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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, 1999
-----------------
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)
Stock Purchase Rights
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(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X 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. [X]
At February 29, 2000, the aggregate market value of shares of Common
Stock held by non-affiliates of Registrant (including fiduciary accounts
administered by affiliates) was $1,665,579,293 based on the last sale price on
the Nasdaq National Market on February 29, 2000.
As of February 29, 2000, 68,434,209 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, 1999, 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
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General
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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.
Lead Bank and Affiliates
------------------------
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
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
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, 1999, 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.
On January 20, 2000, Mercshares entered into an agreement with Union
National Bancorp, Inc., owner of The Union National Bank of Westminster, for a
merger of Union National Bancorp, Inc. into Mercshares and of The Union National
Bank of Westminster into our affiliate, Westminster Bank and Trust Company of
Carroll County. The Union National Bank of Westminster operates nine banking
offices in Carroll County, Maryland with total assets of approximately $300
million at December 31, 1999. The agreement provides for a tax- free exchange of
1.15 shares of Mercshares common stock for each outstanding share of common
stock of Union National Bancorp, Inc. There are 1,965,349 shares of Union
National Bancorp, Inc. outstanding, plus options for 60,936 shares which may be
exercised before the closing. Completion of the transaction is subject to
regulatory approvals, approval by the stockholders of Union National Bancorp and
other conditions.
Operations
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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
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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, 1999, assets under
the investment supervision of the Trust Division had an estimated value of $13.9
billion, assets held in its personal and corporate custody accounts had an
estimated value of $24.3 billion and assets held in escrow accounts had an
estimated value of $12.6 million.
Mercantile Mortgage Corporation, through offices in Maryland and
Delaware, arranges for and services various types of mortgage loans as principal
and as agent primarily for non-affiliated institutional investors and also for
the Affiliated Banks.
Hopkins Plaza Agency, Inc. acts as agent in the sale of fixed rate
annuities, and MBC Leasing Corp. provides tax oriented and finance leases of
equipment.
MBC Agency, Inc., provides, under group policies, credit life insurance
in connection with extensions of credit by Affiliated Banks. Mercantile Life
Insurance Company reinsures the insurance provided by MBC Agency, Inc.
MBC Realty, LLC owns and operates various properties used by
Mercantile-Safe 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, 1999,
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, 1999, as follows:
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<TABLE>
<CAPTION>
Disclosure Required by Guide 3 Reference to 1999 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 17-18)
(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 21-22)
..................Non-performing Assets (pages 17-18)
(IV) Summary of Loan Loss
Experience ..................Allowance for Loan Losses
(pages 15-17)
and Credit Risk Analysis (page 16)
..................Allocation of Allowance for Loan Losses
(page 15)
(V) Deposits ..................Analysis of Interest Rates and Interest
Differentials (pages 8-9)
..................Notes to Financial Statements,
Note 5 - Deposits (page 35)
(VI) Return on Equity
and Assets ..................Return on Equity and Assets (page 51)
(VII) Short-Term Borrowings ..................Notes to Financial Statements,
Note 6 (page36)
</TABLE>
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Employees
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At December 31, 1999, Mercshares and its Affiliates had approximately
921 officers and 1,875 other employees. Of these, Mercantile-Safe Deposit and
Trust Company employed 414 officers and 636 other employees and the Community
Banks had 505 officers and 1,219 other employees.
Competition
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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. Interstate banking is now an established part
of the competitive environment.
While Mercshares is the second largest bank holding company
headquartered in Maryland, it is the largest independent bank holding company in
the state. Mercantile-Safe Deposit and Trust Company is the fourth largest
commercial bank in Maryland. During 1999, Mercshares also competed with
Maryland-based bank subsidiaries of the first, second, sixth and ninth 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.
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Mercantile Mortgage Corporation is one of many competitors 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 $617
million, at December 31, 1999. They face competition in their own local service
areas as well as from the larger competitors mentioned above.
The enactment of recent federal legislation governing the financial
services industry, discussed below, may have the effect of increasing
competition among banks and other financial institutions.
Supervision and Regulation
--------------------------
Mercshares
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Mercshares, as a registered bank holding company, is subject to
regulation and examination by the Board of Governors of the Federal Reserve
System under the Bank Holding Company Act of 1956 (the "Act") and is required to
file with the Board of Governors quarterly and annual reports and such
additional information as the Board of Governors may require pursuant to the
Act. With various exceptions, Mercshares is prohibited from acquiring direct or
indirect ownership or control of more than 5% of any class of the voting shares
of any company which is not a bank or bank holding company and from engaging in
any business other than that of banking or of managing or controlling banks or
of furnishing services to, or performing services for, its Affiliated Banks. The
Act and Regulations promulgated under the Act require prior approval of the
Board of Governors of the Federal Reserve System of the acquisition by
Mercshares of more than 5% of any class of the voting shares of any additional
bank.
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Further, under Section 106 of the 1970 Amendments to the Act and the
Board's Regulations, bank subsidiaries of bank holding companies are 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, has restricted activities of bank holding companies
and their subsidiaries to banking, and the business of managing and controlling
banks, and to other activities which have been 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 has
also been 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.
New Federal Legislation
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The enactment in November, 1999 of the Graham-Leach-Bliley Act (the
"New Act"), parts of which have become effective, represents the culmination of
years of effort to repeal the provisions in the Banking Act of 1933 (generally
known as "Glass Steagall") and restrictions in the Bank Holding Company Act of
1956 that, respectively, limited affiliations among, and overlapping business
activities in, the banking, securities and insurance industries. Broadly
speaking, through the establishment of a regulatory structure that permits a
bank
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holding company to elect "financial holding company" status, the New Act will
permit, within a holding company system, a full range of banking, securities and
insurance activities, including securities and insurance underwriting, as well
as, with certain restrictions, merchant banking activities. The election is only
available to bank holding companies whose bank and thrift subsidiaries are well
capitalized, well managed, and have satisfactory Community Reinvestment Act
ratings. With exceptions for insurance underwriting and merchant banking, the
New Act would also permit comparable expansion of national bank activities by
banks meeting similar criteria, together with certain additional firewall and
other requirements, through "financial subsidiaries" of national banks.
Similarly, as a matter of Federal law, but still subject to State law, the New
Act greatly expands the potential financial activities of subsidiaries of State
banks.
If Mercshares were to elect financial holding company status under the
New Act, it would be permitted to engage in the full range of securities and
insurance activities authorized by the New Act, including securities and
insurance underwriting, as well as certain permitted merchant banking
activities. However, Mercshares does not need to elect financial holding company
status in order to engage in the businesses in which it is currently engaged.
The New Act is also intended to ensure that banking activities are
regulated by bank regulators, securities activities are regulated by securities
law regulators, and insurance activities are regulated by insurance regulators.
In other words, it is intended to incorporate a system of functional regulation,
although it retains the role of the Federal Reserve Board as the umbrella
supervisor for holding companies. Consequently, effective May 12, 2001, various
securities activities of banks may become subject to regulation by the
Securities and Exchange Commission.
With respect to the functional regulation goal of the New Act, various
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provisions are expected to have the effect of banks "pushing out' those
securities activities that have now become subject to Securities and Exchange
Commission regulation into separate brokerage subsidiaries or affiliates.
However, defined traditional banking activities, which include most of
Mercantile-Safe Deposit and Trust Company's current Trust Division activities
should not trigger Securities and Exchange Commission regulation or the so-
called "push-out" process.
Many of the provisions of the New Act require and anticipate extensive
new regulations, some of which have already been promulgated or proposed.
While it is now difficult to predict the impact of the New Act with
precision, it does not appear that Mercshares and its affiliates will be
precluded from engaging in their existing activities. It is possible, however,
that some activities will need to be conducted in one or more separate
subsidiaries subject to Securities and Exchange Commission regulation.
Affiliated Banks
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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
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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 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.
