
4.08% compared to 4.15% in 1997.
Total noninterest income increased 10% in 1998 to $108,693,000. The
largest component of noninterest income is trust revenues. Trust and Investment
Management Services benefited in 1998 from a strong stock market, a vigorous
trust marketing program and more efficient management of resources. Trust
revenues increased 12.6% in 1998 to $58,018,000. We will continue to work to
strengthen what is historically an important part of our business.
Total noninterest expense, excluding the provision for loan losses,
increased 2.6% in 1998 to $219,005,000. Salary and employee benefit expenses,
combined, are the largest part of noninterest expense and were $131,618,000, up
6% over 1997. Partially offsetting these increases, were significant reductions
in 1998 of the costs associated with the conversion to Year 2000 compliant
computer systems, a task which is substantially completed.
Because we stress cost control, we monitor closely the relationship of
operating costs to income, or our efficiency ratio. For the year ended December
31, 1998, Mercantile Bankshares achieved an efficiency ratio of 46.85%. This
placed us 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.
With surprising speed for an industry that was thought to be bound by
conservative traditions, the old banking models are disappearing. New bank signs
go up and come down; employees attempt to fit into the latest corporate
aggregation; management hires consultants to reinvent their organization and
agencies to advertise the newly manufactured corporate identity. Institutional
continuity is rare.
We at Mercantile Bankshares Corporation will not be reinventing ourselves.
Indeed, we place great value on continuity. As fashions sweep through the
financial services industry, we are asked to consider "opportunities" to expand
our services into volume-driven, commodity products or alter the structure of
our organization. Our response is, "Why should we change our focus when what we
do works?"
Thirty years ago, we organized as a multi-bank holding company. The original
commitment was to the concept of an affiliation of community banks, able to
respond directly to the needs of their communities, but with the ability to
combine resources when necessary to meet more specialized customer requirements
and take advantage of the efficiencies of back-office consolidation. The
structure and operating philosophy have never changed--and the strategy has
served us well.
Continuity adds value for our customers. It is challenging enough to run a
business or manage your personal financial affairs without having to react to
surprising new combinations of banks and bankers. Economic cycles are a fact of
life; the test of a relationship is whether your bank will respond to you in all
kinds of times and over the long haul. That is where a real banking relationship
is forged and that is what we are about.
Employees throughout the affiliate system appreciate the advantages of
institutional continuity. The environment fostered by their locally managed
bank, with its proud traditions, is important to them as they pursue their
careers and relate to their customers.
The communities in which our affiliates operate benefit from a dependable
local bank. Whatever advantages attend big bank mergers, too often they do not
extend to the local civic and charitable organizations that lose the ongoing
support of the merged bank.
We believe that you, our shareholders, have also been served by our
continuity. We cite our financial results to argue that maintaining our
identity our franchise--is an old-fashioned idea with a future.
/s/ H. Furlong Baldwin
H. Furlong Baldwin, Chairman
February 26, 1999
BOARD OF DIRECTORS
In 1998,William C. Richardson resigned from the Board. Dr. Richardson has served
with distinction since joining the Board in 1991. His counsel will be missed.
Calman J. Zamoiski, Jr. reached the Board's mandatory retirement age in 1998.
Mr. Zamoiski joined the Board of Directors in 1978 and has contributed
immeasurably to the progress of the organization in the years since. Because of
his deep understanding of our market and our role in that market, we are
delighted that he has agreed to serve Mercantile Bankshares Corporation as a
Director Emeritus.
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 3
<PAGE>
REVIEW OF SERVICES
The services described here are offered by many other financial institutions.
The difference at Mercantile Bankshares Corporation is a distinctive corporate
structure that permits each affiliate bank to focus on the individuals and
businesses in its own community. Affiliates nurture ongoing customer
relationships enhanced, where appropriate, by the specialized services and
lending capacity provided by the largest affiliate, Mercantile-Safe Deposit &
Trust Company.
SERVICES TO INDIVIDUALS
Personal Banking
Twenty-one locally managed and directed banks, working through 179 banking
offices, deliver deposit, savings and credit services to individuals in their
communities.
In 1998, a centralized Customer Service Center was opened to expedite
response to telephone inquiries. By year end 1999, it will be available to all
affiliates. Callers have a choice: they may take information from the automated
Voice Response Unit, seek specific help from trained personnel who personally
address their questions and concerns, or they may contact directly the customer
service people at their bank.
Home Mortgages
Residential mortgages are made to individuals by our affiliate banks and by our
mortgage banking affiliate, Mercantile Mortgage Corporation. A one-settlement
construction/permanent loan is available to individual home buyers.
Personal Investment Management and Trust Services
Investment management and trust services are provided to individuals and
families by the largest affiliate, Mercantile-Safe Deposit & Trust Company.
When managing a client's assets, either as trustee or agent, our economists
and investment managers focus on value for the long run, based on the client's
risk/return parameters and the mix of assets that will meet each individual
investor's objectives. Where appropriate, there are a variety of mutual funds
from which to choose. In 1998, we completed conversion of our collective,
commingled and mutual funds into one family of 13 mutual funds. M.S.D.&T. Funds
bring with them the advantages of asset diversity as well as enhanced liquidity.
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 family office collection of services for families
with varied and multi-generation account relationships.
Private Banking
The Private Banking Group, with its principal office in Baltimore at
Mercantile-Safe Deposit & Trust Company, has several satellite offices in
Maryland and Virginia; its services are marketed throughout the affiliate
network of banks.
Private Banking offers a single point of contact for individuals with
substantial assets who want a tailor-made and integrated approach to meeting
their deposit, credit, investment management and trust needs. Among those high
net worth people who find Private Banking services beneficial are business
owners, professional people and senior corporate executives.
Private Bankers can coordinate cash flows, arrange investments for short and
long-term funds, or structure credit arrangements, such as Jumbo Mortgages, to
satisfy long-term needs or offset temporary shortfall. All these services are
performed within the context of an overall asset management 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.
4 (LOGO)MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
SERVICES TO BUSINESSES
Lending
General Commercial Lending
With their local knowledge and focus, community banks are well suited to meeting
the traditional credit needs of businesses in their market areas. Banks work
closely with customers to extend credit for general business purposes, such as
working capital, plant expansion or equipment purchases, and for financing
industrial and commercial real estate. Affiliate banks are adept at employing
government guarantee programs, such as those available from the Small Business
Administration, where appropriate.
In addition to supplying credit to the businesses in its own market area,
Mercantile-Safe Deposit & Trust Company works in collaboration with other
affiliates when their customers' credit needs exceed the affiliate bank's
lending limit or when there is a more specialized commercial banking need.
Specialized Lending
When local commercial customers do not qualify for traditional financing, the
Asset-Based Lending Group at Mercantile-Safe Deposit & Trust Company can help
them convert the value of their accounts receivable, inventory and equipment
into cash for operations. Mercantile also works with local banks to arrange more
sophisticated financing in the areas of acquisitions and management buyouts.
Mercantile's Real Estate Industries Group provides land acquisition and
development, construction, and interim lending to investors and developers of
commercial real estate. Mercantile Mortgage Corporation focuses on making loans
for land acquisition, development and construction of single and multi-family
housing.
Mercantile Mortgage is a Fannie Mae Delegated Underwriting and Servicing
approved permanent lender on multi-family projects, one of the few in the
nation.
Cash Management
Cash management, to help businesses collect, transfer and invest their cash, is
centered at Mercantile-Safe Deposit & Trust Company and is available to business
customers at all affiliate banks. These services are useful also to
not-for-profit institutions such as unions, charities and philanthropic
organizations.
In 1998, we augmented existing programs that link businesses to Mercantile's
Cash Management with a service for small business owners. MoneyWorksWin(TM) is
an affordable program that allows a company to access cash management account
information and services through its personal computer.
Leasing
Some commercial customers prefer to lease rather than buy major equipment.
Leasing arrangements, which can be varied and complex, are provided by MBC
Leasing Corp. 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.
Employee Benefit Services
Mercantile-Safe Deposit & Trust Company's Institutional Services group works
with affiliates in all our market areas to help their business customers
establish or enhance their employee retirement and profit sharing plans.
Not-for-profit institutions, such as government entities, charitable
organizations and unions, also use employee benefit services. For example,
Mercantile is trustee for a group trust that focuses on commercial real estate
investments for Taft-Hartley pension plans.
Mercantile provides a range of qualified and non-qualified pension plans,
including daily-valued 401 (k) plans. Plan participants may select investments
from M.S.D.&T. Funds, as well as some of the nation's highest rated mutual fund
families.
Other retirement plan services include plan design and documentation, plan
administration and tax reporting, and employee education.
Investment Management
and Administration of Assets for
Not-for-Profit Institutions
Not-for-profit organizations are of many types; they have in common the need for
an understanding of their special requirements and dependence upon effective
investment management and administration of their funds. Institutional Services
at Mercantile-Safe Deposit & Trust Company provides investment management and
administration to charitable and philanthropic organizations, unions, state and
local governments, and military associations.
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 5
<PAGE>
MANAGEMENT'S DISCUSSION
TOTAL ASSETS
(DOLLARS IN MILLIONS) DECEMBER 31
(A graph appears here. See the table below for plot points.)
'94 '95 '96 '97 '98
$5,938 $6,349 $6,643 $7,171 $7,610
EARNINGS GROWTH
NET INCOME
(DOLLARS IN MILLIONS)
5 YEAR COMPOUND GROWTH RATE: 12.0%
(A graph appears here. See the table below for plot points.)
'94 '95 '96 '97 '98
$90.4 $104.4 $117.4 $132.0 $147.1
BASIC EARNINGS PER SHARE
(IN DOLLARS)
5 YEAR COMPOUND GROWTH RATE: 11.3%
(A graph appears here. See the table below for plot points.)
'94 '95 '96 '97 '98
$1.25 $1.46 $1.64 $1.85 $2.05
Management's Discussion and
Analysis of Financial Condition and Results of Operations
I. Performance Summary
Mercantile Bankshares Corporation ("Mercshares") recorded an 11.4% increase in
net income for 1998, representing the 23rd consecutive year of increased net
income. Net income for Mercshares was $147,128,000 for the year ended December
31, 1998, compared to $132,043,000 and $117,400,000 for the years ended December
31, 1997 and 1996, respectively. Net income per common share for 1998 was $2.05,
compared to $1.85 reported for 1997, an increase of 10.8%. Net income per share
reported for 1996 was $1.64.
The continuing strong earnings growth for 1998 provided for another year of
strong performance as indicated by the industry standards of return on average
assets (ROA) and return on average stockholders' equity (ROE). The 1998 ROA was
2.03% compared to 1.93% and 1.82% for the years ended December 31, 1997 and
1996, respectively. Mercshares' 1998 ROE increased to 15.21% compared to the
14.90% reported for 1997 and 14.48% reported for 1996. The improvement in ROE
was attained without increased leverage of the balance sheet. Average
stockholders' equity to average assets remained a very strong 13.32%, up from
12.98% reported for 1997 and 12.59% for 1996.
Average assets increased by 6.3% to $7,260,800,000, average deposits
increased by 4.9% to $5,715,000,000 and average loans increased by 3.8% to
$5,004,800,000 for the year ended December 31, 1998, compared to the prior year.
During 1998, two banks were added to the Mercshares family of banks. The
affiliation with Marshall National Bank and Trust Company of Marshall, Virginia
was completed in March 1998. Marine Bank of Chincoteague, Virginia was acquired
by Mercshares and merged into an existing affiliate in December 1998. Both
affiliations were accounted for using the purchase method of accounting. The
impact of these acquisitions was not material to the financial totals reported
by Mercshares.
The remaining sections of Management's Discussion and Analysis of Financial
Condition and Results of Operations will provide a more detailed explanation of
the important trends and material changes in components of our financial
statements. The discussion suggests that sustained future earnings growth,
comparable to our experience in recent years, will require, among other things,
efficient generation of loan growth in a competitive market, while maintaining
an adequate spread between yields on earning assets and cost of funds. Our
degree of success in meeting these goals depends on unpredictable factors such
as possible changes in prevailing interest rates, the mix of deposits and
general economic conditions. This discussion and analysis should be read in
conjunction with the consolidated financial statements and other financial
information presented in this report.
II. Analysis of Operating Results
Net Interest Income
Net interest income represents the largest source of Mercshares' revenue. Net
interest income is affected by both changes in the level of interest rates and
changes in the amount and composition of interest-earning assets and
interest-bearing liabilities. The Analysis of Interest Rates and Interest
Differentials on pages 8 and 9 and the Rate/Volume Analysis on page 10 provide
further details supporting this discussion. Net interest income on a fully
taxable equivalent basis was $358,735,000 for 1998, an increase of $18,188,000
or 5.3% over the prior year's $340,547,000. Fully taxable equivalent net
interest income increased by $25,729,000 or 8.2% in 1997 over 1996. As reflected
in the volume variance column of the Rate/Volume Analysis, the 6.2% growth in
average earning assets accounted for the improvement in net interest income for
1998. The increase in 1997 was attributed to a 6.5% increase in
6 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
average earning assets and to an improvement in the net interest margin, which
increased by 7 basis points from the reported 5.17% in 1996.
Interest Income
Fully taxable equivalent interest income amounted to $560,762,000 in 1998
representing an increase of $22,294,000 or 4.1% over $538,468,000 in 1997. The
increase in 1997 over 1996 was $36,092,000 or 7.2%. The yield on average earning
assets in 1998 was 8.13% compared to a yield of 8.29% in 1997 and 8.24% in 1996.
The change in the yield on average earning assets is impacted by the change in
the average prime rate. The prime rate declined from 8 1/2% to 7 3/4% during
1998 and averaged 8 3/8% for 1998 and 1997 and 8 1/4% for 1996. The yield on
average total loans was 8.97% in 1998 compared to 9.08% in 1997 and 9.17% in
1996. The growth in average total loans was 3.8% in 1998 compared to 9.3% in
1997 and 8.1% in 1996. The decline of 11 basis points in the yield on average
total loans is reflective of the decline in the prime rate and the increasingly
competitive markets in which Mercshares' affiliates are competing. Although
there was an 8 basis point decline in the yield on investment securities from
6.05% in 1997 to 5.97% in 1998, the yield on securities still compares favorably
to the average yield on the portfolio of 5.84% in 1996.
Interest Expense
Total interest expense in 1998 was $202,027,000, an increase of $4,106,000 from
$197,921,000 in 1997. The increase in interest expense for 1998 was primarily
attributable to the increase in average interest-bearing deposits, which grew by
2.7%. The average rate paid on interest-bearing deposits decreased 9 basis
points to 3.96% during 1998 from 4.05% in 1997. Overall, the rate paid on total
interest-bearing funds decreased to 4.05% in 1998 from 4.14% in 1997. Total
interest expense in 1997 was $10,363,000 higher than in 1996 due primarily to a
3.4% increase in average interest-bearing deposits.
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 1.04% in 1996 to 1.09% in 1997 and 1.12% in 1998 as
shown in the Analysis of Interest Rates and Interest Differentials on pages 8
and 9. Such benefit is influenced by the relative levels of interest rates as
well as the volume of such funds.
Noninterest Income
Total noninterest income, including investment securities gains or losses, was
$108,693,000 in 1998. This represents an increase of $10,040,000 or 10.2% above
1997. Noninterest income for 1997 was $9,225,000 or 10.3% above 1996. The
increase in 1998 noninterest income was due primarily to the increase in Trust
Division earnings and an increase in fee and service charges from the sale of
bank services and products. These increases were partially offset by a decrease
in other income which included a gain of $1,175,000 on the sale of a bank owned
building during 1997.
Revenues from services provided by the Trust Division, which represents the
largest source of noninterest income, amounted to $58,018,000 for 1998, an
increase of 12.6% or $6,471,000 over 1997. Revenues of $51,547,000 for 1997
represented an increase of $5,303,000 or 11.5% over 1996. At December 31, 1998,
assets under administration by the Trust Division were $39 billion, of which
Mercshares had investment management responsibility for $14 billion. This
compares to 1997 assets under administration of $35 billion and investment
management responsibility of $12 billion. See the discussion under Segment
Reporting for additional information relating to the Trust Division.
INTEREST YIELDS AND RATES
(TAX EQUIVALENT BASIS)
(A graph appears here. See the table below for plot points.)
<TABLE>
<CAPTION>
'94 '95 '96 '97 '98
<S> <C> <C> <C> <C> <C>
Average yield earned on earning assets 7.43% 8.30% 8.24% 8.29% 8.13%
Average rate paid on interest-bearing funds 3.39% 4.21% 4.11% 4.14% 4.05%
</TABLE>
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 7
<PAGE>
ANALYSYS 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>
1998
---------------------------------------------------
Average Income*/ Yield*/
(Dollars in thousands) Balance** Expense Rate
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earning assets
Loans:
Commercial.......................................... $1,787,100 $161,016 9.01%
Mortgage and construction........................... 2,570,400 230,089 8.95
Consumer............................................ 647,300 57,939 8.95
--------- -------
Total loans.................................... 5,004,800 449,044 8.97
--------- -------
Federal funds sold.................................... 177,100 9,387 5.30
Securities purchased under resale agreements.......... 8,100 464 5.69
Securities:
Taxable securities
U.S. Treasury securities......................... 1,650,700 97,642 5.92
U.S. Agency securities........................... 17,900 1,027 5.73
Other stocks and bonds........................... 23,200 2,052 8.86
Tax-exempt securities
States and political subdivisions................ 14,300 1,141 7.96
--------- -------
Total securities............................... 1,706,100 101,862 5.97
--------- -------
Interest-bearing deposits in other banks.............. 100 5 5.10
--------- -------
Total earning assets........................... 6,896,200 560,762 8.13
Cash and due from banks.................................. 214,500
Bank premises and equipment, net......................... 86,200
Other assets............................................. 174,700
Less: allowance for loan losses.......................... (110,800)
---------
Total assets................................... $7,260,800
==========
Interest-bearing liabilities
Deposits:
Savings deposits.................................... $2,264,300 56,720 2.50
Certificates of deposit and other time deposits--
less than $100,000............................... 1,522,700 81,519 5.35
Certificates of deposit--$100,000 and over........... 711,300 39,905 5.61
--------- -------
Total interest-bearing deposits................ 4,498,300 178,144 3.96
Short-term borrowings................................. 439,900 20,800 4.73
Long-term debt........................................ 45,800 3,083 6.73
--------- -------
Total interest-bearing funds................... 4,984,000 202,027 4.05
Noninterest-bearing deposits............................. 1,216,700
Other liabilities and accrued expenses................... 92,800
---------
Total liabilities.............................. 6,293,500
Stockholders' equity..................................... 967,300
---------
Total liabilities and stockholders' equity..... $7,260,800
==========
Net interest income...................................... $358,735
========
Net interest rate spread................................. 4.08%
Effect of noninterest-bearing funds...................... 1.12
----
Net interest margin on earning assets.................... 5.20%
====
Taxable-equivalent adjustment included in:
Loan income........................................... $ 4,525
Investment securities income.......................... 845
-------
Total.......................................... $ 5,370
=======
</TABLE>
* Presented on a tax equivalent basis using the statutory federal corporate
income tax rate of 35%.
** Investment securities average balances reported at amortized cost; excludes
pretax unrealized gains (losses) on securities available-for-sale.
8 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
<TABLE>
<CAPTION>
1997 1996
- ----------------------------------------------------- ------------------------------------------------------
Average Income*/ Yield*/ Average Income*/ Yield
Balance** Expense Rate Balance** Expense Rate*
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1,659,900 $150,866 9.09% $1,438,900 $134,041 9.32%
2,523,900 229,196 9.08 2,348,200 212,636 9.06
637,700 57,767 9.06 624,400 57,853 9.27
--------- ------- --------- -------
4,821,500 437,829 9.08 4,411,500 404,530 9.17
--------- ------- --------- -------
78,700 4,389 5.57 80,300 4,195 5.22
5,400 301 5.63 5,300 325 6.13
1,535,100 92,154 6.00 1,546,900 89,977 5.82
16,100 899 5.59 17,700 957 5.40
22,800 1,879 8.25 17,600 1,270 7.21
13,100 1,012 7.74 14,700 1,115 7.59
--------- ------- --------- -------
1,587,100 95,944 6.05 1,596,900 93,319 5.84
--------- ------- --------- -------
100 5 5.50 100 7 4.64
--------- ------- --------- -------
6,492,800 538,468 8.29 6,094,100 502,376 8.24
------- -------
194,400 206,900
79,900 79,800
164,500 151,900
(102,800) (96,400)
--------- ---------
$6,828,800 $6,436,300
========== ==========
$2,198,800 57,702 2.62 $2,214,700 58,187 2.63
1,467,800 80,289 5.47 1,403,200 79,202 5.64
713,400 39,378 5.52 618,200 33,374 5.40
--------- ------- --------- -------
4,380,000 177,369 4.05 4,236,100 170,763 4.03
353,600 17,220 4.87 292,900 14,199 4.85
49,900 3,332 6.67 39,600 2,596 6.55
--------- ------- --------- -------
4,783,500 197,921 4.14 4,568,600 187,558 4.11
------- -------
1,069,000 982,200
89,900 75,000
--------- ---------
5,942,400 5,625,800
886,400 810,500
--------- ---------
$6,828,800 $6,436,300
========== ==========
$340,547 $314,818
======== ========
4.15% 4.13%
1.09 1.04
---- ----
5.24% 5.17%
==== ====
$ 3,796 $ 3,730
702 507
------- -------
$ 4,498 $ 4,237
======= =======
</TABLE>
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 9
<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) 1998 1997 1996 1998/1997 1997/1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust division services...................$ 58,018 $51,547 $46,244 12.6% 11.5%
Service charges on deposit accounts....... 17,889 16,890 16,234 5.9 4.0
Other fees ............................... 28,884 26,399 24,178 9.4 9.2
Investment securities gains and (losses).. 8 (1,491) 74
Other income.............................. 3,894 5,308 2,698 (26.6) 96.7
-------- ------- ------- ---- ----
Total........................... $108,693 $98,653 $89,428 10.2% 10.3%
======== ======= ======= ==== ====
</TABLE>
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,
1998 vs. 1997 1997 vs. 1996
Due to variances in Due to variances in
--------------------------------------- --------------------------------------
Rate/ Rate/ Rate/
(Dollars in thousands) Total Rates Volumes Volume Total Rates Volumes Volume
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earned on:
Loans:
Commercial (1)........................... $10,150 $ (1,311) $ 11,561 $ (100) $ 16,825 $(3,261) $ 20,587 $(501)
Mortgage & construction (2) ............. 893 (3,269) 4,223 (61) 16,560 605 15,910 45
Consumer ................................ 172 (687) 870 (11) (86) (1,291) 1,232 (27)
Taxable securities (3) .................... 5,789 (1,224) 7,105 (92) 2,728 3,223 (478) (17)
Tax-exempt securities (3) ................. 129 33 93 3 (103) 21 (121) (3)
Federal funds sold/repos .................. 5,161 (217) 5,638 (260) 170 254 (79) (5)
Interest-bearing deposits in other banks .. (2) (2)
-------- -------- -------- ------ -------- ------- -------- -----
Total interest income .............. 22,294 (10,508) 33,455 (653) 36,092 3,027 32,867 198
-------- -------- -------- ------ -------- ------- -------- -----
Interest paid on:
Savings deposits .......................... (982) (2,623) 1,719 (78) (485) (68) (418) 1
Certificates of deposit and other time
deposits less than $100,000 ............. 1,230 (1,709) 3,003 (64) 1,087 (2,447) 3,646 (112)
Certificates of deposit--$100,000 and over 527 645 (116) (2) 6,004 749 5,139 116
Short-term borrowings ..................... 3,580 (501) 4,203 (122) 3,021 65 2,943 13
Long-term debt ............................ (249) 27 (274) (2) 736 48 675 13
-------- -------- -------- ------ -------- ------- -------- -----
Total interest expense ............. 4,106 (4,021) 8,296 (169) 10,363 1,471 8,822 70
-------- -------- -------- ------ -------- ------- -------- -----
Net interest earned .......................... $ 18,188 $ (6,487) $ 25,159 $ (484) $ 25,729 $ 1,556 $ 24,045 $ 128
======== ======== ======== ====== ======== ======= ======== =====
</TABLE>
(1) Tax equivalent adjustments of $3,818,000 for 1998, $3,557,000 for 1997 and
$3,442,000 for 1996 are included in the calculation of commercial loan rate
variances.