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Other Affiliates
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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.
Effects of Monetary Policy
--------------------------
All commercial banking operations are affected by the Federal Reserve
System's conduct of monetary policy and its policies change from time to time
based on changing circumstances. A function of the Federal Reserve System is to
regulate the national supply of bank credit in order to achieve economic results
deemed appropriate by its Board of Governors, including efforts to combat
unemployment, recession or inflationary pressures. Among the instruments of
monetary policy used to implement these objectives are open market operations in
the purchase and sale of U.S. Government securities, changes in the discount
rate charged on bank borrowings and changes in reserve requirements against bank
deposits. These means are used in varying combinations to influence the general
level of interest rates and the general availability of credit. More
specifically, actions by the Board of Governors of the Federal Reserve influence
the levels of interest rates paid on deposits and other bank funding sources and
charged on bank loans as well as the level of availability of bank funds with
which loans and investments can be made.
Cautionary Statement
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This Annual Report on Form 10-K contains forward-looking statements
within
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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. Examples are
statements concerning completion of pending acquisitions, competitive
conditions, effects of monetary policy, and the potential impact of legislation.
A similar cautionary statement, concerning the content of the Registrant's
Annual Report to Stockholders for the year ended December 31, 1999, is contained
in that Report.
With respect to effects of monetary policy, 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
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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,
1999, these offices occupied approximately 145,000 square feet (together with
about 23,000 square feet leased in a nearby building). At December 31, 1999,
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, and a 7,000
square foot call center facility in Federalsburg, Maryland. The Linthicum and
Federalsburg properties are 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, five are owned subject to ground leases and nine are leased
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with aggregate annual rentals of approximately $1,364,000, not including rentals
for the main office and adjacent premises owned by MBC Realty, LLC.
Of the 165 banking offices of the Community Banks, 95 are owned in fee,
16 are owned subject to ground leases and 54 are leased, with aggregate annual
rentals of approximately $3,591,000 as of December 31, 1999.
ITEM 3. LEGAL PROCEEDINGS
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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
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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
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The Executive Officers of Registrant are:
<TABLE>
<CAPTION>
Name Position Age
- ---- -------- ---
<S> <C> <C>
H. Furlong Baldwin Chairman of the Board, President 68
and Chief Executive Officer
J. Marshall Reid/(1)/ President and Chief 54
Operating Officer (Mercantile-
Safe Deposit and Trust Company)
Jack E. Steil Executive Vice President. 53
Chairman - Credit Policy
(Mercantile-Safe Deposit
and Trust Company)
Alan D. Yarbro General Counsel and Secretary 58
Terry L. Troupe Chief Financial Officer and
Treasurer 52
Robert W. Johnson Senior Vice President 57
O. James Talbott, II Senior Vice President 56
</TABLE>
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/(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
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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.
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.
PART II
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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------- ---------------------------------------------------------------------
Information required by this Item 5 is incorporated by reference to the
information appearing under the captions "Dividends" and "Recent Common Stock
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Prices" on page 23 of the Registrant's Annual Report to Stockholders for the
year ended December 31, 1999.
The following information is given in response to Item 701 of
Regulation S-K. In December, 1999, two directors of Mercshares received an
aggregate of 1,004 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 13 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
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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, 1999.
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,
1999.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
- -------- ----------------------------------------------------------
The information required by this Item 7A is incorporated by reference
to the information appearing under the captions "Earnings Simulation Model
Projections" and "Asset/Liability and Liquidity Management" on pages 20 and 21-
22 of the Registrant's Annual Report to Stockholders for the year ended December
31, 1999.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
The information required by this Item 8 and the auditors' report
thereon
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are incorporated by reference to pages 25 to 48 of the Registrant's
Annual Report to Stockholders for the year ended December 31, 1999.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- ------- ---------------------------------------------------------------
FINANCIAL DISCLOSURE
--------------------
There was no matter which is required to be disclosed in this Item 9
pursuant to the instructions contained in the form for this Report.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
The information required by this Item 10 with respect to the Executive
Officers of Registrant appears in Part I of this Report.
The remaining information required by this Item 10 is incorporated by
reference to the definitive proxy statement of Registrant filed with the
Securities and Exchange Commission under Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
The information required by this Item 11 is incorporated by reference
to the definitive proxy statement of Registrant filed with the Securities and
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
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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.
17
<PAGE>
Exhibit Table
-------------
(3) Charter and by-laws
A. (1) Articles of Incorporation effective May 27, 1969
(Incorporated by reference to Registrant's Registration
Statement on Form S-1, No. 2-39545, Exhibit 3-A(1)).
(2) Articles of Amendment effective June 6, 1969
(Incorporated by reference to Registrant's Registration
Statement on Form S-1, No. 2-39545, Exhibit 3-A)(2)).
(3) Articles Supplementary effective August 28, 1970
(Incorporated by reference to Registrant's Registration
Statement on Form S-1, No. 2-39545, Exhibit 3-A)(3)).
(4) Articles of Amendment effective December 14, 1970
(Incorporated by reference to Registrant's Registration
Statement on Form S-1, No. 2-39545, Exhibit 3-A(4)).
(5) Articles Supplementary effective May 10, 1971
(Incorporated by reference to Registrant's Registration
Statement on Form S-1, No. 2-39545, Exhibit 3-A(5)).
(6) Articles Supplementary effective July 30, 1971
(Incorporated by reference to Registrant's Registration
Statement on Form S-1, No. 2-41379, Exhibit 3-A(6)).
(7) Articles of Amendment effective May 8, 1986 (Incorporated
by reference to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1993, Exhibit 3-A(7),
Commission File No. 0-5127).
(8) Articles of Amendment effective April 27, 1988
(Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1993,
Exhibit 3-A(8), Commission File No. 0-5127).
(9) Articles Supplementary effective September 13, 1989
(Incorporated by reference to Registrant's Form 8-K filed
September 27, 1989, Exhibit B attached to Exhibit 4-A,
Commission File No. 0-5127).
(10) Articles Supplementary effective January 3, 1990
(Incorporated by reference to Registrant's Form 8-K filed
January 9, 1990, Exhibit B attached to Exhibit 4-A,
Commission File No. 0-5127).
(11) Articles of Amendment effective April 26, 1990
(Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1990,
Exhibit 3-A(11), Commission File No. 0-5127).
(12) Articles of Amendment effective April 30, 1997
(Incorporated by reference to Registrant's Registration
Statement on Form S-4, No. 333-43651, Exhibit 3(i)(L)).
(13) Articles Supplementary effective June 9, 1999
(Incorporated by reference to Registrant's Registration
Statement on Form S-8, No. 333-90307, Exhibit 4.1.M).
18
<PAGE>
(14) Articles Supplementary effective September 30, 1999
(Incorporated by reference to Registrant's Registration
Statement on Form S-8, No. 333-90307, Exhibit 4.1.N).
B. By-Laws of the Registrant, as amended to date (Incorporated by
reference to Registrant's Registration Statement on Form S-8,
No. 333-90307, Exhibit 4.2).
(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 June 8, 1999 between Registrant
and the Rights Agent, including Form of Rights Certificate and
Articles Supplementary (Incorporated by reference to Form 8-K
of Registrant filed June 10, 1999, Exhibit 4-A, Commission
File No. 0-5127).
B. Amendment No. 1 to Registrant's Registration Statement on Form
8-B, amending description of securities previously filed
(Incorporated by reference to Form 8 of Registrant filed
December 20, 1991, Commission File No. 0-5127).
(10) Material contracts
A. Mercantile Bankshares Corporation and Affiliates Annual
Incentive Compensation Plan, as amended through March 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 Registrant's Registration Statement on Form
S-3, 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
19
<PAGE>
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 (Incorporated by reference to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1998, Exhibit 10C, Commission File No. 0-5127), as amended by
Agreement dated January 18, 2000 (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
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
20
<PAGE>
(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), as amended by
Agreement dated January 18, 2000 (filed herewith).