(2) Tax equivalent adjustments of $707,000 for 1998, $239,000 for 1997 and
$288,000 for 1996 are included in the calculation of mortgage and
construction loan rate variances.
(3) Tax equivalent adjustments of $845,000 for 1998, $702,000 for 1997 and
$507,000 for 1996 are included in the calculation of investment securities
rate variances.
10 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
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) 1998 1997 1996 1998/1997 1997/1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits ...................... $131,618 $124,563 $120,783 5.7% 3.1%
Net occupancy expense of bank premises .............. 11,570 12,246 11,846 (5.5) 3.4
Furniture and equipment expenses .................... 18,916 20,417 17,645 (7.4) 15.7
Communications and supplies ......................... 12,163 11,804 10,809 3.0 9.2
Amortization of excess cost over equity in affiliates 3,444 2,347 1,975 46.7 18.8
Other expenses ...................................... 41,294 42,027 35,357 (1.7) 18.9
-------- -------- --------
Total ..................................... $219,005 $213,404 $198,415 2.6% 7.6%
======== ======== ======== ==== ====
</TABLE>
Other fees increased by $2,485,000 or 9.4% to $28,884,000 for 1998. During
1997, other fees increased by $2,221,000 or 9.2% to $26,399,000 from $24,178,000
in 1996. The most significant factors relative to the change in the level of
other fees income have been ATM, debit card and credit card processing fees.
These fees accounted for approximately 80% of the total increase in other fees
between 1998 and 1997.
Investment securities gains and losses was the only other category of
noninterest income to reflect a significant change in 1998, as compared to the
prior year. Net investment securities gains of $8,000 for 1998 were more typical
of recent years prior to 1997, which experienced a loss of $1,491,000 for the
year, whereas 1996 recorded a gain of $74,000 for the year.
Noninterest Expenses
Total noninterest expenses were $219,005,000, representing an increase of
$5,601,000 or 2.6% over the prior year level of $213,404,000. In comparison,
1996 total noninterest expenses were $198,415,000. Management continues to focus
on expense control and the efficiency of operations. During 1997, it was
necessary to incur onetime expenses related to the conversion to Year 2000
compliant banking systems. Total noninterest expenses for 1998, excluding Year
2000 related expenses in 1997, increased 4.8% over 1997 expenses. During 1998,
increases in salaries and benefits were partially offset by reductions in
occupancy expense of bank premises and furniture and equipment expenses.
Noninterest expenses for 1997 were 7.6% or $14,989,000 greater than those
recorded in 1996.
A key measure that management monitors is the overall efficiency ratio of
Mercshares, computed by dividing noninterest expenses by the sum of net interest
income on a taxable equivalent basis and noninterest income. Mercshares'
efficiency ratio was 46.9%, 48.5% and 49.0% for the years ended December 31,
1998, 1997, and 1996, respectively. A ratio of 50.0% or less is regarded as
outstanding within the industry. For 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 $131,618,000 in 1998, $7,055,000 or
5.7% over the $124,563,000 expense level for 1997. The combined salaries and
employee benefits expenses for 1997 were up $3,780,000 or 3.1% over the
$120,783,000 reported for 1996. Mercshares' staffing level on a full time
equivalent basis was 2,804 at December 31, 1998, a decrease from 2,889 at
December 31, 1997 and 2,813 reported at December 31,1996. Included in the 1998
total are 62 employees added as a result of the two 1998 affiliations. Employee
benefits expense increased by $2,574,000 or 11.5% during 1998. This increase
over the prior year is primarily attributable to the increase in retirement
benefits due to enhancements made to the employee cash balance retirement plan.
Also included in salaries and employee benefits are Mercshares' Omnibus Stock
Plan expenses, which
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 11
<PAGE>
SOURCES OF INCOME
(DOLLARS IN MILLIONS)
(A bar graph appears here. See the table below for plot points.)
'94 '95 '96 '97 '98
---------------------------------------
Interest and fees on loans 65% 69% 68% 69% 67%
Other interest and dividend income 18% 16% 17% 16% 17%
Trust division 9% 8% 8% 8% 9%
Other income 8% 7% 7% 7% 7%
Total 100% 100% 100% 100% 100%
Total of all sources of income $488.2 $548.2 $587.6 $632.6 $664.1
USES OF INCOME
(DOLLARS IN MILLIONS)
(A bar graph appears here. See the table below for plot points.)
'94 '95 '96 '97 '98
----------------------------------------
Interest expense 29% 33% 32% 31% 30%
Provision for loan losses 1% 1% 2% 2% 2%
Salaries and employee benefits 23% 22% 21% 20% 20%
Other expenses 17% 14% 13% 14% 13%
Applicable income taxes 12% 11% 12% 12% 13%
Net income 18% 19% 20% 21% 22%
Total 100% 100% 100% 100% 100%
Total of all uses of income $488.2 $548.2 $587.6 $632.6 $664.1
amounted to $1,048,000 in 1998 compared to $1,027,000 in 1997 and $1,114,000 for
1996. See Footnote No. 13 to the financial statements for a description of this
plan.
Net occupancy expense decreased $676,000 or 5.5% during 1998 to $11,570,000.
Net occupancy expense was $12,246,000 in 1997 compared to $11,846,000 in 1996.
Total furniture and equipment expenses were $18,916,000, a decrease of
$1,501,000 or 7.4% compared to 1997 expenses of $20,417,000. A significant
amount of the decrease is related to the reduction in conversion to Year 2000
compliant systems expenses compared to similar expenses incurred in 1997. In
comparison, 1996 expenses were $17,645,000.
Other expenses for 1998 totaled $41,294,000, representing a decrease of
$733,000 or 1.7% from the $42,027,000 recorded in 1997. The primary reason for
the favorable variance in 1998 is the decline of $1,950,000 in expenses related
to the Mercshares' Deferred Directors' Fees Program. This expense is directly
related to the change in the market value of Mercshares (MRBK) stock. Other
items contributing to the decrease were non-recurring expenses of $1,000,000 in
1997, primarily associated with the expense of systems conversions and other
Year 2000 related costs. Other expenses totaled $35,357,000 for 1996.
Segment Reporting
Mercshares implemented Statement of Financial Accounting Standards (SFAS) No.
131, Disclosures about Segments of an Enterprise and Related Information, as of
December 31, 1998 as required by the Statement. SFAS No. 131 defines operating
segments as "components of an enterprise for which separate financial
information is available and evaluated regularly by the company's chief
operating decision-maker in allocating resources and assessing performance."
Mercshares has identified two operating components that appear to meet the
disclosure requirements of the Statement- the group of twenty Community Banks
and the lead bank, Mercantile-Safe Deposit and Trust Company (MSD&T), which
consists of the Banking Division and the Trust Division. A schedule disclosing
the details of these operating segments can be found in Footnote No. 15 to the
financial statements.
Net income for the Community Banks for 1998 was $80,229,000 compared to
$74,459,000 and $68,522,000 for 1997 and 1996, respectively. Return on assets
(ROA) has increased over the past three years from 1.65% in 1996 to 1.72% in
1998. The Community Banks have experienced a similar increase in return on
equity (ROE) from 13.82% in 1996 to 14.27% in 1998. MSD&T recorded net income of
$68,845,000 in 1998 compared to $60,560,000 in 1997 and $52,964,000 in 1996. ROA
for MSD&T was 2.50% in 1998 compared to 2.35% in 1997 and 2.23% in 1996. During
the same periods MSD&T recorded ROE of 21.93%, 20.33%, and 18.82%. MSD&T's
performance is enhanced by its Trust Division, which experienced a net income
compound growth rate of 20.2% over the three year period. Net income for the
Trust Division was $13,664,000 in 1998 compared to $10,728,000 and $9,460,000 in
1997 and 1996, respectively. Certain expense amounts have been reclassified from
internal financial reporting in order to provide for full cost absorption in the
data reported herein.
Average assets for the Community Banks increased 7.2% to $4,671,400,000 in
1998 compared to the increase of 4.9% in 1997. Average assets for MSD&T
increased 6.6% to $2,752,200,000 in 1998 compared to an 8.6% increase in 1997.
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 overall management of interest rate risk. At
December 31, 1998, the total investment securities portfolio was $1,907,541,000,
reflecting an increase of $275,918,000 or 16.9% above the prior year's
$1,631,623,000. As in the past, the portfolio is almost exclusively comprised of
short and intermediate-term U.S. Treasury securities; accordingly, 99% of
12 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
Bond Investment Portfolio
The following summary shows the maturity distribution, average maturity and
average yields for the bond investment portfolio at December 31, 1998, 1997 and
1996.
<TABLE>
<CAPTION>
December 31, 1998 December 31, 1997 December 31, 1996
--------------------------------- --------------------------------- --------------------------------
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> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held-to-maturity
States and political
subdivisions:
Within 1 year........... $ 5,086 $ 5,107 6.93% $ 3,585 $ 3,584 7.23% $ 2,904 $ 2,915 7.63%
1-5 years............... 4,010 4,103 7.38 7,246 7,282 7.35 10,240 10,306 7.40
5-10 years.............. 2,789 2,886 7.21 250 264 9.49 407 421 8.73
After 10 years.......... 551 577 7.67
---------- ---------- --------- --------- ---------- ----------
Total.................. $ 12,436 $ 12,673 7.17% $ 11,081 $ 11,130 7.36% $ 13,551 $ 13,642 7.49%
========== ========== ==== ========= ========= ==== ========== ========== ====
Average maturity (years) 3.2 1.6 2.2
========== ========= ==========
Other bonds, notes and
debentures:
After 10 years.......... $ 8 $ 8 7.65% $ 8 $ 8 9.06% $ 7 $ 7 9.05%
---------- ---------- --------- ---------- ---------- ----------
Total.................. $ 8 $ 8 7.65% $ 8 $ 8 9.06% $ 7 $ 7 9.05%
========== ========== ==== ========= ========= ==== ========== ========== ====
Average maturity (years) 18.8 19.8 20.8
========== ========= ==========
Totals:
Within 1 year........... $ 5,086 $ 5,107 6.93% $ 3,585 $ 3,584 7.23% $ 2,904 $ 2,915 7.63%
1-5 years............... 4,010 4,103 7.38 7,246 7,282 7.35 10,240 10,306 7.40
5-10 years.............. 2,789 2,886 7.21 250 264 9.49 407 421 8.73
After 10 years.......... 559 585 7.67 8 8 9.06 7 7 9.05
---------- ---------- --------- ---------- ---------- ----------
Total ................. $ 12,444 $ 12,681 7.17% $ 11,089 $ 11,138 7.36% $ 13,558 $ 13,649 7.49%
========== ========== ==== ========= ========= ==== ========== ========== ====
Average maturity (years) 3.2 1.7 2.3
========== ========= ==========
Securities available-for-sale
U.S. Treasury and other
U.S. government agencies:
Within 1 year........... $ 526,261 $ 529,883 5.96% $ 483,667 $ 484,092 5.81% $ 516,940 $ 517,209 5.82%
1-5 years............... 1,308,674 1,332,099 5.62 1,096,758 1,105,750 6.08 1,066,351 1,064,308 5.95
5-10 years.............. 1,200 1,213 6.84 450 450 6.77
After 10 years..........
---------- ---------- --------- ---------- ---------- ----------
Total.................. $1,836,135 $1,863,195 5.72% $1,580,875 $1,590,292 6.00% $1,583,291 $1,581,517 5.91%
========== ========== ==== ========= ========= ==== ========== ========== ====
Average maturity (years) 1.8 1.8 1.8
========== ========= ==========
States and political
subdivisions:
1-5 years............... $ 802 $ 832 7.85% $ 702 $ 726 8.35%
5-10 years.............. 350 371 9.50
After 10 years.......... 199 202 6.88 30 31 11.92 $ 35 $ 36 11.92%
---------- ---------- --------- ---------- ---------- ----------
Total.................. $ 1,351 $ 1,405 8.14% $ 732 $ 757 8.49% $ 35 $ 36 11.92%
========== ========== ==== ========= ========= ==== ========== ========== ====
Average maturity (years) 5.9 4.4 19.5
========== ========= ==========
Other bonds, notes and
debentures:
Within 1 year........... $ 354 $ 356 6.04% $ 33 $ 33 4.76% $ 573 $ 574 6.35%
1-5 years............... 987 988 5.70 1,546 1,527 5.80 1,998 1,953 6.04
5-10 years.............. 2,134 2,153 5.85 3,113 3,088 5.77 3,156 3,119 5.85
After 10 years.......... 477 488 7.38 1,170 1,170 7.11 1,989 1,980 6.63
---------- ---------- --------- ---------- ---------- ----------
Total.................. $ 3,952 $ 3,985 6.02% $ 5,862 $ 5,818 6.04% $ 7,716 $ 7,626 6.14%
========== ========== ==== ========= ========= ==== ========== ========== ====
Average maturity (years) 7.1 8.0 6.8
========== ========= ==========
Totals:
Within 1 year........... $ 526,615 $ 530,239 5.96% $ 483,700 $ 484,125 5.81% $ 517,513 $ 517,783 5.82%
1-5 years............... 1,310,463 1,333,919 5.63 1,099,006 1,108,003 6.08 1,068,349 1,066,261 5.95
5-10 years.............. 3,684 3,737 6.52 3,563 3,538 5.90 3,156 3,119 5.85
After 10 years.......... 676 690 7.23 1,200 1,201 7.23 2,024 2,016 6.72
---------- ---------- --------- ---------- ---------- ----------
Total.................. $1,841,438 $1,868,585 5.72% $ 1,587,469 $1,596,867 6.00% $1,591,042 $1,589,179 5.91%
========== ========== ==== ========= ========= ==== ========== ========== ====
Average maturity (years) 1.8 1.8 1.9
========== ========= ==========
</TABLE>
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 13
<PAGE>
ALLOWANCE AS A % OF AVERAGE LOANS;
CHARGE-OFFS (NET OF RECOVERIES)
AS A % OF AVERAGE LOANS
(A graph appears here with the following plot points.)
'94 '95 '96 '97 '98
Loan loss allowance
as a % of average loans 2.42% 2.24% 2.22% 2.20% 2.25%
Net charge-offs
as a % of average loans .22% .26% .19% .14% .13%
the total investment portfolio is classified as available-for-sale. At year end
1998, the average maturity of the bond component of the available-for-sale
portfolio was 1.8 years, consistent with the prior year. The market value of the
bond investment portfolio as of December 31, 1998, was 101.5% of adjusted cost
compared to 100.6% at December 31, 1997. At December 31, 1998, $1,741,186,000 of
these investments had unrealized gains of $27,789,000 and the remaining
$112,696,000 of these investment securities had unrealized losses of $405,000.
More information on the investment portfolio is shown in the table on page 13
and in Footnote No. 2 to the financial statements.
Loans
Mercshares experienced moderate growth in loans during 1998. Continuing the
trend of the prior two years, average total loans increased by $183,300,000 or
3.8% to $5,004,800,000 for the year ended December 31, 1998. During 1998,
average loans increased in all three categories: commercial (including
industrial, financial and agricultural); real estate loans (residential and
commercial mortgages and construction loans); and consumer.
Average commercial loans grew 7.7% in 1998 to an average balance of
$1,787,100,000, compared to a growth rate of 15.4% in 1997. Real estate loans
grew 1.8% to an average balance of $2,570,400,000 in 1998, which represents a
decline from the 7.5% growth rate reported in 1997. Growth in both the
commercial and real estate loan portfolios has resulted from, among other
things, increased business opportunities due to consolidation by acquisition of
banks 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 asset growth with an increase of
1.5% in 1998.
While on average the real estate loan portfolio represented over 51% of the
average total loan portfolio, a large portion of this portfolio consists of
loans to individuals on private residences. At December 31, 1998, 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, 1998, were for
owner-occupied properties. Ever mindful of the risks associated with some types
of real estate loans, Mercshares believes it is consistent with sound banking
practices to continue to extend real estate credits to carefully selected
customers. Mercshares' historical charge-off experience for real estate loans,
as reflected in the analysis of the allowance for loan losses on page 15, has
been better than the commercial and consumer portfolio charge-off experience.
For further comparative information on the components of the loan portfolio,
see the Five Year Selected Financial Data table on page 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.
14 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
Allowance for Loan Losses
<TABLE>
<CAPTION>
Year Ended December 31,
- -----------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance balance--beginning........................ $ 106,097 $ 97,718 $ 91,398 $ 91,257 $ 92,567
Allowance of acquired banks........................ 1,434 1,373 2,818
Charge-offs:
Commercial, financial and agricultural.......... (5,710) (2,738) (7,282) (7,867) (4,262)
Real estate--construction........................ (80) (260) (325) (1,134) (2,405)
Real estate--mortgage............................ (1,262) (2,306) (494) (1,476) (1,901)
Consumer........................................ (2,956) (4,047) (4,109) (2,368) (1,961)
---------- ---------- ---------- ---------- ----------
Totals....................................... (10,008) (9,351) (12,210) (12,845) (10,529)
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial, financial and agricultural.......... 1,234 617 1,666 917 729
Real estate--construction........................ 177 29 4 52 224
Real estate--mortgage............................ 634 441 944 225 177
Consumer........................................ 1,366 1,567 1,250 986 1,033
---------- ---------- ---------- ---------- ----------
Totals....................................... 3,411 2,654 3,864 2,180 2,163
---------- ---------- ---------- ---------- ----------
Net charge-offs.................................... (6,597) (6,697) (8,346) (10,665) (8,366)
Provision for loan losses.......................... 11,489 13,703 14,666 7,988 7,056
---------- ---------- ---------- ---------- ----------
Allowance balance--ending........................... $ 112,423 $ 106,097 $ 97,718 $ 91,398 $ 91,257
========== ========== ========== ========== ==========
Average loans outstanding during year.............. $5,004,800 $4,821,500 $4,411,500 $4,079,300 $3,765,200
========== ========== ========== ========== ==========
Percent of net charge-offs to average loans outstanding
during year..................................... .13% .14% .19% .26% .22%
========== ========== ========== ========== ==========
Percent of allowance for loan losses at year-end to
average loans................................... 2.25% 2.20% 2.22% 2.24% 2.42%
========== ========== ========== ========== ==========
</TABLE>
Allocation of Allowance for Loan Losses
The allowance for possible loan losses has been allocated to the various
categories of loans, as required by the Securities and Exchange Commission. This
allocation does not limit the amount of the allowance available to absorb losses
from any type of loan and should not be viewed as an indicator of the specific
amount or specific loan categories in which future charge-offs may ultimately
occur. The tables below present this allocation, along with the percentage
distribution of loan amounts in each category, at the dates shown. For a
historical analysis of the allowance for loan losses, see the paragraph on page
16 for Allowance for Loan Losses.
<TABLE>
<CAPTION>
Allowance amount allocated as of December 31,
- ------------------------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance amount allocated to:
Commercial, financial and agricultural $ 33,100 $ 30,700 $ 27,200 $ 25,400 $ 25,600
Real estate--construction ............ 12,000 12,700 11,700 11,000 10,900
Real estate--mortgage ................ 6,100 5,300 5,100 5,200 5,100
Consumer ............................. 6,000 5,400 5,200 5,300 5,500
Allowance amount not allocated .......... 55,223 51,997 48,518 44,498 44,157
-------- -------- -------- -------- --------
Total .............................. $112,423 $106,097 $ 97,718 $ 91,398 $ 91,257
======== ======== ======== ======== ========
</TABLE>
Composition of Loan Portfolio
<TABLE>
<CAPTION>
December 31,
- ---------------------------------------------------------------------------------------------
1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural 34.1% 32.8% 32.9% 32.4% 33.3%
Real estate--construction ............ 10.4 10.2 8.3 8.5 8.1
Real estate--mortgage ................ 43.3 44.0 45.4 45.0 43.1
Consumer ............................. 12.2 13.0 13.4 14.1 15.5
----- ----- ----- ----- -----
Total ........................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 15
<PAGE>
Allowance for Loan Losses
Each Mercshares affiliate is required to maintain an adequate allowance for loan
losses. Mercshares' senior management and each affiliate's board of directors
maintain a regular overview to assure that adequacy. Periodic review of
significant credit exposures, non-accrual loans and other non-performing assets,
and 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 2.15% at
December 31, 1998, compared to 2.13% at December 31, 1997 and December 31, 1996.