H. Mercantile Bankshares Corporation (1989) 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. Mercantile Bankshares Corporation 1999 Omnibus Stock Plan
(Incorporated by reference to Registrant's Registration
Statement on Form S-8, No. 333-90307, Exhibit 4.4).
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).
21
<PAGE>
L. Mercantile Bankshares Corporation Option Agreement with H.
Furlong Baldwin (dated August 22, 1995), with respect to
120,000 shares after a stock dividend paid in 1997, and as to
which the Net Operating Income is 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
(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. Mercantile Bankshares Corporation Option Agreement with J.
Marshall Reid, dated August 21, 1995 (Incorporated by
reference to Registrant's Annual Report of Form 10-K for the
year ended December 31, 1998, Exhibit 10R, Commission File No.
0-5127).
22
<PAGE>
R. Mercantile Bankshares Corporation Option Agreement with Jack
E. Steil, dated August 21, 1995 (Incorporated by reference to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1998, Exhibit 10S, Commission File No. 0-5127).
S. Mercantile Bankshares Corporation Option Agreement with Terry
L. Troupe, dated September 10, 1996 (filed herewith).
(13) Annual Report to security holders for the year ended December 31,
1999 (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 14, 2000 (filed herewith)
(27) Financial Data Schedule (filed herewith)
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
23
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The Report of Independent Certified Public Accountants as pertaining to the
Consolidated Financial Statements of Mercantile Bankshares Corporation and
Affiliates and related notes is incorporated by reference to page 25 of the
Registrant's Annual Report to Stockholders for the year ended December 31,
1999.
Consolidated Financial Statements and related notes are incorporated by
reference to the Registrant's Annual Report to Stockholders for the year
ended December 31, 1999, and may be found on the pages of said Report as
indicated in parentheses:
Consolidated Balance Sheets, December 31, 1999 and 1998 (page 26)
Statement of Consolidated Income for the years ended December 31, 1999,
1998 and 1997 (page 27)
Statement of Consolidated Cash Flows for the years ended December 31,
1999, 1998 and 1997 (pages 28 and 29)
Statement of Changes in Consolidated Stockholders' Equity for the years
ended December 31, 1999, 1998 and 1997 (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, 1999.
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.
24
<PAGE>
Signatures
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MERCANTILE BANKSHARES CORPORATION
By: /S/ H. Furlong Baldwin March 27, 2000
---------------------------------------
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 27, 2000
- ------------------------------------
H. Furlong Baldwin, Chairman of the
Board, President and Chief Executive Officer
Principal Financial Officer
/S/ Terry L. Troupe March 27, 2000
- ------------------------------------
Terry L. Troupe
Chief Financial Officer
Principal Accounting Officer
/S/ Diana Nelson March 27, 2000
- ------------------------------------
Diana Nelson
Controller
A majority of the Board of Directors:
George L. Bunting, Jr., Christian H. Poindexter, Freeman A. Hrabowski, III,
Darrell D. Friedman, Morton B. Plant, William R. Brody, Donald J. Shepard, Mary
Junck, Robert A. Kinsley, Thomas M. Bancroft, Jr., William J. McCarthy.
By: /S/ H. Furlong Baldwin March 27, 2000
--------------------------------
H. Furlong Baldwin
For Himself and as Attorney-in-Fact
25
<PAGE>
Exhibit (10) C
Fifth Amendment to Executive Employment Agreement
with H. Furlong Baldwin
<PAGE>
Exhibit (10) C
FIFTH AMENDMENT TO
EXECUTIVE EMPLOYMENT AGREEMENT
THIS FIFTH AMENDMENT to EXECUTIVE EMPLOYMENT AGREEMENT is made
this 18th day of January, 2000, 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, by a Third Amendment on
January 29, 1997, and by a Fourth Amendment on January 28, 1999 (collectively,
the "Agreement"); and
WHEREAS, the Agreement is scheduled to terminate on February 1, 2000; and
WHEREAS, Employer has requested an extension of the Agreement, 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:
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, 2000, shall be extended up to February 1, 2001."
In all other respects, the provisions of the Agreement, as heretofore
amended, remain unchanged and in full force and effect.
As was the case with prior extensions of the terms of the Agreement, the
extension provided for herein shall have the effect of continuing the period of
Executive's employment and postponing his retirement (generally and for purposes
of the Executive Severance Agreement among the parties dated December 31, 1989,
as subsequently amended, and the Deferred Compensation Agreement between
Executive and Mercantile-Safe Deposit and Trust Company dated September 30,
1982, as subsequently amended) for the extended term of the Agreement,
<PAGE>
unless the Agreement is sooner terminated pursuant to paragraph 8 of the
Agreement or by mutual agreement of the parties.
IN WITNESS WHEREOF, the parties have executed this Fifth Amendment to
Executive Employment Agreement the day and year first written above.
ATTEST: MERCANTILE BANKSHARES CORPORATION
/s/ Alan D. Yarbro By: /s/ Jack E. Steil
- -------------------------- ------------------------------
Alan D. Yarbro, Secretary Jack E. Steil, Executive 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
WITNESS:
/s/ Alan D. Yarbro /s/ H. Furlong Baldwin
- ---------------------- ------------------------------
Alan D. Yarbro H. Furlong Baldwin
<PAGE>
Exhibit (10) G
Second Amendment to Executive Severance Agreement
with H. Furlong Baldwin
<PAGE>
Exhibit (10) G
SECOND AMENDMENT TO
EXECUTIVE SEVERANCE AGREEMENT
THIS SECOND AMENDMENT to EXECUTIVE SEVERANCE AGREEMENT is made
this 18th day of January, 2000, by and between MERCANTILE BANKSHARES
CORPORATION and MERCANTILE-SAFE DEPOSIT & TRUST COMPANY (collectively,
the "Company"), and H. FURLONG BALDWIN (the "Employee").
WHEREAS, Employee and Company entered into an Executive Severance Agreement
dated December 31, 1989, which was amended by a First Amendment dated January
29, 1997 (collectively the "Agreement"); and
WHEREAS, the Agreement, as previously extended, is scheduled to terminate
on February 1, 2000; and
WHEREAS, Company has determined to retain Employee in his current
capacities beyond February 1, 2000, and Employee has agreed to do so; and
WHEREAS, the parties wish to amend the Agreement to clarify its application
to Employee subsequent to February 1, 2000.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, receipt of which is hereby acknowledged, and in further
consideration of the mutual covenants contained in the Agreement, the parties do
hereby agree that the Agreement is hereby amended as follows:
FIRST CHANGE
------------
The last sentence of Section 1(c) (which was added by the First Amendment
to the Agreement) is amended to read in its entirety as follows:
"From and after February 1, 2000, the Change of Control Period shall
mean the period commencing on that date and ending on February 1, 2001,
which date shall be extended to any later date as shall be provided
for cessation of employment by extension of the stated term of the
Employee's Executive Employment Agreement with Mercantile Bankshares
Corporation and Mercantile-Safe Deposit and Trust Company, dated March
24, 1982, as the same has been and may be from time to time amended
(the 'Executive Employment Agreement')."
<PAGE>
SECOND CHANGE
Section 2(d) is deleted in its entirety and the following is substituted in
lieu thereof:
"(d) Good Reason; Other than for Cause or Disability. If, at any time
-----------------------------------------------------
during the period beginning with the Effective Date and ending on the
earlier to occur of (i) the third anniversary of such date, or (ii)
February 1, 2001 (which date shall be extended to any later date as
shall be provided for cessation of employment by extension of the
stated term of the Executive Employment Agreement), the Company shall
terminate the Employee's employment other than for Cause, Disability or
death, or if the Employee shall terminate his employment with the
Company for Good Reason, the Company shall pay to the Employee in a
lump sum in cash within 30 days after the Date of Termination a
severance payment, the value of which is three times the Employee's
base amount of compensation (as defined in Section 280G(b)(3) of the
Internal Revenue Code of 1986 (the 'Code')) including, but not limited
to, such items as salary, bonus, fringe benefits, and deferred
compensation, less one dollar ($1.00)."