The allowance for loan losses as a percentage of non-performing loans was 528%
at December 31, 1998, 373% at December 31, 1997 and 478% at December 31, 1996.
Mercshares believes that current coverage is adequate and within industry
standards when considered with our usual degree of success in collecting
non-performing loans.
During 1998, the provision for loan loss expense was $11,489,000 compared to
a 1997 expense of $13,703,000. Management believes that the 1998 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, 1998. The
1996 provision for loan losses was $14,666,000.
Net charge-offs declined to $6,597,000 during 1998, down from a total of
$6,697,000 in 1997. Net charge-offs totaled $8,346,000 in 1996. Net charge-offs
as a percentage of average loans were .13%, .14% and .19% for the years ended
December 31, 1998, 1997 and 1996, 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 34% in 1998, 28% in 1997 and 32% in 1996. Recoveries in a given year may
not relate to loans charged off in that year. Further details related to the
allowance for loan losses are shown in the tables on page 15 and in Footnote No.
3 to the financial statements.
Non-Performing Assets
Non-performing assets consist of non-accrual loans, renegotiated loans and other
real estate owned (i.e., real estate acquired in foreclosure or in lieu of
foreclosure). With respect to non-accrual loans, our policy is that, regardless
of the value of the underlying collateral and/or guarantees, no interest is
accrued on the entire balance once either principal or interest payments on any
loan become 90 days past due at the end of a calendar quarter. All accrued and
uncollected interest on such loans is eliminated from the income statement and
is recognized only as collected. A loan may be put on non-accrual status sooner
than this standard if, in management's judgment, such action is warranted.
Non-performing assets (non-accrual loans and other real estate owned), as a
percentage of period end loans and other real estate owned, was .43% at December
31, 1998, compared to .62% and .52% in the two preceding years. At year end
1998, non-performing assets were $22,584,000 compared with $31,083,000 and
$23,773,000 in 1997 and 1996, respectively. Non-performing loans totaled
$21,303,000 at December 31, 1998 compared to $28,456,000 at December 31, 1997
and $20,457,000 in 1996. Mercshares did not have any renegotiated loans during
or at the close of these years.
Other real estate owned decreased by $1,346,000 to $1,281,000 at December 31,
1998, compared to $2,627,000 at December 31, 1997 and $3,316,000 in 1996. These
decreases are attributable to the sale of property obtained through foreclosure
proceedings. Attention is directed to the data in Non-Performing Assets on page
17 which shows the changes in the amounts of various categories of
non-performing assets over the last five years and sets forth the relationship
between non-performing loans and total loans and total allowance for loan
losses.
16 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
Non-Performing Assets
A five-year comparison of non-performing assets is presented below:
<TABLE>
<CAPTION>
December 31,
- ---------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans (1)................. $21,303 $28,456 $20,457 $21,235 $33,645
Renegotiated loans (1)................ 3
Loans contractually past due 90 days
or more and still accruing
interest...........................
------- ------- ------- ------- -------
Total non-performing loans......... 21,303 28,456 20,457 21,235 33,648
Other real estate owned............... 1,281 2,627 3,316 2,858 10,165
------- ------- ------- ------- -------
Total non-performing assets........ $22,584 $31,083 $23,773 $24,093 $43,813
======= ======= ======= ======= =======
Non-performing loans as a percentage of
period end loans................... .41% .57% .45% .49% .85%
Non-performing assets as a percentage of
period end loans and other real estate
owned.............................. .43% .62% .52% .56% 1.11%
Allowance for loan losses as a percentage
of non-performing loans............ 527.73% 372.85% 477.68% 430.41% 271.21%
</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 $2,225,000 and
$3,024,000 in 1998 and 1997 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 $796,000 and $1,404,000 in 1998 and 1997, respectively.
Note: The Corporation was monitoring loans estimated to aggregate $3,906,000 at
December 31, 1998 and $3,662,000 at December 31, 1997, not classified as
non-accrual or renegotiated loans. These loans had characteristics which
indicated they might result in such classification in the future.
Sources of Funds
Mercshares' primary source of funding comes from deposits gathered by the 179
branches of its banking affiliates. Average total deposits were $5,715,000,000,
representing an increase of $266,000,000 or 4.9% over the prior year average of
$5,449,000,000. Average total deposits for 1996 amounted to $5,218,300,000. For
the year ended December 31, 1998, 82.9% of the funding for average earning
assets was derived from deposits. This ratio was 83.9% for 1997 and 85.6% for
1996.
Significant growth for 1998 was recorded in the noninterest-bearing deposit
category. Averaging $1,216,700,000 for the year and representing 21.3% of
average total deposits, this key source of funds grew by 13.8% over the prior
year's average of $1,069,000,000. The average for 1997 was up 8.8% over the 1996
average and represented 19.6% of total average deposits for 1997. The Company
continues to promote 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 1998 grew by a more modest 2.7%
or $118,300,000. Average interest-bearing deposits amounted to $4,498,300,000,
up from the 1997 average of $4,380,000,000. The average for 1997 represented an
increase of 3.4% over 1996's average of $4,236,100,000. Most of the 1998 growth
in interest-bearing deposits was in the area of consumer time deposits and
checking-plus-interest accounts.
Certificates of deposit and other time deposits have increased steadily as
depositors have shifted to this deposit category in order to maintain a higher
yield on their funds. Averaging $2,234,000,000 for the year ended December 31,
1998, certificates of deposit grew by 2.4% from the average of $2,181,200,000
for 1997. The 1997 average was up 7.9% over the 1996 average of $2,021,400,000,
reflecting the above noted shift of funds by depositors.
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 17
<PAGE>
LOAN COMPOSITION AND GROWTH
AVERAGE LOANS (DOLLARS IN MILLIONS)
5 YEAR COMPOUND GROWTH RATE: 6.5%
(A bar graph appears here with the following plot points.)
<TABLE>
<CAPTION>
'94 '95 '96 '97 '98
<S> <C> <C> <C> <C> <C> <C>
Commercial, financial and agricultural 33% 33% 33% 35% 36%
Real estate--construction and mortgage 51% 52% 53% 52% 51%
Consumer 16% 15% 14% 13% 13%
Total 100% 100% 100% 100% 100%
Total average loans $3,765.2 $4,079.3 $4,411.5 $4,821.5 $5,004.8
</TABLE>
Certificates of deposit-$100,000 and over averaged $711,300,000, $713,400,000
and $618,200,000 for the years ended December 31, 1998, 1997 and 1996,
respectively. The average declined slightly in 1998. Growth in this category was
15.4% in 1997 compared to 12.5% in 1996.
Due to the fact that Mercshares' overall growth in average earning assets was
significantly more than the growth in deposits during 1998, it was necessary to
increase average short-term borrowings in order to partially fund this growth.
Short-term borrowings averaged $439,900,000 during 1998, $86,300,000 or 24.4%
greater than the average balance of $353,600,000 in 1997. The 1997 average
balance represented an increase of $60,700,000 or 20.7% more than the average
for 1996.
Another key source of funding is stockholders' equity. Mercshares has
consistently maintained a capital/asset ratio that is greater than its peers as
reported in data furnished by our regulators. Stockholders' equity averaged
$967,300,000 during 1998, which represents an increase of $80,900,000 or 9.1%
greater than the prior year's average. The average was $886,400,000 in 1997, an
increase of 9.4% over 1996's average of $810,500,000. With the growth in average
total assets of 6.3% for 1998, the Company was able to maintain its ratio of
average total stockholders' equity to average total assets at 13.32% for 1998.
This ratio was 12.98% for 1997 and 12.59% for 1996. For a more in-depth
discussion of stockholders' equity and capital adequacy, see page 21 of
Management's Discussion and Footnote No. 9 to the financial statements.
Asset/Liability and Liquidity Management
Asset/liability management involves the funding and investment strategies
necessary to maintain an appropriate balance between interest sensitive assets
and liabilities. It also involves providing adequate liquidity while sustaining
stable growth in net interest income. Regular review and analysis of deposit and
loan trends, cash flows in various categories of loans and monitoring of
interest spread relationships are vital to this process.
Mercshares seeks to contain the risks associated with interest rate
fluctuations by managing the balance between interest sensitive assets and
liabilities. Managing to mitigate interest rate risk is, however, an inexact
science. Not only does the interval until repricing of interest rates of assets
and liabilities change from day to day as the assets and liabilities change but,
for some assets and liabilities, contractual maturity and the actual maturity
experienced are not the same. For example, residential mortgages may have
contractual maturities well in excess of five years but, depending upon the
interest rate carried by the specific mortgages and the then currently
prevailing rate of interest, such mortgages may be prepaid much more rapidly.
Similarly, demand deposits by contract may be withdrawn in their entirety upon
demand and savings deposits may be withdrawn on seven days notice. While these
contracts are extremely short, it has been Mercshares' experience that these
pools of funds, when considered as a whole, have a multi-year duration. As seen
in the Interest Rate Sensitivity Analysis on page 20, asset sensitivity
indicates that, given the composition of assets and liabilities at December 31,
1998, 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.
18 (LOGO)MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
Composition of Earning Assets
<TABLE>
<CAPTION>
Average Balances
- ---------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans....................$5,004,800 72.6% $4,821,500 74.3% $4,411,500 72.4% $4,079,300 71.8% $3,765,200 68.7%
Investment securities*... 1,706,200 24.7 1,587,200 24.4 1,597,000 26.2 1,515,700 26.7 1,700,600 31.1
Federal funds sold....... 177,100 2.6 78,700 1.2 80,300 1.3 62,700 1.1 12,200 .2
Securities purchased under
resale agreements..... 8,100 .1 5,400 .1 5,300 .1 20,000 .4
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total..............$6,896,200 100.0% $6,492,800 100.0% $6,094,100 100.0% $5,677,700 100.0% $5,478,000 100.0%
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
</TABLE>
*Includes interest-bearing deposits in other banks.
<TABLE>
<CAPTION>
Deposit Mix
Average Balances
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing deposits $1,216,700 21.3% $1,069,000 19.6% $982,200 18.8% $888,900 18.3% $890,100 19.0%
Interest-bearing deposits:
Savings, checking plus
interest............. 1,514,600 26.6 1,460,300 26.8 1,451,000 27.8 1,421,000 29.2 1,577,100 33.6
Money market.......... 749,700 13.1 738,500 13.6 763,700 14.6 779,200 16.0 833,300 17.8
CDs and other time deposits
less than $100,000... 1,522,700 26.6 1,467,800 26.9 1,403,200 26.9 1,228,000 25.2 1,052,100 22.4
CDs $100,000
and over............. 711,300 12.4 713,400 13.1 618,200 11.9 549,500 11.3 339,900 7.2
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total.............. $5,715,000 100.0% $5,449,000 100.0% $5,218,300 100.0% $4,866,600 100.0% $4,692,500 100.0%
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
</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, 1998.
<TABLE>
<CAPTION>
Maturing
- --------------------------------------------------------------------------------------------------------------
Over 1
1 year through Over 5
(Dollars in thousands) or less 5 years years Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural.. $692,057 $647,291 $438,363 $1,777,711
Real estate--construction................ 229,189 226,459 89,075 544,723
-------- -------- -------- ----------
Total............................. $921,246 $873,750 $527,438 $2,322,434
======== ======== ======== ==========
</TABLE>
Of the $1,401,188,000 loans maturing after one year, $650,396,000 or 46% have
predetermined interest rates and $750,792,000 or 54% have floating interest
rates.
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 19
<PAGE>
Interest Rate Sensitivity Analysis
<TABLE>
<CAPTION>
At December 31, 1998
- -------------------------------------------------------------------------------------------------------------
Over Over Over
3 months 6 months 1 year Non-
Within thru thru thru After sensitive
(Dollars in millions) 3 months 6 months 1 year 5 years 5 years funds Total
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Securities (1)...................... $ 124.7 $160.9 $247.0 $1,310.8 $ 10.5 $ 53.7 $1,907.6
Federal funds/repos................. 57.6 57.6
Loans............................... 2,640.9 272.2 445.6 1,482.9 379.3 5,220.9
Other assets........................ 423.5 423.5
-------- ------ ------ -------- ------ -------- --------
Total......................... 2,823.2 433.1 692.6 2,793.7 389.8 477.2 7,609.6
-------- ------ ------ -------- ------ -------- --------
LIABILITIES & EQUITY
Money market deposit accounts....... 765.2 765.2
Time deposits....................... 747.7 372.6 449.7 640.7 2.9 2,213.6
Other deposits (2).................. 426.9 2,552.6 2,979.5
Short-term borrowings............... 511.9 511.9
Long-term debt...................... 7.6 32.6 .7 40.9
Other liabilities................... 99.1 99.1
Stockholders' equity................ 999.4 999.4
-------- ------ ------ -------- ------ -------- --------
Total......................... 2,451.7 372.6 457.3 673.3 2,556.2 1,098.5$7,609.6
-------- ------ ------ -------- ------ -------- --------
Excess.............................. $ 371.5 $ 60.5 $235.3 $2,120.4 $(2,166.4)$ (621.3)
======== ======= ====== ======== ========= =========
Accumulated excess.................. $ 371.5 $432.0 $667.3 $2,787.7 $ 621.3
======== ======= ====== ======== =========
Accumulated excess as a percent
of total......................... 4.9% 5.7% 8.8% 36.6% 8.2%
</TABLE>
(1) Includes interest-bearing deposits in other banks.
(2) Reflects behavior experience which often differs from legal withdrawal
provisions.
Another analysis to monitor Mercshares' risk associated with interest rate
fluctuations is the earnings simulation model. This model projects the effects
on net income based on factors such as changes in interest rates, the shape of
the yield curve and interest rate relationships. Within a one-year horizon, the
model forecasts that, compared to the net income projection under stable rates,
net income would increase by 1.1% if interest rates increased by 100 basis
points and that net income would decrease by 1.2% if interest rates decreased by
100 basis points. These results are not necessarily indicative of future actual
results nor do they take into account certain actions that management may
undertake in response to future changes in interest rates.
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 bank for the purpose of making interest rate swaps (hedge
agreements) and similar interest rate protection arrangements in connection with
commercial loans made to MSD&T's customers. This arrangement enables our
customers to eliminate potential volatility of interest rates and associated
risks.
20 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
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, 1998, one customer had entered into such arrangement effective in
January 1999. This hedge agreement will not have a material impact on the
financial performance of Mercshares. Beyond establishing this hedge agreement,
Mercshares has not found it necessary to utilize interest rate swaps or other
derivative instruments to manage 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. 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 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 6.9% to $999,359,000 at year end 1998 from
$935,004,000 at year end 1997, which represented an 11.8% increase from
$836,036,000 at year end 1996. These increases are primarily attributable to
growth in earnings. The increase in 1998 was mitigated somewhat by dividends
paid to shareholders and by Mercshares' stock repurchase program. Book value per
share was $14.07, $13.01 and $11.75 at December 31, 1998, 1997 and 1996,
respectively. The ratio of average equity to average assets was 13.32% in 1998
compared to 12.98% in 1997 and 12.59% in 1996, 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 1998, the Board of Directors authorized repurchase of up to 3,000,000
shares of Mercshares common stock. This followed prior authorization for the
purchase of 9,000,000 shares. Through December 31, 1998, 7,620,000 shares of
common stock were purchased under these programs. At December 31, 1998,
remaining authorization to purchase common stock was 4,380,000 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. See Footnote No. 9 and the
Statement of Changes in Consolidated Stockholders' Equity for details related to
the stock repurchase program.
Various bank regulatory agencies have implemented stringent capital
guidelines which are directly related to a bank's risk-based capital ratios. By
regulatory definition, a "well-capitalized" institution, such as Mercshares,
faces fewer regulatory hindrances in its operations than institutions which are
classified at the other end of the spectrum as
RISK-BASED CAPITAL RATIOS*
REGULATORY TIER ONE MINIMUM: 4%
(A bar graph appears here with the following plot points.)
'94 '95 '96 '97 '98
Tier two 1.3% 1.3% 1.3% 1.3% 1.4%
Tier one 18.3% 17.9% 17.9% 18.1% 17.9%
* Tier one and tier two equity as percentages of risk-adjusted total assets at
December 31.
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 21
<PAGE>
DIVIDENDS PER SHARE
5-YEAR COMPOUND GROWTH RATE: 12.9%
(A bar graph appears here with the following plot points.)
'94 '95 '96 '97 '98
$.49 $.57 $.65 $.77 $.86
"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 21 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 37.
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 commit-ments to extend credit. Refer to Footnote
No. 8 on page 37 for information regarding Mercshares' commitments.
Dividends
For the 22nd consecutive year, the annual dividend paid on common stock exceeded
the prior year's level. Effective with the June 1998 dividend, the quarterly
cash dividend was increased to $0.22 from $0.20 per share. This represents a
10.0% 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 were $0.86 in 1998, $0.77 in 1997
and $0.65 in 1996. Total cash dividends paid were $61,538,000 in 1998,
$55,277,000 in 1997 and $46,579,000 in 1996. The chart appearing on page 23
presents quarterly dividends paid over the last two years.
Acquisitions and Commitments
Commitments for 1998 include plans for approximately $10,000,000 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 35 and 37,
respectively.
Recent FASB Pronouncements
During 1998, the Financial Accounting Standards Board issued several new
Statement of Financial Accounting Standards (SFAS).
SFAS No. 130, Reporting Comprehensive Income, establishes standards for
reporting and display of comprehensive income and its components in financial
statements effective for years beginning after December 15, 1997. Mercshares
implemented SFAS No. 130 for 1998 financial reporting. See Footnote No. 9 for
further information.
SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits, is also effective for years beginning after December
15, 1997. Mercshares implemented this Statement for the year ended December
31,1998. The impact of this Statement is reported in Footnote No. 12 to the
financial statements.
SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities,
was issued in June 1998. This Statement establishes accounting and reporting
standards for derivative instruments and for hedging activities. It requires
that derivatives be recognized as either or liabilities in the statement
of financial position and be measured at fair value. The accounting for changes
in the fair value of a derivative depends on the intended use of the derivative
and whether or not the derivative is designated as a hedging instrument. This
Statement is effective for fiscal years beginning after June 15, 1999 with
initial application in the first quarter of the fiscal year. SFAS No. 133 is not
expected to have a material effect on Mercshares' financial statements.
22 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
Dividends
1998 1997
- --------------------------------------------------------------------------------
Quarter 4th 3rd 2nd 1st 4th 3rd 2nd 1st
- --------------------------------------------------------------------------------
Common dividends.... .22 .22 .22 .20 .20 .20 .20 .17
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*
1998 1997
- --------------------------------------------------------------------------------
Quarter 4th 3rd 2nd 1st 4th 3rd 2nd 1st
- --------------------------------------------------------------------------------
High .. 38 5/8 37 7/8 40 1/4 39 3/4 40 1/4 33 3/4 29 5/16 26 9/16
Low ... 25 1/4 27 1/2 33 1/4 33 29 7/8 26 3/4 22 21 3/16
*The stock of Mercantile Bankshares Corporation is traded on the Nasdaq National
Market under the symbol MRBK. The quotations represent actual transactions.
As of February 28, 1999, there were 9,389 stockholders of record.
SFAS No. 134, Accounting for Mortgage-Backed Securities Retained after the
Securitization of Mortgage Loans Held for Sale by a Mortgage Banking Enterprise,
was issued in October 1998. This Statement amends existing classification and
accounting treatment of mortgage-backed securities, retained after mortgage
loans held for sale are securitized, for entities engaged in mortgage banking
activities. These securities previously were classified and accounted for as
trading and now also may be classified as held-to-maturity or
available-for-sale. This Statement is effective for the first fiscal quarter
beginning after December 15, 1998. SFAS No. 134 is not expected to have a
material effect on the Company's financial statements.
Year 2000 Issues
The information that follows is a "Year 2000 Readiness Disclosure" for purposes
of the Year 2000 Information and Readiness Disclosure Act. The Year 2000 issues
relate 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.
The Corporation began assessing these issues during 1995. The process basically
incorporates an assessment of need, implementation of software modifications or
installation of new software, testing of software and interfaces thereto and
development of contingency plans.
This report focuses primarily on information technology, our computer-based
systems and applications. Non-information technology issues, which involve
embedded technology such as microcontrollers affecting performance of machinery
and equipment, are believed to have been assessed and substantially resolved.
As to information technology, the assessment phase is substantially complete
and the Corporation is actively engaged in the remaining phases. A major part of
this project was completed in 1997, when 18 of 21 banking affiliates converted
to a new integrated Year 2000 compliant banking and general ledger software
system. Two more affiliates were converted during the third quarter of 1998 and
the one remaining affiliate is operating on separate Year 2000 compliant
computer-based systems and software. The Trust accounting software
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 23
<PAGE>
was upgraded to Year 2000 compliant software in October 1998. Compliance
certification testing for the mission critical Banking and Trust systems was
completed in 1998. Of the remaining systems, approximately 92% of the effort is
accomplished. Achievement of fully integrated systems and vendor testing, with
development of contingency plans, is expected in the first half of 1999.
The Corporation has continued formal communications with important vendors,
customers and other third parties regarding their Year 2000 readiness. Vendors
are requested to represent that their products and services will be compliant
and appropriately tested.