In all other respects, the provisions of the Agreement remain unchanged and
in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this First Amendment
to the Agreement as of the day and year first above written.
ATTEST: MERCANTILE BANKSHARES CORPORATION
/s/ Alan D. Yarbro By: /s/ Jack E. Steil
- -------------------------- ------------------------------
Alan D. Yarbro, Secretary Jack E. Steil, Executive 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
WITNESS:
/s/ Alan D. Yarbro /s/ H. Furlong Baldwin
- ---------------------- ------------------------------
Alan D. Yarbro H. Furlong Baldwin
<PAGE>
Exhibit (10) S
Option Agreement dated September 10, 1996
with Terry L. Troupe
<PAGE>
Exhibit (10) S
MERCANTILE BANKSHARES CORPORATION
OPTION AGREEMENT
This Option Agreement is entered into as of this 10th day of
September 1996, by and between Mercantile Bankshares Corporation ("MBC"), a
Maryland corporation, and Terry L. Troupe ("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 September 10,
1996.
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 20,000
shares of Stock.
Section 1.24 Option Price. "Option Price" shall mean the price
per share of Stock at which the Option may be exercised.
Section 1.25 Plan. "Plan" shall mean the Mercantile Bankshares
Corporation Omnibus Stock Plan.
Section 1.26 Retirement. "Retirement" shall mean early or normal
retirement in accordance with the terms of The Cash Balance Plan for Employees
of Mercantile Bankshares Corporation and Participating Affiliates, as it may
exist from time to time, or any successor plan.
Section 1.27 Stock. "Stock" shall mean shares of MBC's authorized
but unissued common stock, par value of Two Dollars ($2.00) per share.
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-seven Dollars and
Sixty-two and one-half Cents ($27.625) per share.
Section 2.2 Term of Option. The Option granted pursuant to
Section 2.1 shall expire on September 10, 2006, unless all or a portion of the
Option terminates earlier pursuant to other provisions of this Agreement.
ARTICLE 3
RESTRICTIONS ON EXERCISE
Section 3.1 Termination of Option or Portion of Option. The
Option shall become exercisable, if at all, only on an Anniversary Date. The
extent to which the Option shall become exercisable on any Anniversary Date
shall be determined pursuant to the provisions of Sections 3.2 and 3.3 of the
Agreement; provided that, except as otherwise provided under Section 4.4 of the
Agreement, in no case shall the Option become exercisable on any one (1)
Anniversary Date for more than the Anniversary Date Option Amount. To the extent
that, by application of the provisions of Sections 3.2 or 3.3 of the Agreement,
no portion of the Option becomes exercisable on an Anniversary Date, or the
Option becomes exercisable for less than the Anniversary Date Option Amount on
such Anniversary Date, the Option shall terminate with respect to that number of
shares of Stock that is equal to the difference between the Anniversary Date
Option Amount and the number of shares of Stock as to which the Option becomes
exercisable on such Anniversary Date.
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/ Alan D. Yarbro By:/s/ Edward K. Dunn, Jr.
- ------------------------- -----------------------
Alan D. Yarbro Edward K. Dunn, Jr.
WITNESS: GRANTEE
/s/ Monica S. Evans /s/ Terry L. Troupe
- ------------------------- -----------------------
Terry L. Troupe
15
<PAGE>
Exhibit 13
Annual Report to Stockholders
For the Year Ended December 31, 1999
MERCANTILE
BANKSHARES
CORPORATION
---------------------------------------------------
ANNUAL REPORT 1999
---------------------------------------------------
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 AND 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.
Mercantile Bankshares Corporation was organized in 1969 to combine
the benefits of community banking with the resources of a larger,
regional organization. Our family has grown to include twenty-one
locally managed and directed community banks.
WE CONTINUE TO BUILD
ON OUR TRADITIONAL STRENGTHS.
Corporate Continuity
Our banks carry on their proud traditions,
retaining their identities, managements and historic community ties while
delivering banking services supported by years of experience.
Most member banks have served their communities for more than eighty years;
seven have provided over a century of service.
Local Perspective
Each bank is dedicated to its own market and empowered to respond
directly to its customers' banking needs. Customer-related decisions are made
at the local level by employees who know their customers, understand
the local business environment and care about their community.
Relationship-Driven Service
With personal, responsive service, local bankers nurture ongoing
customer relationships through all phases of the economic cycle.
Community Commitment
Each member bank works to support its community, contributing dollars
and volunteering skills to the civic and charitable organizations
that make the community a better place to live and work.
Combined Resources
Backed by the Corporation's outstanding financial strength, members of
Mercantile Bankshares Corporation benefit from the efficiencies of
a larger organization, the specialized services available through the
largest affiliate, Mercantile-Safe Deposit and Trust Company, and the
convenience provided by a large network of banking offices.
<PAGE>
CONSOLIDATED FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
Increase
(Dollars in thousands, except per share data) 1999 1998 (Decrease)
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE YEAR
Net interest income............................ $ 369,086 $ 353,365 4.4%
Net income..................................... 157,737 147,128 7.2
Cash dividends paid............................ 65,113 61,538 5.8
Basic net income per share..................... 2.27 2.05 10.7
Diluted net income per share................... 2.25 2.04 10.3
Dividend paid per common share................. .94 .86 9.3
Average loans.................................. 5,377,367 5,004,765 7.4
Average investment securities.................. 1,842,625 1,706,128 8.0
Average assets................................. 7,628,660 7,260,777 5.1
Average deposits............................... 5,896,225 5,714,969 3.2
Average stockholders' equity................... 971,837 967,325 .5
---------- ---------- ------
AT YEAR END
Loans, net..................................... $5,600,945 $5,108,467 9.6%
Investment securities.......................... 1,769,534 1,907,541 (7.2)
Assets......................................... 7,895,024 7,609,563 3.8
Deposits....................................... 5,925,083 5,958,346 (.6)
Stockholders' equity........................... 974,040 999,359 (2.5)
Book value per common share.................... 14.19 14.07 .9
Market value per common share.................. 31 15/16 38 1/2 (17.0)
---------- ---------- ------
RATIOS
Return on average assets....................... 2.07% 2.03%
Return on average stockholders' equity......... 16.23 15.21
Average stockholders' equity/average assets.... 12.74 13.32
---------- ----------
STATISTICS
Banking offices................................ 183 179 4
Employees...................................... 2,796 2,804 (8)
Shareholders................................... 9,156 9,398 (242)
Average number of common shares outstanding.. 69,437,073 71,662,051 (2,224,978)
Common shares outstanding...................... 68,645,759 71,026,927 (2,381,168)
---------- ---------- ----------
</TABLE>
CONTENTS
<TABLE>
<CAPTION>
<S> <C>
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
</TABLE>
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
TO OUR SHAREHOLDERS
For the 24th consecutive year, Mercantile Bankshares Corporation reported an
increase in consolidated net income. Net income per share was $2.27, an 11%
increase over the $2.05 per share in 1998. Total consolidated net income was
$157,737,000 compared to $147,128,000 in 1998, an increase of 7%. Per share
amounts are based on the weighted average number of common shares outstanding,
69,437,000 for 1999 and 71,662,000 for 1998.
Our history of profitability and capital strength has allowed us to increase
total cash dividends paid per share for 23 consecutive years. In June 1999, the
cash dividend was increased to $.24 a share for the quarter. Total cash
dividends paid per share in 1999 were $.94, a 9% increase over 1998. The
compound growth rate of per share dividends paid to shareholders over the last
10 years is 11%.