A Year 2000 committee has been established to monitor progress in addressing
all aspects of the Year 2000 plan. Formal reports are made to the Audit
Committee of our lead bank affiliate and to the Board of Directors of the
Corporation at their respective quarterly meetings. Progress is also being
monitored by internal and external audit reviews. Management believes that it is
on an appropriate schedule with its Year 2000 plan.
Through 1998, the Corporation has incurred incremental external costs of $9.3
million which it has identified as Year 2000 related. Management does not
anticipate that material additional incremental costs will be incurred in the
completion of its Year 2000 plan.
Cautionary Statement
This annual report contains forward-looking statements within the meaning of and
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. A forward-looking statement encompasses any estimate,
prediction, opinion or statement of belief contained in this report, and the
underlying management assumptions. Concerning Year 2000 issues, our expectations
stated in this report on matters such as the degree of progress and compliance
to be achieved at various times are based on assessments and assumptions that
involve many unpredictable factors including the readiness, compliance,
representations and performance of third parties. Therefore, these statements
should be read with caution. For example, the daily conduct of a banking
business involves interdependence among banks, other financial institutions and
governmental bodies (such as the Federal Reserve System) which will require
mutual readiness for Year 2000, with potentially serious consequences if
readiness is not achieved. In such an environment, while contingency plans can
be effective to some degree, there may not be viable alternatives if systems are
not compliant or if failure occurs. In such a case, the adverse effects on the
Corporation may be material to an unpredictable extent. Additional
forward-looking statements appear in the Letter to Shareholders and in this
Management's Discussion concerning matters such as loan growth, business
strategies and services, adequacy of loan loss allowances, effects of asset
sensitivity and interest rates, dividend payments and impact of FASB
pronouncements. These statements are based on current expectations and
assessments of potential developments affecting market conditions, interest
rates and other economic conditions, and results may ultimately vary from the
statements made in this report.
24 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Shareholders of Mercantile Bankshares Corporation
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income and retained earnings and of cash flows
present fairly, in all material respects, the financial position of Mercantile
Bankshares Corporation (hereafter referred to as the "Company") and its
subsidiaries at December 31, 1998 and 1997, and the results of their operations
and their cash flows for each of the three years in the period ended December
31, 1998, in conformity with generally accepted accounting principles. These
financial statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which 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,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
/s/ PricewaterhouseCoopers LLP
Baltimore, Maryland
January 20, 1999
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 25
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
<S> <C> <C>
(Dollars in thousands, except per share data) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks................................................................ $ 254,994 $ 337,234
Interest-bearing deposits in other banks............................................... 100 100
Investment securities held-to-maturity (1),(2)......................................... 27,079 24,310
Investment securities available-for-sale (1),(2)....................................... 1,880,462 1,607,313
Federal funds sold..................................................................... 57,616 1,452
Securities purchased under resale agreements........................................... 75,000
Loans (3).............................................................................. 5,220,890 4,978,522
Less: allowance for loan losses (1),(3)................................................ (112,423) (106,097)
---------- ----------
Loans, net....................................................................... 5,108,467 4,872,425
---------- ----------
Bank premises and equipment, net (1),(4)............................................... 91,577 82,899
Other real estate owned, net (1)....................................................... 1,281 2,627
Excess cost over equity in affiliated banks, net (1)................................... 50,314 36,230
Other assets........................................................................... 137,673 131,079
---------- ----------
Total.................................................................................. $7,609,563 $7,170,669
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing deposits....................................................... $1,388,378 $1,205,563
Interest-bearing deposits.......................................................... 4,569,968 4,488,348
---------- ----------
Total deposits................................................................... 5,958,346 5,693,911
Short-term borrowings (6).............................................................. 511,945 402,734
Accrued expenses and other liabilities................................................. 98,979 89,004
Long-term debt (7)..................................................................... 40,934 50,016
---------- ----------
Total liabilities................................................................ 6,610,204 6,235,665
---------- ----------
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 71,026,927 shares in 1998 and 71,874,297 shares in 1997......................... 142,054 143,749
Capital surplus........................................................................ 31,357 62,089
Retained earnings...................................................................... 803,568 717,978
Accumulated other comprehensive income................................................. 22,380 11,188
---------- ----------
Total stockholders' equity....................................................... 999,359 935,004
---------- ----------
Total.................................................................................. $7,609,563 $7,170,669
========== ==========
</TABLE>
See notes to consolidated financial statements
26 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
<S> <C> <C> <C>
(Dollars in thousands, except per share data) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans (1).................................... $444,519 $434,033 $400,800
-------- -------- --------
Interest and dividends on investment securities:
Taxable interest income........................................ 98,669 93,053 90,934
Tax-exempt interest income..................................... 689 641 706
Dividends...................................................... 1,311 1,125 609
Other investment income........................................ 348 423 563
-------- -------- --------
101,017 95,242 92,812
-------- -------- --------
Other interest income............................................. 9,856 4,695 4,527
-------- -------- --------
Total interest income........................................ 555,392 533,970 498,139
-------- -------- --------
INTEREST EXPENSE
Interest on deposits (5).......................................... 178,144 177,369 170,763
Interest on short-term borrowings................................. 20,800 17,220 14,199
Interest on long-term debt........................................ 3,083 3,332 2,596
-------- -------- --------
Total interest expense....................................... 202,027 197,921 187,558
-------- -------- --------
NET INTEREST INCOME............................................... 353,365 336,049 310,581
Provision for loan losses (1),(3)................................. 11,489 13,703 14,666
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES............... 341,876 322,346 295,915
-------- -------- --------
NONINTEREST INCOME
Trust division services (1)....................................... 58,018 51,547 46,244
Service charges on deposit accounts............................... 17,889 16,890 16,234
Other fees........................................................ 28,884 26,399 24,178
Investment securities gains and (losses) (2)...................... 8 (1,491) 74
Other income...................................................... 3,894 5,308 2,698
-------- -------- --------
Total noninterest income..................................... 108,693 98,653 89,428
-------- -------- --------
NONINTEREST EXPENSES
Salaries.......................................................... 106,744 102,263 97,538
Employee benefits (12)............................................ 24,874 22,300 23,245
Net occupancy expense of bank premises (1),(4).................... 11,570 12,246 11,846
Furniture and equipment expenses (1),(4).......................... 18,916 20,417 17,645
Communications and supplies....................................... 12,163 11,804 10,809
Amortization of excess cost over equity in affiliates............. 3,444 2,347 1,975
Other expenses.................................................... 41,294 42,027 35,357
-------- -------- --------
Total noninterest expenses................................... 219,005 213,404 198,415
-------- -------- --------
Income before income taxes................................ 231,564 207,595 186,928
Applicable income taxes (1),(10).......................... 84,436 75,552 69,528
-------- -------- --------
NET INCOME.............................................. $147,128 $132,043 $117,400
======== ======== ========
NET INCOME PER SHARE OF COMMON STOCK (9):
BASIC.......................................................... $2.05 $1.85 $1.64
DILUTED........................................................ $2.04 $1.84 $1.64
</TABLE>
See notes to consolidated financial statements
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 27
<PAGE>
STATEMENT OF CONSOLIDATED CASH FLOWS
Increase (decrease) in cash and cash equivalents
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
<S> <C> <C> <C>
(Dollars in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fees on loans........................................ $ 447,023 $ 432,491 $ 401,081
Interest and dividends on investment securities................... 98,338 94,822 92,986
Other interest income............................................. 10,026 4,319 4,581
Noninterest income................................................ 107,217 101,133 85,277
Interest paid..................................................... (205,003) (195,259) (188,272)
Noninterest expenses paid......................................... (201,421) (188,179) (174,884)
Income taxes paid................................................. (86,637) (81,578) (74,719)
--------- --------- ---------
Net cash provided by operating activities.................... 169,543 167,749 146,050
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held-to-maturity 3,766 3,469 1,490
Proceeds from maturities of investment securities available-for-sale 492,634 519,512 630,120
Proceeds from sales of investment securities available-for-sale... 804 34,019 65,434
Purchases of investment securities held-to-maturity............... (1,092) (535) (7,391)
Purchases of investment securities available-for-sale............. (739,275) (543,950) (753,013)
Net increase in customer loans.................................... (180,976) (344,958) (293,255)
Proceeds from sales of other real estate owned.................... 2,593 3,181 3,343
Capital expenditures.............................................. (15,589) (14,109) (10,611)
Proceeds from sales of buildings.................................. 321 6,610
--------- --------- ---------
Net cash used in investing activities........................ (436,814) (336,761) (363,883)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest-bearing deposits...................... 147,448 102,314 107,326
Net increase (decrease) in checking plus interest and savings accounts 123,808 (8,350) (17,911)
Net increase (decrease) in certificates of deposit................ (95,558) 192,503 80,859
Net increase in short-term borrowings............................. 109,211 66,779 55,013
Proceeds from issuance of long-term debt.......................... 25,000
Repayment of long-term debt....................................... (9,082) (79) (1,228)
Proceeds from issuance of shares.................................. 6,712 7,026 5,846
Repurchase of common shares....................................... (67,646) (12,295) (28,578)
Dividends paid.................................................... (61,538) (55,277) (46,579)
--------- --------- ---------
Net cash provided by financing activities.................... 153,355 292,621 179,748
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (1).......... (113,916) 123,609 (38,085)
Cash and cash equivalents at beginning of year.................... 413,786 285,379 323,464
Adjustment for acquired banks..................................... 12,840 4,798
--------- --------- ---------
Cash and cash equivalents at end of year.......................... $ 312,710 $ 413,786 $ 285,379
========= ========= =========
</TABLE>
See notes to consolidated financial statements
28 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
Reconciliation of net income to net cash provided by operating activities
<TABLE>
<CAPTION>
FOR THE YEARS ENDED DECEMBER 31,
<S> <C> <C> <C>
(Dollars in thousands) 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
Net income........................................................ $147,128 $132,043 $117,400
-------- -------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization................................ 8,527 8,268 8,236
Provision for loan losses.................................... 11,489 13,703 14,666
Amortization of excess cost over equity in affiliates........ 3,444 2,347 1,975
Provision for deferred taxes (benefit)....................... (4,439) 1,868 (5,369)
Investment securities (gains) and losses..................... (8) 1,491 (74)
Write-downs of other real estate owned....................... 217 333 230
Gains on sales of other real estate owned.................... (808) (457) (564)
Gains on sales of buildings.................................. (59) (1,382)
(Increase) decrease in interest receivable................... (5) (2,358) 509
(Increase) decrease in other receivables..................... (601) 2,828 (3,513)
(Increase) decrease in other assets.......................... (2,033) 3,539 3,402
Increase (decrease) in interest payable...................... (2,976) 2,662 (714)
Increase in accrued expenses................................. 7,429 10,758 9,688
Increase (decrease) in taxes payable......................... 2,238 (7,894) 178
-------- -------- --------
Total adjustments......................................... 22,415 35,706 28,650
-------- -------- --------
Net cash provided by operating activities......................... $169,543 $167,749 $146,050
======== ======== ========
</TABLE>
See notes to consolidated financial statements
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 29
<PAGE>
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31, 1998, 1997 AND 1996
Accumulated
Other Com-
Common Capital Retained prehensive
(Dollars in thousands, except per share data) Total Stock Surplus Earnings Income
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995.................................... $793,826 $ 96,545 $ 66,107 $620,391 $10,783
Net income.................................................... 117,400 117,400
Unrealized gains (losses) on securities available-for-sale,
net of reclassification adjustment, net of taxes........... (7,985) (7,985)
--------
Comprehensive income.......................................... 109,415
--------
Cash dividends paid:
Common stock ($.65 per share).............................. (46,579) (46,579)
Issuance of 142,929 shares for dividend
reinvestment and stock purchase plan....................... 3,813 287 3,526
Issuance of 24,941 shares for employee stock
purchase dividend reinvestment plan........................ 700 50 650
Issuance of 61,052 shares for employee stock option plan 1,333 122 1,211
Purchase of 1,066,051 shares under stock repurchase plan (28,578) (2,132) (26,446)
Vested stock options ......................................... 2,106 2,106
Transfer to capital surplus................................... 50,000 (50,000)
-------- -------- -------- -------- -------
BALANCE, DECEMBER 31, 1996 ................................... 836,036 94,872 97,154 641,212 2,798
Net income.................................................... 132,043 132,043
Unrealized gains (losses) on securities available-for-sale,
net of reclassification adjustment, net of taxes........... 8,390 8,390
--------
Comprehensive income.......................................... 140,433
--------
Cash dividends paid:
Common stock ($.77 per share).............................. (55,277) (55,277)
Issuance of 119,759 shares for dividend
reinvestment and stock purchase plan....................... 4,129 239 3,890
Issuance of 22,326 shares for employee stock
purchase dividend reinvestment plan........................ 760 45 715
Issuance of 117,233 shares for employee stock option plan 2,171 234 1,937
Purchase of 394,175 shares under stock repurchase plan (12,295) (788) (11,507)
Issuance of 872,374 shares for bank acquisitions.............. 17,967 1,744 16,223
Issuance of 23,701,458 shares for a 3 for 2 stock split (34) 47,403 (47,437)
Vested stock options.......................................... 1,114 1,114
-------- -------- -------- -------- -------
BALANCE, DECEMBER 31, 1997 ................................... 935,004 143,749 62,089 717,978 11,188
Net income.................................................... 147,128 147,128
Unrealized gains (losses) on securities available-for-sale,
net of reclassification adjustment, net of taxes........... 11,192 11,192
--------
Comprehensive income.......................................... 158,320
--------
Cash dividends paid:
Common stock ($.86 per share).............................. (61,538) (61,538)
Issuance of 130,199 shares for dividend
reinvestment and stock purchase plan....................... 4,117 260 3,857
Issuance of 25,718 shares for employee stock
purchase dividend reinvestment plan........................ 866 51 815
Issuance of 107,413 shares for employee stock option plan 1,729 215 1,514
Purchase of 1,911,000 shares under stock repurchase plan (67,646) (3,822) (63,824)
Issuance of 800,300 shares for bank acquisitions.............. 27,480 1,601 25,879
Vested stock options (13)..................................... 1,027 1,027
-------- -------- -------- -------- -------
BALANCE, DECEMBER 31, 1998 (9) ............................... $999,359 $142,054 $ 31,357 $803,568 $22,380
======== ======== ======== ======== =======
</TABLE>
See notes to consolidated financial statements
30 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Significant Accounting Policies
A. Basis of Presentation
The consolidated financial statements include the accounts of Mercantile
Bankshares Corporation ("Mercshares") and all of its affiliates, with all
significant intercompany transactions eliminated. The investment in affiliates
is recorded on the books of the holding company on the basis of its equity in
the net assets of the affiliates. The excess of the cost of Mercshares'
investment over its equity in the net assets of purchased banks is being
amortized on a straight-line basis over a period of 15 to 40 years from the
respective dates of affiliation. Accumulated amortization amounted to
$21,664,000 and $18,220,000 at December 31, 1998 and 1997, 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 1998
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 accumulated other
comprehensive income, 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.
Under Statements of Financial Accounting Standards (SFAS) Nos. 114 and 118,
Accounting by Creditors for Impairment of a Loan, a loan is considered impaired,
based upon current information and events, if it is probable that 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) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 31
<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,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
<S> <C>
1998
--------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
- --------------------------------------------------------------------------------------------
Securities held-to-maturity
U.S. Treasury.......................
U.S. government agencies ...........
States and political subdivisions .. $ 12,436 $237 $ $ 12,673
Other bonds, notes
and debentures .................... 8 8
---------- ---------- -------- ----------
Total bonds ....................... 12,444 237 12,681
Other investments .................. 14,635 14,635
---------- ---------- -------- ----------
Total ............................ $ 27,079 $ 237 $ $ 27,316
========== ========== ======== ==========
Securities available-for-sale
U.S. Treasury....................... $1,819,400 $ 27,255 $ 391 $1,846,264
U.S. government agencies ........... 16,735 196 16,931
States and political subdivisions .. 1,351 54 1,405
Other bonds, notes
and debentures .................... 3,952 47 14 3,985
---------- ---------- -------- ----------
Total bonds ....................... 1,841,438 27,552 405 1,868,585
Other investments .................. 3,216 8,661 11,877
---------- ---------- -------- ----------
Total............................. $1,844,654 $ 36,213 $ 405 $1,880,462
========== ========== ======== ==========
1997
------------------------------------------------
Gross Gross
Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value
- ------------------------------------------------------------------------------------------
Securities held-to-maturity
U.S. Treasury.......................
U.S. government agencies ...........
States and political subdivisions .. $ 11,081 $ 77 $ 28 $ 11,130
Other bonds, notes
and debentures .................... 8 8
---------- ---------- -------- ----------
Total bonds ....................... 11,089 77 28 11,138
Other investments .................. 13,221 13,221
---------- ---------- -------- ----------
Total ............................ $ 24,310 $ 77 $ 28 $ 24,359
========== ========== ======== ==========
Securities available-for-sale
U.S. Treasury....................... $1,562,943 $ 10,366 $895 $1,572,414
U.S. government agencies ........... 17,932 32 86 17,878
States and political subdivisions .. 732 25 757
Other bonds, notes
and debentures .................... 5,862 10 54 5,818
---------- ---------- -------- ----------
Total bonds ....................... 1,587,469 10,433 1,035 1,596,867
Other investments .................. 2,075 8,371 10,446
---------- ---------- -------- ----------
Total............................. $1,589,544 $ 18,804 $1,035 $1,607,313
========== ========== ======== ==========
</TABLE>
32 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
The amortized cost and market values of the bond investment portfolio by
contractual maturity at December 31, 1998 and 1997 are shown below:
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
---------------------- ----------------------
Amortized Market Amortized Market
(Dollars in thousands) Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------
Securities held-to-maturity
Within 1 year........................................... $ 5,086 $ 5,107 $ 3,585 $ 3,584
1-5 years............................................... 4,010 4,103 7,246 7,282
5-10 years.............................................. 2,789 2,886 250 264
After 10 years.......................................... 559 585 8 8
---------- ---------- ---------- ---------
Total ................................................ $ 12,444 $ 12,681 $ 11,089 $ 11,138
========== ========== ========== =========
Securities available-for-sale
Within 1 year........................................... $ 526,615 $ 530,239 $ 483,700 $ 484,125
1-5 years............................................... 1,310,463 1,333,919 1,099,006 1,108,003
5-10 years.............................................. 3,684 3,737 3,563 3,538
After 10 years.......................................... 676 690 1,200 1,201
---------- ---------- ---------- ----------
Total ................................................ $1,841,438 $1,868,585 $1,587,469 $1,596,867
========== ========== ========== ==========
</TABLE>
At December 31, 1998 and 1997, no single issue of investment securities exceeded
ten percent of stockholders' equity.
At December 31, 1998 and 1997, securities with an amortized cost of
$709,218,000 and $586,186,000, 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 1998,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
------------------ -------------------- -------------------
Gross Gross Gross Gross Gross Gross
Realized Realized Realized Realized Realized Realized
(Dollars in thousands) Gains Losses Gains Losses Gains Losses
- --------------------------------------------------------------------------------------------------------
Debt securities
Available-for-sale....... $1,284 $ 2 $14
Non-debt securities
Available-for-sale....... $8 $ $43 250 86
-- -- --- ------ --- ---
Total.................. $8 $ $43 $1,534 $88 $14
== == === ====== === ===
</TABLE>
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 33
<PAGE>
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans at December 31, 1998 and 1997 are as follows:
(Dollars in thousands) 1998 1997
- ----------------------------------------------------------------------------
Commercial....................................... $1,777,711 $1,632,893
Construction..................................... 544,723 508,804
Mortgage......................................... 2,260,217 2,192,122
Consumer......................................... 638,239 644,703
---------- ----------
Total.......................................... $5,220,890 $4,978,522
========== ==========
At December 31, 1998 and 1997, $21,303,000 and $28,456,000 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>
<S> <C>
(Dollars in thousands) 1998 1997 1996
- ----------------------------------------------------------------------------------
Allowance balance at beginning of year...... $ 106,097 $ 97,718 $ 91,398
Allowance of acquired banks................. 1,434 1,373
Charge-offs................................. (10,008) (9,351) (12,210)
Recoveries.................................. 3,411 2,654 3,864
Provision for loan losses................... 11,489 13,703 14,666
-------- -------- ---------
Allowance balance at end of year............ $112,423 $106,097 $ 97,718
======== ======== =========
</TABLE>
Information with respect to impaired loans and the related valuation allowance
(if the measure of the impaired loan is less than the recorded investment) as of
December 31, 1998 and 1997 is shown below. Refer to Note 1C for an expanded
discussion on impaired loans.
<TABLE>
<CAPTION>
<S> <C> <C>
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------
Impaired loans with a valuation allowance........................................... $ 2,152 $ 2,785
Impaired loans with no valuation allowance.......................................... 14,159 20,805
--------- ---------
Total impaired loans.............................................................. $ 16,311 $ 23,590
========= =========
Allowance for loan losses applicable to impaired loans.............................. $ 1,046 $ 1,317
Allowance for loan losses applicable to other than impaired loans................... 111,377 104,780
--------- ---------
Total allowance for loan losses................................................... $ 112,423 $ 106,097
========= =========
Year-to-date interest income on impaired loans recorded on the cash basis........... $ 690 $ 1,207
========= =========
Year-to-date average recorded investment in impaired loans during the period........ $ 21,400 $ 22,600
========= =========
Quarter-to-date interest income on impaired loans recorded on the cash basis........ $ 122 $ 367
========= =========
Quarter-to-date average recorded investment in impaired loans during the period..... $ 20,300 $ 24,300
========= =========
</TABLE>
34 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1998 and 1997 consist of the
following:
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------
Land.................................................. $ 18,267 $ 18,651
Buildings and leasehold improvements.................. 106,356 95,482
Equipment............................................. 57,587 54,011
--------- --------
182,210 168,144
Accumulated depreciation and amortization............. (90,633) (85,245)
--------- --------
Bank premises and equipment, net...................... $ 91,577 $ 82,899
========= ========
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
1998, 1997 and 1996 was:
(Dollars in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
Bank premises*................................ $ 5,111 $ 4,211 $4,108
Equipment/software expense.................... 5,587 6,344 4,465
------- ------- ------
Total rental expense....................... $10,698 $10,555 $8,573
======= ======= ======
*Amounts do not reflect offset for rental income.