In 1999, return on average assets, a key measure of profitability, was 2.07%,
up from 2.03% in 1998, continuing to place us in the top tier of U.S. banks. The
return on average equity, although constrained by our large equity base,
increased to 16.23% in 1999 from 15.21% in 1998.
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. We repurchased 2,697,000 shares of common stock during
1999, our most active year since the buyback program began in 1993. At their
December 1999 meeting, the Board of Directors authorized a new share repurchase
of up to 2,000,000 shares of common stock. This is in addition to approximately
1,700,000 shares which may be purchased under the Corporation's previously
announced programs. From December 1993 to year-end 1999, authorization has been
granted for repurchase of 14,000,000 shares and approximately 10,300,000 shares
of common stock have been repurchased.
Average shareholders' equity increased slightly to $971,800,000 for 1999. The
ratio of average equity to average assets, a measure of capital strength, at
12.74%, remains among the strongest of the nation's largest banking
organizations. At December 31, 1999, total shareholders' equity was
$974,000,000, representing a decrease of $25,400,000 from $999,400,000 at
December 31, 1998. The decrease is attributable primarily to the buyback
program, which reduced shareholders' equity by $96,500,000.
At December 31, 1999, total assets at Mercantile Bankshares Corporation were
$7,895,000,000 compared to $7,609,600,000 at December 31, 1998. On a daily
average basis, total assets rose 5.1% to $7,628,700,000. Average total loans
rose 7.4% to $5,377,400,000. Average total investment securities rose 8.0% to
$1,842,600,000.
The year 1999 saw a 7.4% increase in average total loans, almost double the
increase of 3.8% recorded in 1998. The ratios of loan types to total loans
remained much the same as in previous years. Average total mortgage and
construction loans, which increased 7%, were approximately 51% of the total loan
portfolio. Average commercial loans, which were approximately 37% of the entire
loan portfolio, increased 11%. Average consumer loans, 12% of the total average
loan portfolio, increased modestly. Loan volumes improved as 1999 progressed.
Credit quality at Mercantile Bankshares, as measured by commonly used
statistics, remains high. At year-end 1999, total non-performing loans were
$19,129,000 or .33% of total loans, down from $21,303,000 or .41% of total loans
at year-end 1998. Total non-performing assets, which include other real estate
owned as well as non-performing loans, were $20,792,000 at year-end 1999, down
from $22,584,000 the prior year. Non-performing assets as a percentage of year-
end loans plus other real estate owned was .36% at year-end 1999 compared to
.43% in 1998.
The provision for loan losses was $12,056,000 in 1999, up slightly from
$11,489,000 in 1998. In 1999, loans charged off, net of recoveries, totaled
$6,482,000, compared to the $6,597,000 charged off in 1998. The allowance for
loan losses at December 31,1999 was $117,997,000 versus $112,423,000 in the
prior year. The allowance for loan losses as a percentage of total year-end
loans was 2.06%, down from 2.15% in the prior year, reflecting the stronger loan
growth experienced in 1999.
Average total deposits for the year ended December 31, 1999 were
$5,896,200,000, a 3% increase over 1998. The mix of interest-bearing versus
noninterest-bearing deposits has remained relatively stable. In 1999, the ratio
of average demand deposits, which do not bear interest, to average total
deposits increased slightly from 21% to 23%. The combination of savings,
checking plus interest and money market accounts remained steady at 40% of total
average deposits. Certificates of deposit were 37% of average total deposits in
1999 compared to 39% the previous year. Lower interest rates paid on
certificates of deposit resulted in the shift to noninterest-bearing deposits.
Net interest income for 1999 increased 4% over 1998 to $369,086,000. While
average earning assets increased 5% in 1999 to $7,235,900,000, the net interest
margin on earning assets fell slightly to 5.17% compared to 5.20% in 1998. Net
interest rate spread, the difference between the yield realized on average
earning assets and interest rate paid for average interest-bearing funds, was
4.15% compared to 4.08% in 1998.
Total noninterest income increased 12% in 1999 to $121,991,000. The
2 [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
largest component of noninterest income is trust revenues. Trust and Investment
Management Services benefited in 1999 from a strong stock market, a vigorous
trust marketing program and more efficient management of resources. Trust
revenues increased 12% in 1999 to $65,036,000. 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
5% in 1999 to $230,420,000. Salary and employee benefit expenses, combined, are
the largest part of noninterest expense and were $134,665,000, up 2% over 1998.
This compares favorably to the 6% increase in these expenses reported for 1998.
The lower growth rate reflects the corporate-wide effort made to gain operating
efficiencies, including those from our investment in technology. The Corporation
did not incur any significant costs in 1999 associated with the conversion to
Year 2000 compliant computer systems and contingency planning related to the
date change. The successful conclusion of this complicated task was the result
of a multi-year, corporate-wide effort; we congratulate the many dedicated
people who accomplished it.
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, 1999, Mercantile Bankshares achieved an efficiency ratio of 46.55%. This
continues to place 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.
Despite widespread preoccupation with Y2K conversion, in the banking industry
1999 should be remembered as the year of the Banking Reform Bill. Although this
bill served to codify much that was already in progress, it underscores the
profound changes we are witnessing in the delivery of financial services. With
permission, now, to offer products they had been forbidden to offer, more large
banking institutions aspire to turn themselves into one-stop financial
supermarkets, a trend well underway. The effect of banking "reform" is to
further advance the division of the banking industry into a transaction, volume-
driven business on the one hand and a relationship-oriented business on the
other.
How will a niche bank like ours fare as financial institutions reconfigure?
We believe that many people will continue to seek a banking relationship based
on selected services performed well - services and relationships we provide
through our decentralized community bank structure. We recognize, however, that
in this world of change and consolidation, many banks will not survive.
Attributes that will help Mercantile Bankshares stay the course are a tradition
of prudent management of our business and decades of experience in delivering
value-added service.
A history of prudent management is demonstrated in a prior annual report of
our lead bank. The president of the bank described "the extreme expansion of the
memorable year of '99." He was referring to 1899. That earlier management
concluded: "following the tremendous spurt in every direction ... business
interests demanded conservatism in all operations." One hundred years later,
present management pursues a "conservatism" that translates into a strong
capital base and sound asset quality.
Maintaining ample capital provides not only a cushion against economic
downturns, but enables us to enhance services and technology. In addition, it
allows us to take advantage of opportunities to extend our affiliate system.
Prudent management is reflected also in sound asset quality, a result of
strictly adhering to high standards for underwriting credits. These standards
must be emphasized especially in times of superheated economic expansion. We
have found that judiciously extending credit is good for our company and our
customers. It is one reason we are able to forge banking relationships for the
long haul.
Finally, to succeed in a turbulent industry, we must remain faithful to our
tradition of value-added, relationship banking. Adding value means tailoring
services to the particular needs of local individuals and businesses; it means
building relationships based on the ongoing association of community bankers
with their customers. We are proud of the institutional continuity that makes
value-added banking possible and produces the results described in this report.
/s/ H. Furlong Baldwin
- ------------------------------
H. Furlong Baldwin, Chairman
February 28, 2000
BOARD OF DIRECTORS
In 1999, the Board lost the services of James A. Block, M.D. and B. Larry
Jenkins, each of whom did not stand for reelection. Also in 1999, Martin L.
Grass resigned from the Board. We are delighted that Morris W. Offit, who
resigned from the Board in 1999, agreed to serve as a Director Emeritus of
Mercantile Bankshares Corporation.
We welcome to the Board Darrell D. Friedman. Mr. Friedman is President and Chief
Executive Officer of THE ASSOCIATED: Jewish Community Federation of Baltimore.
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 3
<PAGE>
REVIEW OF SERVICES
The Mercantile Bankshares family of community banks provides a wide range of
financial services. Twenty-one affiliates serve the individuals and businesses
in their communities, delivering traditional banking services with a
relationship-oriented focus. Where appropriate, customer relationships are
enhanced by the specialized resources available through the largest affiliate,
Mercantile-Safe Deposit and Trust Company.