At December 31, 1998, the aggregate minimum rental commitments under
noncancelable operating leases are as follows: 1999-$8,770,000; 2000-$7,218,000;
2001-$5,038,000; 2002-$4,272,000; 2003-$3,877,000; thereafter-$10,438,000.
5. DEPOSITS
Included in time deposits are certificates of deposit issued in denominations of
$100,000 or more which totaled $710,743,000 and $744,489,000 at December 31,
1998 and 1997, respectively. Other time deposits issued in denominations of
$100,000 or more totaled $1,000,000 and $1,335,000 at December 31, 1998 and
1997, respectively.
At December 31, 1998, 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, 1998 or less 6 months 12 months months
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
TIME CERTIFICATES OF DEPOSIT--
$100,000 or more.......................... $710,743 $331,041 $103,594 $ 88,315 $ 187,793
======== ======== ======== ======== ==========
Other time deposits--
$100,000 or more.......................... $ 1,000 $ 1,000
======== ========
</TABLE>
Interest on deposits for the years ended December 31, 1998, 1997 and 1996
consists of the following:
<TABLE>
<CAPTION>
<S> <C>
(Dollars in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------------
Savings deposits............................... $ 56,720 $ 57,702 $ 58,187
Certificates of deposit ($100,000 or more)..... 39,905 39,378 33,374
Other time deposits............................ 81,519 80,289 79,202
--------- --------- ---------
Total interest on deposits.................. $ 178,144 $ 177,369 $ 170,763
========= ========= =========
</TABLE>
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 35
<PAGE>
6. SHORT-TERM BORROWINGS
The following table provides selected information on Mercshares' short-term
borrowings and applicable interest rates:
<TABLE>
<CAPTION>
<S> <C>
Year-end During year
----------------- ---------------------------
1998 (Dollars in thousands) Amount Rate Highest Average Rate
- ----------------------------------------------------------------------------------------------------------
Federal funds purchased and securities
sold under repurchase agreements................ $326,496 4.38% $362,452 $287,850 4.65%
Commercial paper................................... 185,074 4.25 185,074 150,616 4.86
Other short-term borrowings........................ 375 4.07 4,341 1,434 6.22
-------- --------
Total......................................... $511,945 4.33% $439,900 4.73%
======== ==== ======== ====
1997 (Dollars in thousands)
- ---------------------------
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%
======== ==== ======== ====
</TABLE>
Other short-term borrowings include notes payable to the U.S. Treasury and
borrowings from the Federal Home Loan Bank. During 1998 and 1997, 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, 1998 were $35,000,000. These lines of credit are paid for
on a fee basis of .09% annually.
7. LONG-TERM DEBT
Long-term debt at December 31, 1998 and 1997 consists of the following:
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------
3% Unsecured debenture.............................. $ 142 $ 190
6.13% Unsecured senior notes........................ 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............................................... 792 826
------- -------
Total long-term debt........................... $40,934 $50,016
======= =======
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 6.45% 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:
1999-$7,551,000; 2000-$7,552,000; 2001-$8,431,000; 2002-$8,300,000;
2003-$8,400,000.
36 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
8. COMMITMENTS
Various commitments to extend credit (lines of credit) are made in the normal
course of banking business. Letters of credit are also issued for the benefit of
customers by affiliated banks. These commitments are subject to loan
underwriting standards and geographic boundaries consistent with Mercshares'
loans outstanding. Mercshares' lending activities are concentrated in Maryland,
Delaware and Virginia.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Total commitments to extend credit at
December 31, 1998, include $2,446,835,000 in adjustable rate loan commitments
and $155,821,000 in fixed rate loan commitments. Fixed rate commitments are at
current market rates with $107,438,000 expiring within one year and the
remaining $48,383,000 expiring on various dates through February 2009. Total
commitments to extend credit at December 31, 1997, included $2,146,596,000 in
adjustable rate loan commitments and $144,945,000 in fixed rate loan
commitments. Fixed rate commitments, at December 31, 1997, were 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.
Standby letters of credit are commitments issued to guarantee the performance
of a customer to a third party. Outstanding letters of credit were $147,378,000
at December 31, 1998 and $130,607,000 at December 31, 1997.
9. STOCKHOLDERS' EQUITY
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 1,056,515 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
892,136 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 12,000,000 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 4,380,353 shares at
December 31, 1998.
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 37
<PAGE>
Cash dividends paid to the holding company (Mercantile Bankshares
Corporation) by its consolidated subsidiaries for the years ended 1998, 1997,
and 1996 were $106,036,000, $97,522,000 and $85,363,000, respectively. The
amount of dividends that Mercshares' affiliates could have paid to the holding
company without approval from bank regulators at December 31, 1998 was
$603,881,000.
Earnings per share
Year-to-date Basic earnings per share (EPS) amounts are based on the weighted
average number of common shares outstanding during the period of 71,662,051
shares for 1998, 71,465,976 shares for 1997 and 71,475,492 shares for 1996. The
following tables provide a reconciliation between the computation of Basic EPS
and Diluted EPS for the years ended December 31, 1998, 1997 and 1996:
Net Common
1998 (In thousands, except per share data) Income Shares EPS
- --------------------------------------------------------------------------------
Basic EPS...................................... $147,128 71,662 $2.05
Effect of dilutive stock options............... 575
-------- ------
Diluted EPS.................................... $147,128 72,237 $2.04
======== ======
Net Common
1997 (In thousands, except per share data) Income Shares EPS
- --------------------------------------------------------------------------------
Basic EPS...................................... $132,043 71,466 $1.85
Effect of dilutive stock options............... 438
-------- ------
Diluted EPS.................................... $132,043 71,904 $1.84
======== ======
Net Common
1996 (In thousands, except per share data) Income Shares EPS
- --------------------------------------------------------------------------------
Basic EPS...................................... $117,400 71,475 $1.64
Effect of dilutive stock options............... 139
-------- ------
Diluted EPS.................................... $117,400 71,614 $1.64
======== ======
Comprehensive Income
As of January 1, 1998, Mercshares adopted the provisions of SFAS No. 130,
Reporting Comprehensive Income. This Statement established standards for
disclosing comprehensive income in financial statements. The following table
summarizes the related tax effect of unrealized gains (losses) on securities
available-for-sale included in other comprehensive income, as shown in the
Statement of Changes in Consolidated Stockholders' Equity on page 30.
<TABLE>
<CAPTION>
1998 1997 1996
--------------------------- ------------------------ ----------------------------
Tax Tax Tax
Pretax (Expense) Net Pretax (Expense) Net Pretax (Expense) Net
(Dollars in thousands) Amount Benefit Amount Amount Benefit Amount Amount Benefit Amount
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Unrealized gains (losses) on
securities available-for-sale:
Unrealized holding gains (losses)
arising during the period..... $18,047 $(6,850) $11,197 $11,919 $(4,430) $7,489 $(12,647) $4,707 $(7,940)
Reclassification adjustment for
(gains) losses included in
net income (8) 3 (5) 1,491 (590) 901 (74) 29 (45)
------- ------- ------- ------- ------- ------ -------- ------ -------
Total........................... $18,039 $(6,847) $11,192 $13,410 $(5,020) $8,390 $(12,721) $4,736 $(7,985)
======= ======= ======= ======= ======= ====== ======== ====== =======
</TABLE>
38 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
Capital adequacy
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 below) of total Tier I capital (as
defined in the regulations) to risk-weighted assets (as defined). Management
believes, as of December 31, 1998, that Mercshares and its bank affiliates
exceed all capital adequacy requirements to which they are subject.
As of December 31, 1998, 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 below.
There are no conditions or events since the last notifications that management
believes have changed the affiliate banks' category.
Actual capital amounts and ratios are also presented in the table below for
Mercshares and Mercantile-Safe Deposit & Trust Co. (the lead bank). No deduction
from capital is required for interest rate risk.
<TABLE>
<CAPTION>
Minimum Level to be
Minimum Level Well Capitalized Under
for Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
--------------- ----------------- -----------------
(Dollars in thousands) Amount Ratio Ratio Ratio
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
As of December 31, 1998:
Total Capital
(as percentage of Risk Weighted Assets):
Mercshares Consolidated ...................... $994,233 19.28% 8.00% (1)
Mercantile-Safe Deposit & Trust Co. .......... $350,759 15.42% 8.00% 10.00%
Tier I Capital
(as percentage of Risk Weighted Assets):
Mercshares Consolidated ...................... $925,282 17.94% 4.00% (1)
Mercantile-Safe Deposit & Trust Co. .......... $322,028 14.16% 4.00% 6.00%
Tier I Capital
(as percentage of Quarter-to-Date Average Assets):
Mercshares Consolidated ...................... $925,282 12.51% 4.00% (1)
Mercantile-Safe Deposit & Trust Co. .......... $322,028 11.33% 4.00% 5.00%
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%
</TABLE>
(1) Mercshares is not subject to this requirement.
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 39
<PAGE>
10. Income Taxes
Applicable income taxes on net income for 1998, 1997 and 1996 consist of the
following:
<TABLE>
<CAPTION>
1998 1997 1996
---------------------- ----------------------- ------------------------
(Dollars in thousands) Federal State Total Federal State Total Federal State Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Current tax expense............... $82,402 $6,473 $88,875 $67,756 $5,928 $73,684 $66,498 $8,399 $74,897
Deferred tax expense (benefit).... (3,545) (894) (4,439) 1,338 530 1,868 (4,338) (1,031) (5,369)
------ ---- ------ ------- ------ ----- ------ ------ ------
Total.......................... $78,857 $5,579 $84,436 $69,094 $6,458 $75,552 $62,160 $7,368 $69,528
======= ====== ======= ======= ====== ======= ======= ====== =======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses...................................... $43,603 $40,638
Accrued employee benefits...................................... 15,324 13,304
Accrued other expenses......................................... 4,534 1,078
Write-downs of other real estate owned......................... 126 348
Other.......................................................... 5,005 824
------ ------
Total deferred tax assets.................................... 68,592 56,192
------ ------
Deferred tax liabilities:
Net unrealized gains on available-for-sale securities.......... 13,430 6,630
Depreciation................................................... 14,273 6,283
Prepaid items.................................................. 171 199
Other.......................................................... 10 11
------ ------
Total deferred tax liabilities............................... 27,884 13,123
------ ------
Net deferred tax assets...................................... $40,708 $43,069
======= =======
</TABLE>
A reconciliation between actual tax expense and taxes computed at the statutory
federal rate of 35% for each of the three years in the period ended December 31,
1998 follows:
<TABLE>
<CAPTION>
1998 1997 1996
---------------- ----------------- -----------------
% of % of % of
Pretax Pretax Pretax
(Dollars in thousands) Amount Income Amount Income Amount Income
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Tax computed at statutory rate.............. $81,047 35.0% $72,658 35.0% $65,425 35.0%
Increases (decreases) in tax resulting from:
Tax-exempt interest income................ (2,663) (1.1) (2,519) (1.2) (2,500) (1.3)
State income taxes, net of Federal
income tax benefit...................... 3,626 1.6 4,200 2.0 4,748 2.5
Other, net................................ 2,426 1.0 1,213 .6 1,855 1.0
------- ---- ------- ---- ------- ----
Actual tax expense...................... $84,436 36.5% $75,552 36.4% $69,528 37.2%
======= ==== ======= ==== ======= ====
</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, 1998 and 1997,
loans to executive officers and directors of Mercshares and its principal
affiliates, including loans to their related interests, totalled $75,506,000 and
$84,066,000, respectively. During 1998, loan additions and loan deletions were
$87,586,000 and $96,146,000, respectively.
40 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
12. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
As of January 1, 1998, Mercshares adopted the provisions of Statement of
Financial Accounting Standards No. 132, Employers' Disclosures about Pensions
and other Postretirement Benefits. This Statement revised the disclosure
requirements for pension and other postretirement benefit plans.
Mercshares sponsors qualified and nonqualified pension plans and other
postretirement benefit plans for its employees. During 1998, there were
amendments made to enhance the pension plans. There is no additional minimum
pension liability required to be recognized. Included in the other
postretirement benefit plans are health care and life insurance. All Mercshares
affiliates have adopted the same health care and life insurance plans, except
for one affiliate which has separate benefit plans. 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. Employees may become eligible for
company paid life insurance benefits if they qualify for retirement while
working for Mercshares.
The following table provides a reconciliation of the changes in the plans'
benefit obligations and fair value of assets for each of the two years in the
period ended December 31, 1998:
<TABLE>
<CAPTION>
Pension Benefits
-----------------------------------------------------------
1998 1997 Other Benefits
---------------------------- ---------------------------- -------------------
Non- Non-
(Dollars in thousands) Qualified qualified Total Qualified qualified Total 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year $97,945 $2,112 $100,057 $90,039 $ 1,555 $ 91,594 $ 10,293 $ 10,071
Service cost .................................... 3,416 183 3,599 2,988 162 3,150 129 131
Interest cost ................................... 7,457 171 7,628 6,537 145 6,682 698 731
Plan participants' contributions ................ 494 476
Amendments ...................................... 9,317 266 9,583
Actuarial (gain) loss ........................... 10,105 225 10,330 847 365 1,212 (476) 52
Acquisition ..................................... 1,759 1,759
Benefits paid ................................... (5,115) (33) (5,148) (4,225) (115) (4,340) (1,204) (1,168)
------ --- ------ ------ ---- ------ ------ ------
Benefit obligation at end of year ............... 123,125 2,924 126,049 97,945 2,112 100,057 9,934 10,293
------ --- ------ ------ ---- ------ ------ ------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of year .. 108,108 108,108 90,691 90,691
Actual return on plan assets .................... 13,953 13,953 19,497 19,497
Acquisition ..................................... 2,145 2,145
Employer contribution ........................... 33 33 115 115 710 692
Plan participants' contributions ................ 494 476
Benefits paid ................................... (5,115) (33) (5,148) (4,225) (115) (4,340) (1,204) (1,168)
------ --- ------ ------ ---- ------ ------ ------
Fair value of plan assets at end of year ........ 116,946 116,946 108,108 108,108
------ --- ------ ------ ---- ------ ------ ------
Funded status ................................... (6,179) (2,924) (9,103) 10,163 (2,112) 8,051 (9,934) (10,293)
Unrecognized net actuarial (gain) loss .......... (6,126) 625 (5,501) (10,766) 425 (10,341) (448) 8
Unrecognized prior service cost ................. 8,118 186 8,304 (350) (65) (415)
Unrecognized transition asset ................... (2,082) 589 (1,493) (2,777) 688 (2,089)
------ --- ------ ------ ---- ------ ------ ------
Prepaid (accrued) benefit cost .................. $(6,269) $(1,524) $(7,793) $(3,730) $(1,064) $(4,794) $(10,382) $(10,285)
======= ======= ======= ======= ======= ======= ======== ========
</TABLE>
The following table provides the components of net periodic benefit cost for
the pension plans for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Pension Benefits
----------------------------------------------------------------------------------------
1998 1997 1996
--------------------------- ---------------------------- -----------------------------
Non- Non- Non-
(Dollars in thousands) Qualified qualified Total Qualified qualified Total Qualified qualified Total
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Service cost ....................... $ 3,416 $ 183 $ 3,599 $ 2,988 $ 162 $ 3,150 $ 2,906 $ 96 $ 3,002
Interest cost ...................... 7,457 171 7,628 6,537 145 6,682 6,002 106 6,108
Expected return on plan assets ..... (8,488) (8,488) (7,247) (7,247) (6,519) (6,519)
Amortization of prior service cost . 849 15 864 73 (7) 66 73 (7) 66
Recognized net actuarial (gain) loss 25 25 21 21
Amortization of transition asset ... (695) 99 (596) (695) 99 (596) (695) 99 (596)
------- ------- ------- ------- ------- ------- ------- ------- -------
Net periodic benefit cost .......... $ 2,539 $ 493 $ 3,032 $ 1,656 $ 420 $ 2,076 $ 1,767 $ 294 $ 2,061
======= ======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 41
<PAGE>
The following table provides the components of net periodic benefit cost for
the other postretirement benefit plans for 1998, 1997 and 1996:
<TABLE>
<CAPTION>
Other Benefits
----------------------------------
(Dollars in thousands) 1998 1997 1996
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost.................................. $ 129 $ 131 $127
Interest cost................................. 698 731 725
Expected return on plan assets................
Amortization of prior service cost............ (140)
Recognized net actuarial (gain) loss.......... (20) (14) 24
Amortization of transition asset.............. 110
----- ----- ----
Net periodic benefit cost..................... $ 807 $ 848 $846
===== ===== ====
</TABLE>
The assumptions used in the measurement of the benefit obligation are shown
in the following table:
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
---------------- --------------
As of December 31, 1998 1997 1998 1997
- --------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount rate.......................................... 6.50% 7.00% 6.50% 7.00%
Expected return on plan assets......................... 8.00% 8.00% N/A N/A
Rate of compensation increase.......................... 4.50% 4.50% 4.50% 4.50%
</TABLE>
For measurement purposes, a 5.6% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1999. The rate was assumed
to decrease gradually to 4.0% for 2000 and remain at that level thereafter.
Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A one-percentage-point change in assumed
health care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1-Percentage- 1-Percentage-
Point Increase Point Decrease
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components... $ 47 $ (43)
Effect on postretirement benefit obligation............... $ 523 $ (468)
</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
1998, 1997 and 1996 follows:
<TABLE>
<CAPTION>
Options issued Weighted average
and outstanding exercise price
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
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
Granted ..................................................... 20,500 32.354
Terminated/forfeited......................................... (45,814) 14.583
Exercised.................................................... (110,309) 14.775
----------
Balance, December 31, 1998................................... 1,184,429 15.498
==========
Options exercisable at December 31, 1998 .................... 1,069,872 15.255
</TABLE>
42 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
At December 31, 1998, the exercise price of options outstanding ranged from
$14.583 to $35.25 and the weighted average remaining contractual life of the
options outstanding was 6.4 years. The weighted average fair value of options
granted during 1998, 1997 and 1996 was $9.77, $12.45 and $7.97, respectively.
Compensation cost associated with the options granted and expected to vest for
1998, 1997 and 1996 was $1,048,000, $1,027,000 and $1,114,000, respectively.
The weighted average fair value of all of the options granted 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 2.6% to 3.5%; (d) weighted average expected
term of 4.3 years; (e) weighted average risk-free interest rate of 5.0% to 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,
the 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 1998, the Corporation completed its affiliation with Marshall National Bank
and Trust Company, Marshall, Virginia (Marshall) in a tax-free exchange of
stock. Shareholders of Marshall received 675,798 shares of Mercshares common
stock for the 386,170 shares of Marshall common stock and cash in lieu of any
fractional share. Also in 1998, Mercshares announced and completed its
affiliation with Marine Bank, a wholly-owned subsidiary of Marine BanCorp, in a
tax-free exchange of stock. Shareholders of Marine BanCorp received 124,620
shares of Mercshares common stock for the 166,160 shares of Marine BanCorp
common stock and cash in lieu of any fractional share. Marine Bank was merged
into Farmers & Merchants Bank --Eastern Shore, a Mercshares affiliate. Both the
Marshall and Marine Bank affiliations were accounted for as purchases.
The results of operations of Marshall and Marine Bank subsequent to the dates
of affiliation are included in Mercshares' Statement of Consolidated Income. The
results of operations of Marshall and Marine Bank prior to the dates of
affiliation are not material to Mercshares' results of operations.
15. Segment Reporting
In 1998, Mercshares adopted the provisions of Statement of Financial Accounting
Standards No. 131, Disclosures about Segments of an Enterprise and Related
Information. This Statement establishes standards for reporting information
about operating segments. Segments and the information reported on them are
determined by using existing internal reporting levels and data that management
relies on for decision making and performance assessment.
Mercshares has determined that it has two reportable segments: its twenty
Community Banks and Mercantile-Safe Deposit & Trust Company (MSD&T) which
consists of the Banking Division and the Trust Division. The Community Banks
operate in smaller geographic areas as compared to MSD&T which operates in a
large metropolitan area. The accounting policies of the segments are the same as
those described in Footnote No. 1. However, the segment data reflects
intersegment transactions and balances.
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 43
<PAGE>
The following tables present selected segment information for the years ended
December 31, 1998, 1997 and 1996. The components in the "Other" column consist
of amounts for the nonbank affiliates and intercompany eliminations. Certain
expense amounts have been reclassified from internal financial reporting in
order to provide for full cost absorption. These reclassifications are shown in
the "Adjustments" line.
<TABLE>
<CAPTION>
MSD&T- MSD&T- Total Community
1998 (Dollars in thousands) Banking Trust MSD&T Banks Other Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income................. $ 118,872 $ 118,872 $ 233,728 $ 765 $ 353,365
Provision for loan losses........... (3,001) (3,001) (8,488) (11,489)
Noninterest income.................. 25,159 $ 57,258 82,417 35,138 (8,862) 108,693
Noninterest expenses ............... (68,811) (32,321) (101,132) (123,796) 5,923 (219,005)
Adjustments......................... 14,172 (2,164) 12,008 (10,984) (1,024)
------ ------ ------ ------- ------ -------
Income (loss) before income taxes... 86,391 22,773 109,164 125,598 (3,198) 231,564
Income tax (expense) benefit........ (31,210) (9,109) (40,319) (45,369) 1,252 (84,436)
------- ------ ------- ------- ----- -------
Net income (loss)................... $ 55,181 $ 13,664 $ 68,845 $ 80,229 $ (1,946) $ 147,128
========= ======== ========== ========== ========== ==========
Average assets...................... $2,752,200 $4,671,400 $ (162,800) $7,260,800
Average equity...................... 313,900 562,200 91,200 967,300
</TABLE>
<TABLE>
<CAPTION>
MSD&T- MSD&T- Total Community
1997 (Dollars in thousands) Banking Trust MSD&T Banks Other Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income................. $ 114,421 $ 114,421 $ 221,186 $ 442 $ 336,049
Provision for loan losses........... (4,899) (4,899) (8,804) (13,703)
Noninterest income.................. 23,187 $ 50,858 74,045 31,264 (6,656) 98,653
Noninterest expenses ............... (68,685) (29,898) (98,583) (118,079) 3,258 (213,404)
Adjustments......................... 12,687 (3,080) 9,607 (8,655) (952)
------ ------ ------- ------- ---- ---------
Income (loss) before income taxes... 76,711 17,880 94,591 116,912 (3,908) 207,595
Income tax (expense) benefit........ (26,879) (7,152) (34,031) (42,453) 932 (75,552)
------- ------ ------- ------- ---------- -------
Net income (loss)................... $ 49,832 $ 10,728 $ 60,560 $ 74,459 $ (2,976) $ 132,043
========= ======== ========== ========== ========== ==========
Average assets...................... $2,582,300 $4,359,400 $ (112,900) $6,828,800
Average equity...................... 297,900 523,400 65,100 886,400
</TABLE>
<TABLE>
<CAPTION>
MSD&T- MSD&T- Total Community
1996 (Dollars in thousands) Banking Trust MSD&T Banks Other Total
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income................. $ 104,802 $ 104,802 $ 207,341 $ (1,562) $ 310,581
Provision for loan losses........... (5,090) (5,090) (9,576) (14,666)
Noninterest income.................. 22,528 $ 45,817 68,345 28,566 (7,483) 89,428
Noninterest expenses ............... (65,652) (27,066) (92,718) (111,761) 6,064 (198,415)
Adjustments......................... 12,050 (2,985) 9,065 (7,360) (1,705)
--------- -------- ---------- ---------- ---------- ----------
Income (loss) before income taxes... 68,638 15,766 84,404 107,210 (4,686) 186,928
Income tax (expense) benefit........ (25,134) (6,306) (31,440) (38,688) 600 (69,528)
--------- -------- ---------- ---------- ---------- ----------
Net income (loss)................... $ 43,504 $ 9,460 $ 52,964 $ 68,522 $ (4,086) $ 117,400
========= ======== ========== ========== ========== ==========
Average assets...................... $2,378,800 $4,157,000 $ (99,500) $6,436,300
Average equity...................... 281,400 495,700 33,400 810,500
</TABLE>
44 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
16. Quarterly Results of Operations (Unaudited)
The following is a summary of the unaudited quarterly results of operations:
<TABLE>
<CAPTION>
Three months ended
- -------------------------------------------------------------------------------------------------------------
1998 (Dollars in thousands, except per share data) Dec. 31 Sept. 30 June 30 March 31
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income............................................ $89,583 $89,727 $88,648 $85,407
Provision for loan losses...................................... 3,014 2,849 3,138 2,488
Net income..................................................... 37,785 37,264 36,560 35,519
Per share of common stock:
Basic....................................................... .53 .52 .51 .49
Diluted..................................................... .53 .52 .50 .49
</TABLE>
<TABLE>
<CAPTION>
Three months ended
- -------------------------------------------------------------------------------------------------------------
1997 (Dollars in thousands, except per share data) Dec. 31 Sept. 30 June 30 March 31
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <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>
17. 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, 1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1998 1997
------------------------- --------------------------
Book Fair Book Fair
(Dollars in thousands) Value Value Value Value
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Cash and short-term investments $ 312,710 $ 312,710 $ 413,786 $ 413,786
Investment securities .......... 1,907,541 1,907,778 1,631,623 1,631,672
Loans .......................... 5,220,890 4,978,522
Less: allowance for loan losses (112,423) (106,097)
--------- -----------
Loans, net ................ 5,108,467 5,221,316 4,872,425 4,951,233
--------- ----------- ----------- -----------
Total financial assets .... $ 7,328,718 $ 7,441,804 $ 6,917,834 $ 6,996,691
=========== =========== =========== ===========
Liabilities
Deposits ....................... $ 5,958,346 $ 5,968,154 $ 5,693,911 $ 5,706,744
Short-term borrowings .......... 511,945 511,945 402,734 402,734
Long-term debt ................. 40,934 42,550 50,016 48,156
--------- --------- --------- ---------
Total financial liabilities $ 6,511,225 $ 6,522,649 $ 6,146,661 $ 6,157,634
=========== =========== =========== ===========
</TABLE>
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 45
<PAGE>
The following methods and assumptions were used to estimate the fair value
disclosures for financial instruments as of December 31, 1998 and 1997:
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) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
18. Mercantile Bankshares CorporaTion (Parent Corporation Only) Financial
Information
Balance Sheets
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands, except per share data) 1998 1997
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash................................................................... $ 6,221 $ 4,160
Investment in bank affiliates.......................................... 914,836 846,649
Investment in bank-related affiliates.................................. 17,489 16,652
Interest-bearing deposits with bank affiliate.......................... 16,000 51,000
Securities purchased under resale agreements with bank affiliate....... 185,074 168,693
Loans and advances to affiliates....................................... 39,300 33,370
Investment securities available-for-sale............................... 3,126 2,038
Excess cost over equity in affiliates.................................. 50,314 36,230
Other assets........................................................... 547 926
---------- ----------
Total.............................................................. $1,232,907 $1,159,718
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Commercial paper..................................................... $ 185,074 $ 168,693
Accounts payable and other liabilities............................... 8,474 7,021
Long-term debt....................................................... 40,000 49,000
------ ------
Total liabilities.................................................. 233,548 224,714
------- -------
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 71,026,927 shares in 1998 and 71,874,297 shares in 1997 .... 142,054 143,749
Capital surplus...................................................... 31,357 62,089
Retained earnings.................................................... 803,568 717,978
Accumulated other comprehensive income............................... 22,380 11,188
------ ------
Total stockholders' equity......................................... 999,359 935,004
------- -------
Total............................................................ $1,232,907 $1,159,718
========== ==========
</TABLE>
Statement of Income
<TABLE>
<CAPTION>
(Dollars in thousands)
- -------------------------------------------------------------------------------------------------------------
For the Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Dividends from bank affiliates............................................ $ 104,476 $ 96,091 $ 84,072
Dividends from bank-related affiliates.................................... 1,560 1,431 1,291
Interest on interest-bearing deposits with bank affiliate................. 2,390 2,212 849
Interest on securities purchased under resale agreements
with bank affiliate 7,191 7,004 6,019
Interest on loans to affiliates........................................... 1,564 1,233 801
Other income.............................................................. 104 51 31
------- ------- ------
Total income.......................................................... 117,285 108,022 93,063
------- ------- ------
Expenses
Amortization of excess cost over equity in affiliates..................... 3,444 2,347 1,975
Interest on short-term borrowings......................................... 7,321 7,004 6,388
Interest on long-term debt................................................ 3,016 3,268 2,546
Other expenses............................................................ 3,531 3,938 2,875
----- ----- -----
Total expenses........................................................ 17,312 16,557 13,784
------ ------ ------
Income before income tax benefit and equity in
undistributed net income of affiliates.................................. 99,973 91,465 79,279
Income tax (benefit)...................................................... 537 (424) (372)
-------- -------- --------
99,436 91,889 79,651
Equity in undistributed net income of:
Bank affiliates......................................................... 46,856 39,667 37,129
Bank-related affiliates................................................. 836 487 620
-------- -------- --------
Net Income............................................................ $147,128 $132,043 $117,400
======== ======== ========
</TABLE>
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 47
<PAGE>
18. Mercantile Bankshares Corporation (Parent Corporation Only) Financial
Information (cont.)
Statement of Cash Flows
<TABLE>
<CAPTION>
(Dollars in thousands)
Increase (decrease) in cash and cash equivalents -----------------------------
For the Years Ended December 31, 1998 1997 1996
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Dividends from affiliates..................................................... $106,036 $ 97,522 $ 85,363
Interest on securities purchased under resale agreements with bank affiliate.. 7,191 7,004 6,019
Interest on loans to affiliates............................................... 1,607 1,157 604
Other income.................................................................. 3,856 3,025 3,576
Interest paid................................................................. (10,589) (10,272) (8,934)
Other expenses................................................................ (1,425) 664 (1,409)
Income taxes (paid) benefit................................................... (1,125) (48) (951)
-------- -------- --------
Net cash provided by operating activities................................. 105,551 99,052 84,268
-------- -------- --------
Cash Flows from Investing Activities:
Net increase in loans to affiliates........................................... (5,930) (14,370) (5,000)
Net increase in other investments............................................. (1,088) (1,038) (250)
Investment in affiliates...................................................... (1,910)
-------- -------- --------
Net cash used in investing activities..................................... (7,018) (17,318) (5,250)
-------- -------- --------
Cash Flows from Financing Activities:
Net increase (decrease) in commercial paper................................... 16,381 52,013 (8,800)
Proceeds from issuance of long-term debt...................................... 25,000
Repayment of long-term debt................................................... (9,000)
Proceeds from issuance of shares.............................................. 6,712 7,026 5,846
Repurchase of common shares................................................... (67,646) (12,295) (28,578)
Dividends paid................................................................ (61,538) (55,277) (46,579)
-------- -------- --------
Net cash used in financing activities..................................... (115,091) (8,533) (53,111)
-------- ------ -------
Net increase (decrease) in cash and cash equivalents.......................... (16,558) 73,201 25,907
Cash and cash equivalents at beginning of year................................ 223,853 150,652 124,745
-------- -------- --------
Cash and cash equivalents at end of year...................................... $207,295 $223,853 $150,652
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
(Dollars in thousands)
Reconciliation of net income to net cash provided by operating activities ----------------------------
For the Years Ended December 31, 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income.................................................................... $147,128 $132,043 $117,400
-------- -------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in undistributed net income of affiliates............................ (47,692) (40,154) (37,749)
Amortization of excess cost over equity in affiliates....................... 3,444 2,347 1,975
(Increase) decrease in interest receivable.................................. 43 (76) (197)
Decrease in other receivables............................................... 1,362 762 2,696
Decrease in interest payable................................................ (253)
Increase in accrued expenses................................................ 2,107 4,602 1,466
Decrease in taxes payable................................................... (588) (472) (1,323)
-------- -------- --------
Total adjustments......................................................... (41,577) (32,991) (33,132)
-------- -------- --------
Net cash provided by operating activities..................................... $105,551 $ 99,052 $ 84,268
======== ========= ========
</TABLE>
48 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
Five Year Selected Financial Data
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands, except per share data) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net Interest Income.......................... $ 353,365 $ 336,049 $ 310,581 $ 286,788 $ 262,956
========= ========= ========= ========== =========
Net Income................................... $ 147,128 $ 132,043 $ 117,400 $ 104,432 $ 90,441
========= ========= ========= ========== ========
Net Income Per Share of common stock
Basic........................................ $2.05 $1.85 $1.64 $1.46 $1.25
Diluted...................................... $2.04 $1.84 $1.64 $1.46 $1.25
Total assets................................. $7,609,563 $7,170,669 $6,642,681 $6,349,103 $5,938,225
========== ========== ========== ========== ==========
Long-term debt............................... $ 40,934 $ 50,016 $ 49,395 $ 25,623 $ 31,470
========== ======== ======== ========= ========
Provision for loan losses.................... $ 11,489 $ 13,703 $ 14,666 $ 7,988 $ 7,056
========== ======== ======== ========= =======
Per share cash dividends
Common....................................... $..86 $.77 $.65 $.57 $.49
Cash dividends declared and paid
On common stock.............................. $ 61,538 $ 55,277 $ 46,579 $ 41,013 $ 34,982
Year end loan data
Commercial, financial and agricultural....... $1,777,711 $1,632,893 $1,506,662 $1,393,145 $1,311,064
Real estate-construction..................... 544,723 508,804 380,007 363,570 318,531
Real estate-mortgage:
Commercial................................. 1,227,565 1,178,728 1,087,434 965,640 832,290
1-4 family residential..................... 1,032,652 1,013,394 993,953 969,235 866,004
Home equity lines............................ 147,330 156,603 144,284 130,934 132,512
Consumer..................................... 490,909 488,100 470,372 478,746 477,694
------- ------- ------- ------- -------
Total loans.............................. 5,220,890 4,978,522 4,582,712 4,301,270 3,938,095
Less:
Allowance for loan losses.................. (112,423) (106,097) (97,718) (91,398) (91,257)
-------- -------- ------- ------- -------
Loans, net............................... $5,108,467 $4,872,425 $4,484,994 $4,209,872 $3,846,838
========== ========== ========== ========== ==========
</TABLE>
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 49
<PAGE>
Five Year Statistical Summary
<TABLE>
<CAPTION>
Years Ended December 31,
(Dollars in thousands) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Average balance sheet statistics
Average loans:
Commercial (including time & demand) loans.. $1,787,100 $1,659,900 $1,438,900 $1,351,600 $1,235,800
Mortgage and construction loans............ 2,570,400 2,523,900 2,348,200 2,116,400 1,927,800
Consumer loans............................. 647,300 637,700 624,400 611,300 601,600
------- ------- ------- ------- -------
Total loans.............................. 5,004,800 4,821,500 4,411,500 4,079,300 3,765,200
--------- --------- --------- --------- ---------
Federal funds sold........................... 177,100 78,700 80,300 62,700 12,200
Securities purchased under resale agreements. 8,100 5,400 5,300 20,000
Average securities:
U.S. government obligations................ 1,668,600 1,551,200 1,564,600 1,491,900 1,675,900
States and political subdivisions.......... 14,300 13,100 14,700 13,500 14,100
Other investments*......................... 23,300 22,900 17,700 10,300 10,600
------ ------ ------ ------ ------
Total securities......................... 1,706,200 1,587,200 1,597,000 1,515,700 1,700,600
--------- --------- --------- --------- ---------
Total earning assets................... $6,896,200 $6,492,800 $6,094,100 $5,677,700 $5,478,000
========== ========== ========== ========== ==========
Average deposits:
Noninterest-bearing deposits............... $1,216,700 $1,069,000 $ 982,200 $ 888,900 $ 890,100
Savings deposits........................... 2,264,300 2,198,800 2,214,700 2,200,200 2,410,400
Time deposits.............................. 2,234,000 2,181,200 2,021,400 1,777,500 1,392,000
--------- --------- --------- --------- ---------
Total deposits........................... $5,715,000 $5,449,000 $5,218,300 $4,866,600 $4,692,500
========== ========== ========== ========== ==========
Average borrowed funds:
Short-term borrowings...................... $ 439,900 $ 353,600 $ 292,900 $ 280,900 $ 314,400
Long-term debt............................. 45,800 49,900 39,600 27,900 31,900
------ ------ ------ ------ ------
Total borrowed funds..................... $ 485,700 $ 403,500 $ 332,500 $ 308,800 $ 346,300
========== ========= ========= ========== =========
Average Rates**
Loans:
Commercial (including time & demand) loans. 9.01% 9.09% 9.32% 9.76% 8.32%
Mortgage and construction loans............ 8.95 9.08 9.06 9.12 8.47
Consumer loans............................. 8.95 9.06 9.27 9.59 8.66
Total loans.............................. 8.97 9.08 9.17 9.40 8.45
Federal funds sold........................... 5.30 5.57 5.22 5.72 3.93
Securities purchased under resale agreements. 5.69 5.63 6.13 5.63
Securities:
U.S. government obligations................ 5.91 6.00 5.82 5.45 5.15
States and political subdivisions.......... 7.96 7.74 7.59 7.75 7.79
Other investments*......................... 8.83 8.23 7.20 8.01 7.25
Total securities......................... 5.97 6.05 5.84 5.49 5.19
Composite rate earned.................. 8.13% 8.29% 8.24% 8.30% 7.43%
==== ==== ==== ==== ====
Deposits:
Savings deposits........................... 2.50% 2.62% 2.63% 2.94% 2.72%
Time deposits.............................. 5.44 5.49 5.57 5.56 4.36
Total interest-bearing deposits.......... 3.96 4.05 4.03 4.11 3.32
Borrowed funds:
Short-term borrowings...................... 4.73 4.87 4.85 5.38 3.85
Long-term debt............................. 6.73 6.67 6.55 6.48 6.66
Total borrowed funds..................... 4.92 5.09 5.05 5.48 4.11
Composite rate paid.................... 4.05% 4.14% 4.11% 4.21% 3.39%
==== ==== ==== ==== ====
</TABLE>
*Includes interest-bearing deposits in other banks.
**Presented on a tax equivalent basis.
50 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
<TABLE>
<CAPTION>
(Dollars in thousands) 1998 1997 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on Equity and Assets
Average total assets ......................... $7,260,800 $6,828,800 $6,436,300 $6,000,400 $5,801,600
========== ========== ========== ========== ==========
Average stockholders' equity ................. $ 967,300 $ 886,400 $ 810,500 $ 753,500 $ 704,400
========== ========== ========== ========== ==========
Return on average total assets ............... 2.03% 1.93% 1.82% 1.74% 1.56%
Return on average stockholders' equity ....... 15.21% 14.90% 14.48% 13.86% 12.84%
Average stockholders' equity as a percentage
of average total assets .................... 13.32% 12.98% 12.59% 12.56% 12.14%
Dividends paid per share as a percentage
of basic net income per share .............. 42.0% 41.6% 39.6% 39.0% 39.2%
Sources of Income
Commercial (including time & demand) loans ... 23.7% 23.3% 22.2% 23.4% 20.5%
Mortgage and construction loans .............. 34.5 36.2 36.2 35.1 33.3
Consumer loans ............................... 8.7 9.1 9.8 10.7 10.6
Federal funds sold ........................... 1.4 .7 .7 .7 .1
Securities purchased under resale agreements . .1 .1 .2
Securities ................................... 15.2 15.1 15.8 15.1 18.1
---------- ---------- ---------- ---------- ----------
Total interest income .................... 83.6 84.4 84.8 85.2 82.6
Trust division services ...................... 8.7 8.1 7.9 8.1 8.9
Other income ................................. 7.7 7.5 7.3 6.7 8.5
---------- ---------- ---------- ---------- ----------
Total income ............................. 100.0% 100.0% 100.0% 100.0% 100.0%
========== ========== ========== ========== ==========
Net Interest Income
(Taxable Equivalent)
Interest earned:
Loans ...................................... $ 449,044 $ 437,829 $ 404,530 $ 383,523 $ 318,132
Federal funds sold ......................... 9,387 4,389 4,195 3,587 479
Securities purchased under resale agreements 464 301 325 1,126
Taxable securities ......................... 100,726 94,937 92,211 82,094 87,200
Tax-exempt securities ...................... 1,141 1,012 1,115 1,046 1,099
----- ----- ----- ----- -----
Total interest income .................... 560,762 538,468 502,376 471,376 406,910
------- ------- ------- ------- -------
Interest paid:
Savings deposits ........................... 56,720 57,702 58,187 64,732 65,488
Time deposits .............................. 121,424 119,667 112,576 98,824 60,709
------- ------- ------- ------ ------
Total interest-bearing deposits .......... 178,144 177,369 170,763 163,556 126,197
Short-term borrowings ...................... 20,800 17,220 14,199 15,123 12,111
Long-term debt ............................. 3,083 3,332 2,596 1,808 2,125
----- ----- ----- ----- -----
Total interest expense ................... 202,027 197,921 187,558 180,487 140,433
------- ------- ------- ------- -------
Net interest income .................... $ 358,735 $ 340,547 $ 314,818 $ 290,889 $ 266,477
========== ========== ========== ========== ==========
</TABLE>
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 51
<PAGE>
Five Year Summary of Consolidated Income
<TABLE>
<CAPTION>
For the Years Ended December 31,
- -------------------------------------------------------------------------------------------------------------
(Dollars in thousands) 1998 1997 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Income
Interest and fees on loans................... $444,519 $434,033 $400,800 $379,888 $315,094
Interest and dividends on securities......... 101,017 95,242 92,812 82,670 87,766
Other interest income........................ 9,856 4,695 4,527 4,717 529
----- ----- ----- ----- ---
Total interest income.................... 555,392 533,970 498,139 467,275 403,389
------- ------- ------- ------- -------
Interest Expense
Interest on deposits......................... 178,144 177,369 170,763 163,556 126,197
Interest on short-term borrowings............ 20,800 17,220 14,199 15,123 12,111
Interest on long-term debt................... 3,083 3,332 2,596 1,808 2,125
----- ----- ----- ----- -----
Total interest expense................... 202,027 197,921 187,558 180,487 140,433
------- ------- ------- ------- -------
Net Interest Income.......................... 353,365 336,049 310,581 286,788 262,956
Provision for loan losses.................... 11,489 13,703 14,666 7,988 7,056
------ ------ ------ ----- -----
Net Interest Income After
Provision for Loan Losses................. 341,876 322,346 295,915 278,800 255,900
------- ------- ------- ------- -------
Noninterest Income
Trust division services...................... 58,018 51,547 46,244 44,273 43,360
Service charges on deposit accounts.......... 17,889 16,890 16,234 15,764 15,655
Other income................................. 32,786 30,216 26,950 20,869 25,792
------ ------ ------ ------ ------
Total noninterest income................. 108,693 98,653 89,428 80,906 84,807
------- ------ ------ ------ ------
Noninterest expenses
Salaries and employee benefits............... 131,618 124,563 120,783 117,512 110,870
Net occupancy and equipment expenses......... 30,486 32,663 29,491 27,999 24,848
Amortization of excess cost over equity
in affiliates.............................. 3,444 2,347 1,975 1,276 1,131
Other expenses............................... 53,457 53,831 46,166 46,910 56,972
------ ------ ------ ------ ------
Total noninterest expenses............... 219,005 213,404 198,415 193,697 193,821
------- ------- ------- ------- -------
Income before income taxes................... 231,564 207,595 186,928 166,009 146,886
Applicable income taxes...................... 84,436 75,552 69,528 61,577 56,445
------ ------ ------ ------ ------
Net Income................................... $147,128 $132,043 $117,400 $104,432 $ 90,441
======== ======== ======== ======== ========
</TABLE>
52 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
PRINCIPAL AFFILIATES
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[MERCANTILE ROBERT E. HENEL, JR. GEORGE R. BENSON, JR.