SERVICES TO INDIVIDUALS
Personal Banking
Each Mercantile Bankshares banking affiliate offers numerous services to meet
the checking, savings and credit needs of the individuals in its community. The
affiliate network provides customers with no-fee access to nearly 150 ATMs, and
customers can perform many routine transactions at any of the 183 affiliate
banking offices. For added convenience, most affiliates offer a toll-free
telephone number to check account balances, perform selected transactions or
reach a centralized Customer Service Center. Of course, customers may call their
local banking office directly.
Personal banking services include Individual Retirement Accounts,
certificates of deposit and various checking and savings accounts. Home equity
loans and lines of credit as well as installment loans are available to meet a
variety of borrowing needs.
Fixed annuities are another option available at most affiliates. Annuities
are offered through an insurance broker subsidiary of Mercantile-Safe Deposit
and Trust Company and are not FDIC insured.
Home Mortgages
Residential mortgages are available through affiliate banks and through
Mercantile Mortgage Corporation, a subsidiary of Mercantile-Safe Deposit and
Trust Company. A one-settlement construction/permanent loan is also 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 and Trust Company.
When managing a client's assets as part of an investment management or
trustee relationship, Mercantile focuses on consistent investment performance
and preservation of assets. Portfolios are individually designed to meet each
client's risk/return parameters and investment objectives. Where appropriate,
clients have access to the M.S.D.&T. Funds, a family of 13 mutual funds managed
by Mercantile that offers clients the advantages of professional money
management, asset diversity and enhanced liquidity.
Mercantile also acts in a custodial capacity, providing safekeeping of assets
and investment analysis. In addition, there are 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 provides coordinated management for the often complex
financial affairs of high net worth individuals. Business owners, professionals
and senior corporate executives are among those who find Private Banking
services beneficial. Private Banking is based in Baltimore at Mercantile-Safe
Deposit and Trust Company; its services are available throughout the affiliate
network.
The Private Banking Group provides one point of contact for its clients'
deposit, credit, investment management and trust needs; all services are
delivered within an overall asset management plan. Private Bankers can
coordinate cash flows, arrange investment of short- and long-term funds, or
structure credit arrangements to meet short- to long-term needs. 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 meet
the traditional credit needs of businesses in their market areas. Each bank
works 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. Where appropriate, affiliate
banks are adept at employing government guarantee programs, such as those
available from the Small Business Administration.
In addition to supplying credit to the businesses in its own market area,
Mercantile-Safe Deposit and 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.
Applying its experience in delivering services through community banks,
Mercantile began, in 1999, to offer an array of banking services to independent
banks located outside of the affiliation's traditional market areas. The primary
focus is to provide these community banks with greater lending capacity,
enabling them to enhance the service they provide to their local customers.
Specialized Lending
When local commercial customers do not qualify for traditional financing, the
Asset-Based Lending Group at Mercantile-Safe Deposit and Trust Company can help
them convert the value of their accounts receivable, inventory and equipment
into cash for operations. Mercantile also works with the affiliate 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 multifamily
housing.
Mercantile Mortgage Corporation is a Fannie Mae Delegated Underwriting and
Servicing approved permanent lender on multifamily projects, one of the few in
the nation.
Cash Management
Centered at Mercantile-Safe Deposit and Trust Company, Cash Management helps
business customers of all affiliate banks collect, transfer and invest their
cash. Not-for-profit institutions such as unions, charities and philanthropic
organizations also find Cash Management services useful.
Leasing
Headquartered in Baltimore, MBC Leasing Corp. provides a wide variety of
equipment leasing arrangements to local businesses. Often integrated into a
larger banking relationship, leasing is a financial alternative that offers
advantages to the many commercial customers who prefer not to buy and own major
equipment.
Employee Benefit Services
The Institutional Services Group at Mercantile-Safe Deposit and Trust Company
works with each affiliate to help local businesses establish or enhance their
employee retirement plans and profit sharing plans. Not-for-profit
organizations, 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 the M.S.D.&T. Funds, as well as from some of the nation's highest rated
mutual fund families.
Mercantile also offers plan design and documentation, plan administration and
tax reporting, employee education and other retirement plan services.
Investment Management and Administration of Assets
Mercantile's Institutional Services Group and the affiliates work together to
bring sophisticated investment management and administration services to local
businesses and not-for-profit organizations.
Not-for-profit institutions such as charitable and philanthropic
organizations, unions, state and local governments and military institutions, as
well as other businesses, can all benefit from Mercantile's trust and investment
management expertise. Institutional Services offers the latest in technology and
works to build flexibility into each relationship.
Mercantile can also help not-for-profit organizations with annual giving and
capital campaigns, pooled income funds, gift annuities and charitable remainder
trusts.
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 5
<PAGE>
MANAGEMENT'S DISCUSSION
[GRAPH APPEARS HERE]
TOTAL ASSETS
(Dollars in millions) December 31
'95 '96 '97 '98 '99
$6,349 $6,643 $7,171 $7,610 $7,895
[GRAPH APPEARS HERE]
EARNINGS GROWTH
NET INCOME
(Dollars in millions)
5 Year Compound Growth Rate: 11.8%
'95 '96 '97 '98 '99
$104.4 $117.4 $132.0 $147.1 $157.7
[GRAPH APPEARS HERE]
BASIC EARNINGS PER SHARE
(In dollars)
5 Year Compound Growth Rate: 12.7%
'95 '96 '97 '98 '99
$1.46 $1.64 $1.85 $2.05 $2.27
Management's Discussion and
Analysis of Financial Condition and
Results of Operations
I. Performance Summary
Mercantile Bankshares Corporation ("Mercshares") recorded a 7.2% increase in net
income for 1999, representing the 24th consecutive year of increased net income.
Net income for Mercshares was $157,737,000 for the year ended December 31, 1999,
compared to $147,128,000 and $132,043,000 for the years ended December 31, 1998
and 1997, respectively. Basic net income per common share for 1999 was $2.27,
compared to $2.05 reported for 1998, an increase of 10.7%. Basic net income per
share reported for 1997 was $1.85. Diluted net income per common share was
$2.25, an increase of 10.3% from the reported $2.04 in 1998. The diluted net
income per share in 1997 was $1.84.
As indicated by the industry standards of return on average assets (ROA) and
return on average stockholders' equity (ROE), 1999 reported the best performance
of the '90s for Mercshares. When the decade began in 1990, ROA was 1.56% and ROE
was 14.74%. The 1999 ROA was 2.07% compared to 2.03% and 1.93% for the years
ended December 31, 1998 and 1997, respectively. Mercshares' 1999 ROE increased
to 16.23% compared to the 15.21% reported for 1998 and 14.90% reported for 1997.
The improvement in ROE was enhanced by the increased share repurchase activity.
The buyback plan retired 2,697,000 shares in 1999. Mercshares raised $50,000,000
in long-term debt during 1999 to fund the share repurchase activity. Average
stockholders' equity to average assets remained a very strong 12.74%, while down
from 13.32% reported for 1998 and 12.98% for 1997.
Average assets increased by 5.1% to $7,628,660,000, average deposits
increased by 3.2% to $5,896,225,000 and average loans increased by 7.4% to
$5,377,367,000 for the year ended December 31, 1999, compared to the prior year.
Total deposits at year-end 1999 were $5,925,083,000, a decrease of .6% from 1998
levels, and total loans at year-end were $5,600,945,000, an increase of 9.6%
above 1998.
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 $373,738,000 for 1999, an increase of $15,003,000 or 4.2% over the
prior year's $358,735,000. Fully taxable equivalent net interest income
increased by $18,188,000 or 5.3% in 1998 over 1997. In 1999, as reflected in the
volume variance column of the Rate/Volume Analysis, the 4.9% growth in average
earning assets was offset by a decline in the net interest margin which was
5.17% in 1999, down 3 basis points from the 5.20% reported in 1998. The 6.2%
growth in average earning assets accounted for the improvement in net interest
income in 1998. The major components of earning assets in 1999 were
6 [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
loans at 74.3% and securities at 25.5%. This reflects an increase in both
components which were 72.6% and 24.7%, respectively, of earning assets in 1998.
Interest Income
Fully taxable equivalent interest income amounted to $563,820,000 in 1999,
representing an increase of $3,058,000 or .5% over $560,762,000 in 1998. The
increase in 1998 over 1997 was $22,294,000 or 4.1%. The yield on average earning
assets in 1999 was 7.79% compared to a yield of 8.13% in 1998 and 8.29% in 1997.
The change in the yield on average earning assets is impacted by the change in
the average prime rate. The prime rate averaged 8% for 1999 and 83/8% for 1998
and 1997. The yield on average total loans was 8.52% in 1999 compared to 8.97%
in 1998 and 9.08% in 1997. The growth in average total loans was 7.4% in 1999,
almost double the growth in 1998 of 3.8%. The decline of 45 basis points in the
yield on average total loans reflects the decline in the average prime rate and
the increasingly competitive markets in which Mercshares' affiliates are
operating. There was a 27 basis point decline in the yield on investment
securities from 5.97% in 1998 to 5.70% in 1999. This is the second year that the
portfolio yield has declined, from 6.05% in 1997, which reflects the decline in
interest rates.
Interest Expense
Total interest expense in 1999 was $190,082,000, a decrease of $11,945,000 from
$202,027,000 in 1998. The decrease in interest expense for 1999 was primarily
attributable to a decline in the rate paid on interest-bearing deposits of 50
basis points to 3.46% during 1999 from 3.96% in 1998. Overall, the rate paid on
total interest-bearing funds decreased to 3.64% in 1999 from 4.05% in 1998.
Total interest expense in 1998 was $4,106,000 higher than in 1997 due primarily
to a 2.7% increase in average interest-bearing deposits. During 1997, the rate
paid on interest-bearing deposits and total interest-bearing funds was 4.05% and
4.14%, respectively.
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. Beginning in 1995, the benefit derived from lowering the overall
cost of funding earning assets through these sources had steadily increased
through the 1998 year-end. However, in 1999 there was a 10 basis point decline
to 1.02% from 1.12% in 1998. The benefit in 1997 was 1.09%. This benefit is
influenced by the relative levels of interest rates as well as the volume of
such funds. Lower interest rates through most of 1999 accounted for the decline
this year. The decrease in the rate paid on interest-bearing funds, from 4.05%
to 3.64% in 1999, served to minimize the impact the lower interest rate
environment had on the net interest margin on earning assets.
Noninterest Income
Total noninterest income, including investment securities gains or losses, was
$121,991,000 in 1999. This represents an increase of $13,298,000 or 12.2% above
1998. Noninterest income for 1998 was $108,693,000, an increase of $10,040,000
or 10.2% above 1997. The increase in 1999 noninterest income was due primarily
to the increase in Trust Division earnings and an increase in service charges
from the sale of bank services and products. Adding to the increase in
noninterest income for 1999 were gains of $807,000 on the sale of two bank owned
buildings and income of $2,012,000, the fair market value of stock received from
the demutualization of an insurance company, in which several of Mercshares'
affiliates were policyholders. These items are included in other income.
Revenues from services provided by the Trust Division, which represents the
largest source of noninterest income, amounted to $65,036,000 for 1999, an
increase of 12.1% or $7,018,000 over 1998. Revenues of $58,018,000 for 1998
represented an increase of $6,471,000 or 12.6% over 1997. At December 31, 1999,
assets under administration by the Trust Division were $38 billion, of which
Mercshares had investment
[GRAPH APPEARS HERE]
INTEREST YIELDS AND RATES
(Tax equivalent basis)
<TABLE>
<CAPTION>
'95 '96 '97 '98 '99
<S> <C> <C> <C> <C> <C>
Average yield earned on earning assets 8.30% 8.24% 8.29% 8.13% 7.79%
Average rate paid on interest-bearing funds 4.21% 4.11% 4.14% 4.05% 3.64%
</TABLE>
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 7
<PAGE>
ANALYSIS OF INTEREST RATES AND INTEREST DIFFERENTIALS
The following table presents the distribution of the average consolidated
balance sheets, interest income/expense and annualized yields earned and rates
paid.
<TABLE>
<CAPTION>
1999
--------------------------------------------------------
Average Income*/ Yield*/
(Dollars in thousands) Balance** Expense Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Earning assets
Loans:
Commercial..................................................... $1,982,254 $170,037 8.58%
Mortgage and construction...................................... 2,744,365 232,489 8.47
Consumer....................................................... 650,748 55,410 8.51
---------- --------
Total loans.............................................. 5,377,367 457,936 8.52
---------- --------
Federal funds sold................................................ 15,762 781 4.95
Securities purchased under resale agreements...................... - - -
Securities:
Taxable securities
U.S. Treasury securities.................................... 1,788,899 100,948 5.64
U.S. Agency securities...................................... 18,365 1,090 5.94
Other stocks and bonds...................................... 23,337 2,100 9.00
Tax-exempt securities
States and political subdivisions........................... 12,024 959 7.98
---------- --------
Total securities......................................... 1,842,625 105,097 5.70
---------- --------
Interest-bearing deposits in other banks.......................... 136 6 4.41
---------- --------
Total earning assets..................................... 7,235,890 563,820 7.79
--------
Cash and due from banks.............................................. 228,055
Bank premises and equipment, net..................................... 94,608
Other assets......................................................... 185,311
Less: allowance for loan losses...................................... (115,204)
----------
Total assets............................................. $7,628,660
==========
Interest-bearing liabilities
Deposits:
Savings deposits............................................... $2,375,075 48,442 2.04
Certificates of deposit and other time deposits--
less than $100,000.......................................... 1,472,268 71,208 4.84
Certificates of deposit--$100,000 and over...................... 714,600 38,347 5.37
---------- --------
Total interest-bearing deposits.......................... 4,561,943 157,997 3.46
Short-term borrowings............................................. 594,106 27,267 4.59
Long-term debt.................................................... 70,836 4,818 6.80
---------- --------
Total interest-bearing funds............................. 5,226,885 190,082 3.64
--------
Noninterest-bearing deposits......................................... 1,334,282
Other liabilities and accrued expenses............................... 95,656
----------
Total liabilities........................................ 6,656,823
Stockholders' equity................................................. 971,837
----------
Total liabilities and stockholders' equity............... $7,628,660
==========
Net interest income.................................................. $373,738
========
Net interest rate spread............................................. 4.15%
Effect of noninterest-bearing funds.................................. 1.02
----
Net interest margin on earning assets................................ 5.17%
====
Taxable-equivalent adjustment included in:
Loan income....................................................... $ 4,111
Investment securities income...................................... 541
--------
Total.................................................... $ 4,652
========
</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>
1998 1997
- ------------------------------------------------------ ------------------------------------------------------
Average Income*/ Yield*/ Average Income*/ Yield*/
Balance** Expense Rate Balance** Expense Rate
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$1,787,033 $161,016 9.01% $1,659,967 $150,866 9.09%