LOGO APPEARS PRESIDENT AND CLARENCE A. BLACKWELL
HERE] CHIEF EXECUTIVE OFFICER BENNETT CRAIN, JR.
CAROLYN D. O'LEARY RALPH W. CROSBY
THE ANNAPOLIS EXECUTIVE VICE PRESIDENT FRANCIS E. GARDINER, JR.
BANKING AND ERNEST R. AMADIO ROBERT E. HENEL, JR.
TRUST COMPANY SENIOR VICE PRESIDENT JOHN K. HOPKINS
WILLIAM A. BUSIK JOHN R. MOSES
Main Street and SENIOR VICE PRESIDENT JOHN W. RENARD
Church Circle MILDRED L. HENRY PATRICIA A. ROCHE, PH.D.
Annapolis, SENIOR VICE PRESIDENT
Maryland 21401 CHARLES E. RUCH, JR.
410/268-3366 SENIOR VICE PRESIDENT
LYNDALL R. WARD
11 Offices SENIOR VICE PRESIDENT
PAMELA BOWEN FALSIS
CHARTERED IN 1904 VICE PRESIDENT AND
CORPORATE SECRETARY
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- ------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------ -------------------------------
Cash and due
from banks $ 7,113 Total deposits $269,689
Earning assets 329,634 Short-term borrowings 34,050
Allowance for Other liabilities and
loan losses (3,043) accrued expenses 2,160
Other assets 6,294 Long-term debt --
---------
Stockholders' equity 34,099
Total assets $ 339,998 --------
========= Total liabilities
and equity $339,998
Net income $ 4,988 ========
=========
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[MERCANTILE ROBERT E. DICKERSON THURMAN ADAMS, JR.
LOGO APPEARS PRESIDENT AND R. CAROL CAMPBELL-HANSEN
HERE] CHIEF EXECUTIVE OFFICER ROBERT E. DICKERSON
D. BRENT HURLEY DAVID C. DOANE
BALTIMORE TRUST SENIOR VICE PRESIDENT D. BRENT HURLEY
COMPANY B. PHILIP LYNCH, JR. RICHARD I. LEWIS
VICE PRESIDENT AND CASHIER JAY C. MURRAY
One West Church JANET L. MCCABE WILLIAM O. MURRAY
Street VICE PRESIDENT AND SECRETARY P. COLEMAN TOWNSEND,JR.
Selbyville, KENNETH R. GRAHAM
Delaware 19975 VICE PRESIDENT
302/436-8236
6 Offices
CHARTERED IN 1903
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- ----------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ---------------------- -------------------------------
Cash and due
from banks $ 5,554 Total deposits $219,097
Earning assets 257,049 Short-term borrowings 1,035
Allowance for Other liabilities and
loan losses (2,987) accrued expenses 3,197
Other assets 6,988 Long-term debt --
--------
Stockholders' equity 43,275
Total assets $266,604 --------
======== Total liabilities
and equity $266,604
Net income $ 5,814 ========
========
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[MERCANTILE WESLEY E. HUGHES, JR. WARREN E. BARLEY
LOGO APPEARS PRESIDENT AND KENNETH O. DIXON
HERE] CHIEF EXECUTIVE OFFICER WESLEY E. HUGHES, JR.
JAMES E. SHOOK EVELYN SUSAN HUNGERFORD
Bank of Southern SENIOR VICE PRESIDENT EDWARD L. SANDERS, JR.
Maryland JAMES F. DIMISA ROBERT J. SCHICK
VICE PRESIDENT AND JAMES C. SIMPSON
304 Charles Street CASHIER JOHN L. SPRAGUE
LaPlata, J. WAYNE WELSH J. BLACKLOCK WILLS, JR.
Maryland 20646 VICE PRESIDENT
301/934-1000 DIANE M. KESTLER
CHIEF FINANCIAL OFFICER
6 Offices
CHARTERED IN 1906
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- -------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- ------------------------------
Cash and due Total deposits $172,820
from banks $ 6,748
Short-term borrowings --
Earning assets 191,873
Other liabilities and
Allowance for accrued expenses 1,031
loan losses (2,764)
Long-term debt --
Other assets 4,421
-------- Stockholders' equity 26,427
--------
Total assets $200,278 Total liabilities
======== and equity $200,278
========
Net income $ 4,107
========
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[MERCANTILE HAROLD J. KAHL CHARLES R. BAILEY, JR.
LOGO APPEARS PRESIDENT AND GORDON F. BOWEN
HERE] CHIEF EXECUTIVE OFFICER BEDFORD C. GLASCOCK
DONALD M. PARSONS, JR. ALLEN S. HANDEN
Calvert Bank And SENIOR VICE PRESIDENT, DANA M. JONES
Trust Company LOANS/BUSINESS DEVELOPMENT HAROLD J. KAHL
KEVIN R. BAER LARRY D. KELLEY
Calvert Village VICE PRESIDENT MAURICE T. LUSBY, III
Shopping Center LEONARD J. CLEMENTS JOHN D. MURRAY
P.O. Box 590 VICE PRESIDENT JOHN A. SIMPSON, JR.
Prince Frederick, PATRICIA A. DIEDRICH GUFFRIE M. SMITH, JR.
Maryland 20678 VICE PRESIDENT W. DAVID SNEADE
410/535-3535 R. LINDA HIPSLEY
VICE PRESIDENT AND TREASURER
6 Offices JUDITH T. MCMANUS
VICE PRESIDENT AND
CHARTERED IN 1963 ASSISTANT CORPORATE SECRETARY
JANICE M. LOMAX
CORPORATE SECRETARY
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- --------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------ ----------------------------------
Cash and due Total deposits $164,949
from banks $ 8,521
Short-term borrowings --
Earning assets 174,616
Other liabilities and
Allowance for accrued expenses 1,196
loan losses (2,396)
Long-term debt --
Other assets 4,369
-------- Stockholders' equity 18,965
--------
Total assets $185,110 Total liabilities
======== and equity $185,110
========
Net income $ 4,324
========
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 53
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- ---------------------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE R. RAYMOND TARRACH EDWARD M. ATHEY
LOGO APPEARS PRESIDENT AND EDWARD S. GILLESPIE
HERE] CHIEF EXECUTIVE OFFICER GEORGE H. GODFREY
RUSSELL W. CARLOW CLARENCE A. HAWKINS
The Chestertown Bank of Maryland SENIOR VICE PRESIDENT WILLIAM M. KNIGHT
AND SENIOR LOAN OFFICER R. RAYMOND TARRACH
211 High Street SHARON A. USILTON EUGENIA C. WOOTTON
Chestertown, VICE PRESIDENT AND
Maryland 21620 SENIOR ADMINISTRATIVE
410/778-2400 OFFICER
8 Offices
CHARTERED IN 1904
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- ----------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- -------------------------- ---------------------------------------
Cash and due Total deposits $145,881
from banks $ 4,005
Short-term borrowings 6,474
Earning assets 175,198
Other liabilities and
Allowance for accrued expenses 1,311
loan losses (2,082)
Long-term debt --
Other assets 4,474
-------- Stockholders' equity 27,929
--------
Total assets $181,595 Total liabilities
======== and equity $181,595
========
NET INCOME $ 3,653
========
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- ---------------------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE PETER W. FLOECKHER, JR. LARRY P. BORMEL
LOGO APPEARS PRESIDENT AND WILLIAM H. CARTER, JR.
HERE] CHIEF EXECUTIVE OFFICER CHARLES E. CASTLE, JR.
GLENN L. WILSON JOHN N. FAIGLE
The Citizens National Bank EXECUTIVE VICE PRESIDENT PETER W. FLOECKHER, JR.
AND SENIOR CREDIT OFFICER MARTIN L. GOOZMAN
517 Main Street JOSEPH F. PIPITONE THOMAS E. LYNCH, SR.
Laurel, SENIOR VICE PRESIDENT, MICHELE K. RYAN
Maryland 20707 COMMUNITY BANKING, AND
301/725-3100 SECRETARY
301/953-3044
Baltimore:
410/792-7626
17 Offices
CHARTERED IN 1890
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- ----------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -----------------------------------
Cash and due Total deposits $484,134
from banks $ 27,661
Short-term borrowings 36,195
Earning assets 558,578
Other liabilities and
Allowance for accrued expenses 5,476
loan losses (6,657)
Long-term debt --
Other assets 17,989
-------- Stockholders' equity 71,766
--------
Total assets $597,571 Total liabilities
======== and equity $597,571
========
Net income $ 10,450
========
</TABLE>
================================================================================
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE S. DELL FOXX THOMAS F. BRADLEE
LOGO APPEARS PRESIDENT AND S. DELL FOXX
HERE] CHIEF EXECUTIVE OFFICER SAMUEL M. GAWTHROP, JR.
RAYMOND W. HAMM, JR. RUTH N. GRAYBEAL
County Banking & Trust EXECUTIVE VICE PRESIDENT HARRY E. HAMMOND
Company RALPH R. LANPHAR
HOWARD D. MCFADDEN
123 North Street G. EUGENE MACKIE
P.O. Box 100 FRANKLIN T. WILLIAMS, III
Elkton,
Maryland 21921
410/398-2600
9 Offices
CHARTERED IN 1908
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- --------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $270,559
from banks $ 9,769
Short-term borrowings 5,520
Earning assets 294,653
Other liabilities and
Allowance for accrued expenses 1,435
loan losses (4,382)
Long-term debt --
Other assets 10,072
------ Stockholders' equity 32,598
--------
Total assets $310,112 Total liabilities
======== and equity $310,112
========
Net income $ 5,224
========
</TABLE>
================================================================================
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE GEORGE N. MCMATH KELLY B. CONKLIN
LOGO APPEARS CHAIRMAN OF THE BOARD GENE H. CROCKETT
HERE] H. B. REW, JR. JEFFERY L. DAVIS
VICE CHAIRMAN AND M. CARTER DAVIS, JR.
Farmers & Merchants Bank- CHIEF EXECUTIVE OFFICER JOHN H. DUER, III
Eastern Shore TED D. DUER CROXTON GORDON
PRESIDENT AND W. REVELL LEWIS, III
25275 Lankford Highway CHIEF OPERATING OFFICER THOMAS J. MAPP, JR.
P.O. Box 623 JULIE M. BADGER NORMAN JAMES MARSHALL
Onley, SENIOR VICE PRESIDENT AND GEORGE N. MCMATH
Virginia 23418 CHIEF FINANCIAL OFFICER KATHERINE T. MEARS
757/787-4111 ROBERT J. BLOXOM H. B. REW, JR.
757/824-3052 SENIOR VICE PRESIDENT AND THOMAS N. RICHARDSON
SENIOR LENDING OFFICER ROBERT L. SIMPSON
5 Offices ELIZABETH A. KERNS C. A. TURNER, III
SENIOR VICE PRESIDENT RICHARD W. YOUNG
CHARTERED IN 1909 AND SECRETARY
<PAGE>
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- -----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $151,451
from banks $ 4,060
Short-term borrowings 1,426
Earning assets 182,841
Other liabilities and
Allowance for accrued expenses 1,278
loan losses (3,614)
Long-term debt --
Other assets 5,644
-------- Stockholders' equity 34,776
--------
Total assets $188,931 Total liabilities
======== and equity $188,931
========
Net income $ 3,715
========
</TABLE>
54 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE C. JOSEPH CUNNINGHAM, III C. JOSEPH CUNNINGHAM, III
LOGO APPEARS PRESIDENT AND HUGH A. MCMULLEN
HERE] CHIEF EXECUTIVE OFFICER JAMES A. POLAND
F. EMMETT SMITH
The Fidelity Bank KAREN O. SULLIVAN
DAVID W. TURNBULL
59 East Main Street
Frostburg,
Maryland 21532
301/689-1111
3 Offices
CHARTERED IN 1902
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- -----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $37,820
from banks $ 1,881
Short-term borrowings --
Earning assets 40,641
Other liabilities and
Allowance for accrued expenses 244
loan losses (430)
LONG-TERM DEBT --
Other assets 935
------- Stockholders' equity 4,963
-------
Total assets $43,027 Total liabilities
======= and equity $43,027
=======
Net income $ 515
=======
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE JOHN A. CANDELA SAMUEL M. BAILEY, JR.
LOGO APPEARS CHAIRMAN, PRESIDENT AND MARTIN A. BARLEY
HERE] CHIEF EXECUTIVE OFFICER JOSEPH E. BELL, II
WILLIAM T. STURGIS ELMER BROWN
The First EXECUTIVE VICE PRESIDENT, EDWARD S. BURROUGHS
National Bank BUSINESS DEVELOPMENT JOHN A. CANDELA
of St. Mary's GEORGE A. FERGUSON FORD L. DEAN
SENIOR VICE PRESIDENT, FRANCES P. EAGAN
41615 Park Avenue CASHIER, SENIOR OPERATIONS GEORGE A. FERGUSON
P.O. Box 655 OFFICER AND SECRETARY TO ROGER D. HILL
Leonardtown, THE BOARD JOSEPH F. MITCHELL
Maryland 20650 DAN KUBICAN EDMUND W. WETTENGEL
301/475-8081 SENIOR VICE PRESIDENT AND
SENIOR LOAN OFFICER
8 Offices GENEVIEVE M. HUNT
SENIOR VICE PRESIDENT
CHARTERED IN 1903 AND CONTROLLER
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- -------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $246,835
from banks $ 6,228
Short-term borrowings 4,125
Earning assets 285,898
Other liabilities and
Allowance for accrued expenses 2,218
loan losses (3,430)
Long-term debt --
Other assets 6,389
-------- Stockholders' equity 41,907
--------
Total assets $295,085 Total liabilities
======== and equity $295,085
========
Net income $ 7,321
========
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE LOGO
APPEARS HERE]
The Forest Hill State Bank PAUL E. PEAK THOMAS A. BURKE
PRESIDENT AND JOHN B. DINNING
130 South Bond Street CHIEF EXECUTIVE OFFICER ANN K. EDIE
Bel Air, RUSSELL R. CULLUM HENRY S. HOLLOWAY
Maryland 21014 EXECUTIVE VICE PRESIDENT RICHARD E. KINARD
410/838-6131 MICHAEL F. ALLEN C. RAY MANN
Baltimore: SENIOR VICE PRESIDENT PAUL E. PEAK
410/879-1475 BARBARA LEE RUDOLPH
R. EDWARD SCHUELER, JR.
7 Offices GREGORY A. SZOKA
F. D. WHITEFORD
CHARTERED IN 1913
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- ------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $222,725
from banks $ 6,536
Short-term borrowings 18,950
Earning assets 260,900
Other liabilities and
Allowance for accrued expenses 1,630
loan losses (3,865)
Long-term debt --
Other assets 7,019
-------- Stockholders' equity 27,285
--------
Total assets $270,590 Total liabilities
======== and equity $270,590
========
Net income $ 4,879
========
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE LOGO
APPEARS HERE]
Fredericktown Bank & J. BRIAN GAENG W. BERT ANDERSON
Trust Company PRESIDENT AND MARVIN E. AUSHERMAN
CHIEF EXECUTIVE OFFICER GEORGE W. BRUCHEY
30 North Market Street DAVID L. HOFFMAN DAVID P. CHAPIN
Frederick, VICE PRESIDENT CALEB C. EWING, JR.
Maryland 21701 J. BRIAN GAENG
301/662-8231 ROBERT E. GEARINGER
RICHARD L. KESSLER
8 Offices CHRISTOPHER T. KLINE
DAVID C. MEADOWS
CHARTERED IN 1828 PETER H. PLAMONDON
ALFRED P. SHOCKLEY
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- -------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $182,540
from banks $ 4,750
Short-term borrowings 5,485
Earning assets 211,547
Other liabilities and
ALLOWANCE FOR accrued expenses 1,909
LOAN LOSSES (3,583)
Long-term debt --
Other assets 6,177
-------- Stockholders' equity 28,957
--------
Total assets $218,891 Total liabilities
======== and equity $218,891
========
Net income $ 3,916
========
</TABLE>
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 55
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE LOGO
APPEARS HERE]
MARSHALL NATIONAL GEORGE R. THOMPSON, JR. RANDOLPH S. E. CARTER
BANK AND TRUST CHAIRMAN OF THE BOARD WM. HUNTER DEBUTTS, JR.
COMPANY THOMAS W. DIZEREGA THOMAS W. DIZEREGA
VICE CHAIRMAN THOMAS B. GLASCOCK
8372 West Main Street DONALD R. YOWELL HARVEY L. PEARSON
Marshall, PRESIDENT AND RICHARD C. RIEMENSCHNEIDER
Virginia 20115 CHIEF EXECUTIVE OFFICER GEORGE R. THOMPSON, JR.
540/364-1555 MICHAEL A. EWING EVELYN D. TRUMBO
EXECUTIVE VICE PRESIDENT LEWIS S. WILEY
2 Offices AND SENIOR CREDIT OFFICER DONALD R. YOWELL
ANITA L. SHULL
CHARTERED IN 1905 SENIOR VICE PRESIDENT
AND CHIEF FINANCIAL OFFICER
JOSEPH L. RUTHERFORD
SENIOR VICE PRESIDENT
AND CASHIER
JERRY D. MEDLOCK
SENIOR VICE PRESIDENT
CAROL C. MEREWETHER
VICE PRESIDENT AND
CORPORATE SECRETARY
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- ------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $72,974
from banks $ 2,795
Short-term borrowings --
Earning assets 77,673
Other liabilities and
Allowance for accrued expenses 659
loan losses (1,176)
Long-term debt --
Other assets 2,831
------- STOCKHOLDERS' EQUITY 8,490
-------
Total assets $82,123
======= Total liabilities
and equity $82,123
Net income* $ 846 =======
=======
*Represents the nine months of
earnings since affiliation.
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE LOGO
APPEARS HERE]
Mercantile-Safe Deposit & H. FURLONG BALDWIN CYNTHIA A. ARCHER
Trust Company CHAIRMAN OF THE BOARD AND H. FURLONG BALDWIN
CHIEF EXECUTIVE OFFICER THOMAS M. BANCROFT, JR.
2 Hopkins Plaza J. MARSHALL REID RICHARD O. BERNDT
Baltimore, PRESIDENT AND JAMES A. BLOCK, M.D.
Maryland 21201 CHIEF OPERATING OFFICER WILLIAM R. BRODY, M.D.
410/237-5900 JACK E. STEIL GEORGE L. BUNTING, JR.
CHAIRMAN, CREDIT POLICY MARTIN L. GRASS
18 Offices KENNETH A. BOURNE, JR. FREEMAN A. HRABOWSKI, III
EXECUTIVE VICE PRESIDENT B. LARRY JENKINS
CHARTERED IN 1864 CHARLES E. SIEGMANN MARY JUNCK
EXECUTIVE VICE PRESIDENT ROBERT A. KINSLEY
MALCOLM C. WILSON WILLIAM J. MCCARTHY
EXECUTIVE VICE PRESIDENT MORRIS W. OFFIT
TERRY L. TROUPE MORTON B. PLANT
CHIEF FINANCIAL OFFICER CHRISTIAN H. POINDEXTER
ALAN D. YARBRO J. MARSHALL REID
GENERAL COUNSEL AND SECRETARY DONALD J. SHEPARD
BRIAN B. TOPPING
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- -----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $1,989,901
from banks $ 202,566
Short-term borrowings 512,552
Earning assets 2,641,669
Other liabilities and
Allowance for accrued expenses 51,119
loan losses (43,115)
Long-term debt --
Other assets 81,489
---------- Stockholders' equity 329,037
----------
Total assets $2,882,609 Total liabilities
========== and equity $2,882,609
==========
Net income $ 61,672
==========
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- ---------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE LOGO
APPEARS HERE]
THE NATIONAL J. WILLIAM POOLE LELAND H. BAKER
BANK OF FREDERICKSBURG CHAIRMAN OF THE BOARD JOHN H. CHICHESTER
WILLIAM B. YOUNG GEORGE C. FREEMAN
2403 Fall Hill Avenue PRESIDENT AND LEWIS W. GRAVES
Fredericksburg, CHIEF EXECUTIVE OFFICER CHARLES A. MCCORMACK
Virginia 22401 WILLIAM E. MILBY WILLIAM E. MILBY
540/899-3200 EXECUTIVE VICE PRESIDENT J. WILLIAM POOLE
AND CASHIER WILLIAM J. VAKOS
8 Offices JOHN B. DANIEL WILLIAM B. YOUNG
SENIOR VICE PRESIDENT
CHARTERED IN 1865 LLOYD B. HARRISON
SENIOR VICE PRESIDENT
RONALD L. PEARSON
SENIOR VICE PRESIDENT
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- -----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $235,960
from banks $ 9,774
Short-term borrowings 1,166
Earning assets 249,382
Other liabilities and
Allowance for accrued expenses 2,472
loan losses (3,142)
Long-term debt --
Other assets 10,911
-------- Stockholders' equity 27,327
--------
Total assets $266,925 Total liabilities
======== and equity $266,925
========
Net income $ 4,190
========
</TABLE>
56 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- ---------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE LOGO
APPEARS HERE]
Peninsula JEFFREY F. TURNER RALPH L. CHAPMAN
Bank PRESIDENT AND WILLIAM E. ESHAM, JR.
CHIEF EXECUTIVE OFFICER FRANK B. HANNA, SR.
11738 Somerset Avenue F. WINFIELD TRICE HENRY H. HANNA, III
P.O. Box 219 EXECUTIVE VICE PRESIDENT CHARLES R. JENKINS, SR.
Princess Anne, AND SENIOR LOAN OFFICER JOHN R. LERCH
Maryland 21853 F. DENNIS PARKER RALPH L. MASON, JR.
410/651-2400 SENIOR VICE PRESIDENT FREDERICK T. PARKER
AND REGIONAL OFFICER GEORGE A. PURNELL
24 Offices MICHAEL R. WALSH JOHN B. ROBINS, IV
SENIOR VICE PRESIDENT E. SCOTT TAWES
CHARTERED IN 1889 AND SECRETARY CASEY I. TODD
DEBORAH S.ABBOTT JEFFREY F. TURNER
VICE PRESIDENT AND ROBERT B. TWILLEY, JR.
REGIONAL OFFICER
HARRY B. GEMMELL
VICE PRESIDENT AND
REGIONAL OFFICER
W. THOMAS MEARS
VICE PRESIDENT AND
REGIONAL OFFICER
JERRY C. BRIELE
VICE PRESIDENT AND
TREASURER
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- ------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due
from banks $ 16,429 Total deposits $428,461
Earning assets 477,508 Short-term borrowings 9,440
Allowance for Other liabilities and
loan losses (9,889) accrued expenses 5,508
Other assets 17,151 Long-term debt 92
--------
Stockholders' equity 57,698
Total assets $501,199 --------
======== Total liabilities
and equity $501,199
Net income $ 9,653 ========
========
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- ---------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE LOGO
APPEARS HERE]
The Peoples WILLIAM W. DUNCAN, JR. A. CURTIS ANDREW
Bank of ACTING PRESIDENT AND WILLIAM W. DUNCAN, JR.
Maryland CHIEF EXECUTIVE OFFICER RICHARD A. EDWARDS
FREDERICK L. HUBBARD
205 Market Street CALVERT C. MERRIKEN, JR.
Denton, E. JOHN MILLS
Maryland 21629 JOSEPH D. QUINN
410/479-2600 A. ORRELL SAULSBURY, III
5 Offices
CHARTERED IN 1919
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- -----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $78,547
from banks $ 2,798
Short-term borrowings 2,445
Earning assets 87,649
Other liabilities and
Allowance for accrued expenses 249
loan losses (1,463)
Long-term debt 700
Other assets 2,862
------- Stockholders' equity 9,905
-------
TOTAL ASSETS $91,846 Total liabilities
======= and equity $91,846
=======
Net income $ 769
=======
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- ---------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE LOGO
APPEARS HERE]
Potomac JAMES J. CROMWELL STEPHEN E. CHASE
Valley Bank CHAIRMAN OF THE BOARD JAY MILTON CLOGG
KENNETH C. COOK KENNETH C. COOK
702 Russell Avenue PRESIDENT AND JAMES J. CROMWELL
Gaithersburg, CHIEF EXECUTIVE OFFICER BRUCE MACKEY
Maryland 20877 ANDREW F. FLOTT WILLIAM C. MOYER
301/963-7600 SENIOR VICE PRESIDENT, REX L. STURM
FINANCE DIVISION MANAGER C. CLIFTON VEIRS, III
8 Offices AND CORPORATE SECRETARY
WILLIAM W. WEST
CHARTERED IN 1959 SENIOR VICE PRESIDENT
AND CHIEF LENDING OFFICER
ARREL E. GODFREY
SENIOR VICE PRESIDENT
PATRICIA S. OLIPHANT
SENIOR VICE PRESIDENT
JOHN M. BRUNING
REGIONAL VICE PRESIDENT
GARY L. COFFMAN
REGIONAL VICE PRESIDENT
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- -----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $192,318
from banks $ 11,593
Short-term borrowings 24,105
Earning assets 226,147
Other liabilities and
Allowance for accrued expenses 1,686
loan losses (3,899)
Long-term debt --
Other assets 4,404
-------- Stockholders' equity 20,136
--------
Total assets $238,245 Total liabilities
======== and equity $238,245
========
Net income $ 3,543
========
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- ---------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE LOGO
APPEARS HERE]
St. Michaels WILLIAM W. DUNCAN, JR. WILLIAM W. DUNCAN, JR.
Bank PRESIDENT AND PAMELA P. GARDNER
CHIEF EXECUTIVE OFFICER MARY B. HOFF
213 Talbot Street R. IVAN THAMERT J. BRENT RAUGHLEY
P.O. Box 70 EXECUTIVE VICE PRESIDENT NORMAN M. SHANNAHAN, III
St. Michaels, CLIFFORD L. HILK R. IVAN THAMERT
Maryland 21663 SENIOR VICE PRESIDENT AND JOHN R. VALLIANT
410/745-5091 SENIOR LOAN OFFICER DONALD R. YOUNG
ANITA N. PARROTT
5 Offices SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
CHARTERED IN 1890
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- -----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due
from banks $ 3,527 Total deposits $116,623
Earning assets 131,007 Short-term borrowings 3,865
Allowance for Other liabilities and
loan losses (4,137) accrued expenses 803
Other assets 3,665 Long-term debt --
--------
Stockholders' equity 12,771
Total assets $134,062 --------
======== Total liabilities
and equity $134,062
Net income $ 2,786 ========
========
</TABLE>
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 57
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- ---------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE LOGO
APPEARS HERE]
THE SPARKS CHARLES E. ENSOR, SR. LINDA I. ALEXANDER
STATE BANK CHAIRMAN OF THE BOARD CHARLES E. ENSOR, SR.
RICHARD F. PRICE JAMES J. HARTENSTEIN
14804 York Road VICE CHAIRMAN J. DAVID LAWSON
Sparks, BRADLEY G. MOORE BRADLEY G. MOORE
Maryland 21152 PRESIDENT AND GEORGE V. PALMER
410/771-4900 CHIEF EXECUTIVE OFFICER RICHARD F. PRICE
DANIEL R. WERNECKE ROBERT J. RIGGER
5 Offices EXECUTIVE VICE PRESIDENT OSCAR M. SCHAPIRO
JANET M. MILLER
CHARTERED IN 1916 SENIOR VICE PRESIDENT AND
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, 1998
- -------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $179,192
from banks $ 3,339
Short-term borrowings 8,318
Earning assets 210,607
Other liabilities and
Allowance for accrued expenses 2,581
loan losses (3,257)
Long-term debt --
Other assets 6,071
-------- Stockholders' equity 26,669
--------
Total assets $216,760 Total liabilities
-------- and equity $216,760
========
Net income $ 4,544
========
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- ---------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE LOGO
APPEARS HERE]
Westminster Bank JOHN C. SCHAEFFER ROBERT R. BOWMAN
and Trust CHAIRMAN OF THE BOARD DANIEL S. DULANY
Company of FERDINAND A. RUPPEL, JR. TODD L. HERRING
Carroll County PRESIDENT AND ROBERT L. JONES
CHIEF EXECUTIVE OFFICER G. THOMAS MULLINIX
71 East Main Street MARK G. POHLHAUS MARLIN L. RITTASE
Westminster, EXECUTIVE VICE PRESIDENT FERDINAND A. RUPPEL, JR.
Maryland 21157 JOHN C. SCHAEFFER
410/848-9300
10 Offices
CHARTERED IN 1898
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- -------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $214,755
from banks $ 4,509
Short-term borrowings 2,770
Earning assets 241,825
Other liabilities and
Allowance for accrued expenses 1,812
loan losses (3,112)
Long-term debt --
Other assets 5,959
-------- Stockholders' equity 29,844
--------
Total assets $249,181 Total liabilities
======== and equity $249,181
========
Net income $ 4,423
========
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- ---------------------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE LOGO
APPEARS HERE]
Mercantile EDWARD K. DUNN, JR. MICHAEL S. CORDES
Mortgage CHAIRMAN OF THE BOARD EDWARD K. DUNN, JR.
Corporation PAUL W. PARKS PAUL W. PARKS
(a subsidiary of Mercantile- PRESIDENT AND J. MARSHALL REID
Safe Deposit & Trust Company) CHIEF EXECUTIVE OFFICER
MICHAEL S. CORDES
20 SOUTH CHARLES STREET, EXECUTIVE VICE PRESIDENT AND
3RD FLOOR CHIEF OPERATING OFFICER
BALTIMORE, EDWARD J. MURN, III
MARYLAND 21201 EXECUTIVE VICE PRESIDENT,
410/347-8940 MULTI-FAMILY FINANCE
KEVIN J. MICHNO
12 Offices SENIOR VICE PRESIDENT,
PRODUCTION
INCORPORATED IN 1972 JOSEPH J. O'BRIEN, JR.
SENIOR VICE PRESIDENT,
CONSTRUCTION LENDING
JOHN M. SCHWANKY
SENIOR VICE PRESIDENT,
SERVICING
TIMOTHY P. REYNOLDS
VICE PRESIDENT,
CONSTRUCTION LENDING
NANCY HAUPRICH
VICE PRESIDENT,
CONSTRUCTION LENDING
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- -----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $ --
from banks $ 3,738
Short-term borrowings 148,311
Earning assets 156,961
Other liabilities and
Allowance for accrued expenses 5,060
loan losses (3,053)
Long-term debt --
Other assets 5,899
-------- Stockholders' equity 10,174
--------
Total assets $163,545 Total liabilities
======== and equity $163,545
========
Net income $ 3,447
========
</TABLE>
58 (LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- -----------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE LOGO
APPEARS HERE]
MBC LEASING CORP. JOSEPH M. SANTOS KENNETH A. BOURNE, JR.
(a subsidiary of PRESIDENT DAVID R. BOWEN
Mercantile-Safe W. KEITH MOORE J. MARSHALL REID
Deposit & Trust Company) VICE PRESIDENT JOSEPH M. SANTOS
SCOTT H. KRIEGER TERRY L. TROUPE
2 Hopkins Plaza TREASURER AND
P.O. Box 1451 ASSISTANT SECRETARY
Baltimore, DENNIS W. KREINER
Maryland 21203 SECRETARY
410/237-5855 MARY L. ROBERTS
ASSISTANT VICE PRESIDENT
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- ------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $ --
from banks $ 92
Short-term borrowings 134,496
Earning assets 140,829
Other liabilities and
Allowance for accrued expenses 3,834
loan losses --
Long-term deb --
Other assets 32
-------- Stockholders' equity 2,623
--------
Total assets $140,953 Total liabilities
======== and equity $140,953
========
Net income $ 1,550
========
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- -----------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE LOGO
APPEARS HERE]
MBC Agency, Inc. TERRY L. TROUPE KENNETH A. BOURNE, JR.
PRESIDENT WILLIAM J. MCCARTHY
2 Hopkins Plaza ALAN D. YARBRO O. JAMES TALBOTT, II
Baltimore, SECRETARY TERRY L. TROUPE
Maryland 21201 WILLIAM T. SKINNER, JR.
410/347-8294 VICE PRESIDENT AND TREASURER
DENNIS W. KREINER
ASSISTANT SECRETARY
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- -----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $ --
from banks $ 472
Short-term borrowings --
Earning assets 3,375
Other liabilities and
Allowance for accrued expenses 2,119
loan losses --
Long-term debt --
Other assets 55
------- Stockholders' equity 1,783
-------
Total assets $3,902
======= Total liabilities
and equity $3,902
Net income $ 491 =======
=======
</TABLE>
<TABLE>
<CAPTION>
EXECUTIVE OFFICERS DIRECTORS
- -----------------------------------------------------------------------------
<S> <C> <C>
[MERCANTILE LOGO
APPEARS HERE]
MBC Realty, Inc. RONALD D. METTAM KENNETH A. BOURNE, JR.
PRESIDENT RONALD D. METTAM
2 Hopkins Plaza VERNON D. CONWAY CHARLES E. SIEGMANN
Baltimore, SENIOR VICE PRESIDENT TERRY L. TROUPE
Maryland 21201 W. JOSEPH SMITH, JR. ALAN D. YARBRO
410/237-5377 ASSISTANT VICE PRESIDENT
ALAN D. YARBRO
SECRETARY
WILLIAM T. SKINNER, JR.
TREASURER
LARRY D. SMITH
ASSISTANT TREASURER
BALANCE SHEET
(Dollars in thousands) December 31, 1998
- -------------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------------- -------------------------------
Cash and due Total deposits $ --
from banks $ 890
Short-term borrowings 800
Earning assets --
Other liabilities and
Allowance for accrued expenses 2,466
loan losses --
Long-term debt 142
Other assets 17,899
------- Stockholders' equity 15,381
-------
Total assets $18,789
======= Total liabilities
and equity $18,789
Net income $ 1,892 =======
=======
</TABLE>
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 59
<PAGE>
MERCANTILE BANKSHARES CORPORATION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
OFFICERS DIRECTORS **MARTIN L. GRASS +**MORRIS W. OFFIT
H. FURLONG BALDWIN *CYNTHIA A. ARCHER CHAIRMAN OF THE BOARD AND CHAIRMAN OF THE BOARD AND
CHAIRMAN OF THE BOARD, SENIOR VICE PRESIDENT OF CHIEF EXECUTIVE OFFICER CHIEF EXECUTIVE OFFICER
PRESIDENT AND CHIEF THE INTERMODAL SERVICE OF RITE AID CORPORATION, OF OFFITBANK, A PRIVATE
EXECUTIVE OFFICER GROUP OF CONSOLIDATED RETAIL DRUG SALES, AND BANK OFFERING INTEGRATED
RAIL CORPORATION VICE CHAIRMAN OF THE INVESTMENT SERVICES
ALAN D. YARBRO BOARD OF SUPER RITE
GENERAL COUNSEL AND SECRETARY +H. FURLONG BALDWIN CORPORATION, FOOD MORTON B. PLANT
CHAIRMAN OF THE BOARD, WHOLESALER AND RETAILER CHAIRMAN OF THE BOARD OF
TERRY L. TROUPE PRESIDENT AND CHIEF KEYWELL CORPORATION, A
CHIEF FINANCIAL OFFICER EXECUTIVE OFFICER OF FREEMAN A. HRABOWSKI, III RECYCLER OF HIGH
AND TREASURER MERCANTILE BANKSHARES PRESIDENT OF UNIVERSITY TEMPERATURE ALLOY SCRAP
CORPORATION AND CHAIRMAN OF MARYLAND-BALTIMORE METAL
ROBERT W. JOHNSON OF THE BOARD AND CHIEF COUNTY
SENIOR VICE PRESIDENT EXECUTIVE OFFICER OF +**CHRISTIAN H. POINDEXTER
MERCANTILE-SAFE DEPOSIT *B. LARRY JENKINS CHAIRMAN OF THE BOARD,
O. JAMES TALBOTT, II & TRUST COMPANY FORMER CHAIRMAN OF THE PRESIDENT AND CHIEF
SENIOR VICE PRESIDENT BOARD, PRESIDENT AND EXECUTIVE OFFICER OF
*THOMAS M. BANCROFT, JR. CHIEF EXECUTIVE OFFICER BALTIMORE GAS & ELECTRIC
JERRY F. GRAHAM FORMER CHAIRMAN OF THE OF MONUMENTAL LIFE COMPANY, A GAS AND
VICE PRESIDENT AND BOARD AND CHIEF EXECUTIVE INSURANCE COMPANY, ELECTRIC UTILITY
CONTROLLER OFFICER OF THE NEW YORK PROVIDING INDIVIDUAL LIFE
RACING ASSOCIATION INSURANCE +**DONALD J. SHEPARD
ROBERT C. SMITH CHAIRMAN OF THE BOARD,
AUDITOR +*RICHARD O. BERNDT **MARY JUNCK PRESIDENT AND CHIEF
PARTNER IN THE LAW FIRM PRESIDENT OF TIMES MIRROR EXECUTIVE OFFICER OF
SUZANNE G. WOLFF OF GALLAGHER, EVELIUS EASTERN NEWSPAPERS AND AEGON USA, INC., A
VICE PRESIDENT & JONES EXECUTIVE VICE PRESIDENT, HOLDING COMPANY OWNING
TIMES MIRROR INSURANCE AND INSURANCE
JAMES A. BLOCK, M.D. RELATED COMPANIES
FORMER PRESIDENT AND CHIEF +*ROBERT A. KINSLEY
EXECUTIVE OFFICER OF JOHNS CHAIRMAN OF THE BOARD AND CALMAN J. ZAMOISKI, JR.
HOPKINS HEALTH SYSTEM AND CHIEF EXECUTIVE OFFICER DIRECTOR EMERITUS
THE JOHNS HOPKINS HOSPITAL OF KINSLEY CONSTRUCTION, CHAIRMAN OF THE BOARD OF
INC., A GENERAL AND HEAVY INDEPENDENT DISTRIBUTORS,
WILLIAM R. BRODY, M.D. CONSTRUCTION FIRM INCORPORATED, GENERAL
PRESIDENT OF THE JOHNS WHOLESALE DISTRIBUTORS
HOPKINS UNIVERSITY +WILLIAM J. MCCARTHY
PRINCIPAL OF WILLIAM
GEORGE L. BUNTING, JR. J. MCCARTHY, P.C., A
PRESIDENT AND CHIEF PARTNER IN THE LAW FIRM
EXECUTIVE OFFICER OF OF VENABLE, BAETJER AND
BUNTING MANAGEMENT GROUP, HOWARD, LLP
A PRIVATE FINANCIAL
MANAGEMENT COMPANY
</TABLE>
+Member of Executive Committee
*Member of Audit Committee
**Member of Compensation Committee
LISTING AS OF FEBRUARY 1999
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 60
Baltimore, Maryland
<PAGE>
CORPORATE INFORMATION
CORPORATE PROFILE
Mercantile Bankshares Corporation
is a multi-bank holding company organized in 1969 under the laws of Maryland. On
January 1, 1999, 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 179 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
PriceWaterhouseCoopers, L.L.P.
250 West Pratt Street
Baltimore, Maryland 21201
ANNUAL MEETING OF SHAREHOLDERS
10:30 A.M., Wednesday,
April 28, 1999
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.
<PAGE>
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 Corpo-ration'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) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
[GRAPHIC]
(LOGO) MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
Exhibit 21
Subsidiaries of The Registrant
<PAGE>
Exhibit (21)
(21) SUBSIDIARIES OF THE REGISTRANT
STATE OF
NAME INCORPORATION
The Annapolis Banking and Trust Company Maryland
Baltimore Trust Company Delaware
Bank of Southern Maryland Maryland
Calvert Bank and Trust Company Maryland
The Chestertown Bank of Maryland Maryland
The Citizens National Bank United States
County Banking & Trust Company Maryland
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
Marshall National Bank and Trust Company United States
MBC Agency, Inc. Maryland
Mercantile Life Insurance Company Arizona
MBC Realty, LLC Maryland
Mercantile-Safe Deposit and Trust Company Maryland
Mercantile Mortgage Corporation Maryland
Hopkins Plaza Agency, Inc. Maryland
MBC Leasing Corp. Maryland
The National Bank of Fredericksburg United States
Peninsula Bank Maryland
The Peoples Bank of Maryland Maryland
Potomac Valley Bank Maryland
The Sparks State Bank Maryland
St. Michaels Bank Maryland
Westminster Bank and Trust Company of
Carroll County Maryland
Each of the foregoing subsidiaries conducts business under its corporate name.
Exhibit 23
Consent of Independent Accountants
<PAGE>
Exhibit (23)
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 20,
1999, on our audits of the consolidated financial statements of Mercantile
Bankshares Corporation and Affiliates as of December 31, 1998 and 1997 and for
the years ended December 31, 1998, 1997 and 1996, which report is included in
this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Baltimore, Maryland
March 25, 1999
Exhibit (24)
MERCANTILE BANKSHARES CORPORATION
POWER OF ATTORNEY
<PAGE>
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 1998, 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 9, 1999
<TABLE>
<S> <C> <C> <C>
/s/ Christian H. Poindexter Director /s/ Robert A. Kinsley Director
Christian H. Poindexter Robert A. Kinsley
/s/ George L. Bunting, Jr. Director /s/ Thomas M. Bancroft, Jr. Director
George L. Bunting, Jr. Thomas M. Bancroft, Jr.
/s/ William R. Brody Director /s/ William J. McCarthy Director
William R. Brody William J. McCarthy
/s/ Cynthia A. Archer Director /s/ H. Furlong Baldwin Director
Cynthia A. Archer H. Furlong Baldwin
/s/ Morton B. Plant Director Director
Morton B. Plant
/s/ Donald J. Shepard Director Director
Donald J. Shepard
/s/ Mary Junck Director Director
Mary Junck
/s/ B. Larry Jenkins Director Director
B. Larry Jenkins
/s/ Richard O. Berndt Director Director
Richard O. Berndt
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1998, FROM THE INCOME STATEMENT FOR THE YEAR ENDED
DECEMBER 31, 1998 AND FROM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 1998, AND
IS QUAILIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 254,994,000
<INT-BEARING-DEPOSITS> 100,000
<FED-FUNDS-SOLD> 57,616,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,880,462,000
<INVESTMENTS-CARRYING> 27,079,000
<INVESTMENTS-MARKET> 27,316,000
<LOANS> 5,220,890,000
<ALLOWANCE> 112,423,000
<TOTAL-ASSETS> 7,609,563,000
<DEPOSITS> 5,958,346,000
<SHORT-TERM> 511,945,000
<LIABILITIES-OTHER> 98,979,000
<LONG-TERM> 40,934,000
0
0
<COMMON> 142,054,000
<OTHER-SE> 857,305,000
<TOTAL-LIABILITIES-AND-EQUITY> 7,609,563,000
<INTEREST-LOAN> 444,519,000
<INTEREST-INVEST> 101,017,000
<INTEREST-OTHER> 9,856,000
<INTEREST-TOTAL> 555,392,000
<INTEREST-DEPOSIT> 178,144,000
<INTEREST-EXPENSE> 202,027,000
<INTEREST-INCOME-NET> 353,365,000
<LOAN-LOSSES> 11,489,000
<SECURITIES-GAINS> 8,000
<EXPENSE-OTHER> 219,005,000
<INCOME-PRETAX> 231,564,000
<INCOME-PRE-EXTRAORDINARY> 231,564,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 147,128,000
<EPS-PRIMARY> 2.05
<EPS-DILUTED> 2.04
<YIELD-ACTUAL> 5.20
<LOANS-NON> 21,303,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 3,906,000
<ALLOWANCE-OPEN> 106,097,000
<CHARGE-OFFS> 10,008,000
<RECOVERIES> 3,411,000
<ALLOWANCE-CLOSE> 112,423,000
<ALLOWANCE-DOMESTIC> 112,423,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