2,570,447 230,089 8.95 2,523,863 229,196 9.08
647,285 57,939 8.95 637,669 57,767 9.06
- ---------- -------- ---------- --------
5,004,765 449,044 8.97 4,821,499 437,829 9.08
- ---------- -------- ---------- --------
177,049 9,387 5.30 78,786 4,389 5.57
8,155 464 5.69 5,346 301 5.63
1,650,707 97,642 5.92 1,535,144 92,154 6.00
17,925 1,027 5.73 16,082 899 5.59
23,171 2,052 8.86 22,773 1,879 8.25
14,325 1,141 7.96 13,079 1,012 7.74
- ---------- -------- ---------- --------
1,706,128 101,862 5.97 1,587,078 95,944 6.05
- ---------- -------- ---------- --------
100 5 5.10 100 5 5.50
- ---------- -------- ---------- --------
6,896,197 560,762 8.13 6,492,809 538,468 8.29
-------- --------
214,544 194,428
86,240 79,922
174,610 164,505
(110,814) (102,821)
- ---------- ----------
$7,260,777 $6,828,843
========== ==========
$2,264,295 56,720 2.50 $2,198,826 57,702 2.62
1,522,619 81,519 5.35 1,467,814 80,289 5.47
711,329 39,905 5.61 713,384 39,378 5.52
- ---------- -------- ---------- --------
4,498,243 178,144 3.96 4,380,024 177,369 4.05
439,936 20,800 4.73 353,587 17,220 4.87
45,802 3,083 6.73 49,939 3,332 6.67
- ---------- -------- ---------- --------
4,983,981 202,027 4.05 4,783,550 197,921 4.14
-------- --------
1,216,726 1,069,032
92,745 89,855
- ---------- ----------
6,293,452 5,942,437
967,325 886,406
- ---------- ----------
$7,260,777 $6,828,843
========== ==========
$358,735 $340,547
======== ========
4.08% 4.15%
1.12 1.09
---- ----
5.20% 5.24%
==== ====
$ 4,525 $ 3,796
845 702
------- -------
$ 5,370 $ 4,498
======= =======
</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) 1999 1998 1997 1999/1998 1998/1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Trust division services............................. $ 65,036 $ 58,018 $51,547 12.1% 12.6%
Service charges on deposit accounts................. 23,043 19,666 18,105 17.2 8.6
Other fees ......................................... 27,900 27,107 25,184 2.9 7.6
Investment securities gains and (losses)............ (73) 8 (1,491) - -
Other income........................................ 6,085 3,894 5,308 56.3 (26.6)
-------- -------- -------
Total................................... $121,991 $108,693 $98,653 12.2% 10.2%
======== ======== ======= ===== =====
</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,
1999 vs. 1998 1998 vs. 1997
Due to variances in Due to variances in
---------------------------------------- --------------------------------------
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)........................... $ 9,021 $ (7,725) $17,590 $ (844) $10,150 $ (1,311) $11,561 $(100)
Mortgage & construction (2).............. 2,400 (12,333) 15,568 (835) 893 (3,269) 4,223 (61)
Consumer................................. (2,529) (2,824) 310 (15) 172 (687) 870 (11)
Taxable securities (3)...................... 3,417 (4,479) 8,263 (367) 5,789 (1,224) 7,105 (92)
Tax-exempt securities (3)................... (182) 2 (183) (1) 129 33 93 3
Federal funds sold/repos.................... (9,070) (674) (9,013) 617 5,161 (217) 5,638 (260)
Interest-bearing deposits in other banks.... 1 (1) 2 - - - - -
------- --------- ------- ------- ------- -------- ------- ----
Total interest income.............. 3,058 (23,411) 27,622 (1,153) 22,294 (10,508) 33,455 (653)
------- --------- ------- ------- ------- -------- ------- ----
Interest paid on:
Savings deposits............................ (8,278) (10,537) 2,775 (516) (982) (2,623) 1,719 (78)
Certificates of deposit and other time
deposits less than $100,000.............. (10,311) (7,876) (2,696) 261 1,230 (1,709) 3,003 (64)
Certificates of deposit--$100,000 and over.. (1,558) (1,734) 184 (8) 527 645 (116) (2)
Short-term borrowings....................... 6,467 (609) 7,289 (213) 3,580 (501) 4,203 (122)
Long-term debt.............................. 1,735 32 1,685 18 (249) 27 (274) (2)
------- --------- ------- ------- ------- -------- ------- ----
Total interest expense............. (11,945) (20,778) 9,846 (1,013) 4,106 (4,021) 8,296 (169)
------- --------- ------- ------- ------- -------- ------- ----
Net interest earned............................ $15,003 $ (2,633) $17,776 $ (140) $18,188 $ (6,487) $25,159 $(484)
======= ========= ======= ======= ======= ======== ======= =====
</TABLE>
(1) Tax equivalent adjustments of $3,268,000 for 1999, $3,818,000 for 1998 and
$3,557,000 for 1997 are included in the calculation of commercial loan rate
variances.
(2) Tax equivalent adjustments of $843,000 for 1999, $707,000 for 1998 and
$239,000 for 1997 are included in the calculation of mortgage and
construction loan rate variances.
(3) Tax equivalent adjustments of $541,000 for 1999, $845,000 for 1998 and
$702,000 for 1997 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) 1999 1998 1997 1999/1998 1998/1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and employee benefits...................... $134,665 $131,618 $124,563 2.3% 5.7%
Net occupancy expense of bank premises.............. 11,975 11,570 12,246 3.5 (5.5)
Furniture and equipment expenses.................... 20,984 18,916 20,417 10.9 (7.4)
Communications and supplies......................... 12,662 12,163 11,804 4.1 3.0
Amortization of excess cost over equity in affiliates 3,832 3,444 2,347 11.3 46.7
Other expenses...................................... 46,302 41,294 42,027 12.1 (1.7)
-------- -------- --------
Total................................... $230,420 $219,005 $213,404 5.2% 2.6%
======== ======== ======== ==== ====
</TABLE>
management responsibility for $14 billion. This compares to 1998 assets under
administration of $39 billion and investment management responsibility of $14
billion. See the discussion under Segment Reporting for additional information
relating to the Trust Division.
Other fees increased by $793,000 or 2.9% to $27,900,000 for 1999. During
1998, other fees increased by $1,923,000 or 7.6% to $27,107,000 from $25,184,000
in 1997. The most significant factors relative to the change in the level of
other fee income are debit and credit card processing and annuity sales fees. In
1999, these fees accounted for an increase of $1,650,000. Debit card and annuity
sales fees, included in other fees, reflected growth of 73.3% and 41.0%,
respectively. These were offset by a decrease in loan fees of $1,507,000. A
43.6% decline in mortgage banking loan origination fees was the largest factor
in the reduced loan fee income.
Noninterest Expenses
Total noninterest expenses in 1999 were $230,420,000, representing an increase
of $11,415,000 or 5.2% over the prior year level of $219,005,000. Salaries and
employee benefits, furniture and fixtures, and other expenses comprised the
largest increases for 1999. In comparison, 1997 total noninterest expenses were
$213,404,000. 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 increased 4.8% over 1997 expenses, excluding Year
2000 related expenses. External costs related to Year 2000 in 1998 and 1999 were
insignificant. During 1998, increases in salaries and benefits were partially
offset by reductions in occupancy expense of bank premises and furniture and
equipment expenses.
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 46.6%, 46.9%, and 48.5% for the years ended December 31,
1999, 1998, and 1997, 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. Excluding amortization expense of intangibles
associated with goodwill from affiliate acquisitions, the efficiency ratio was
45.78%, 46.12%, and 47.94% in 1999,1998, and 1997, respectively.
Salaries and employee benefits totaled $134,665,000 in 1999, $3,047,000 or
2.3% over the $131,618,000 expense level for 1998. The combined salaries and
employee benefit expenses for 1998 were up $7,055,000 or 5.7% over the
$124,563,000 reported for 1997. Mercshares' staffing level on a full time
equivalent basis was 2,796 at December 31, 1999, a decrease from 2,804 at
December 31, 1998 and 2,889 reported
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 11
<PAGE>
[GRAPH APPEARS HERE]
SOURCES OF INCOME
(Dollars in millions)
'95 '96 '97 '98 '99
-------------------------------------------
Interest and fees on loans 69% 68% 69% 67% 67%
Other interest and dividend income 16% 17% 16% 17% 15%
Trust division 8% 8% 8% 9% 10%
Other income 7% 7% 7% 7% 8%
Total 100% 100% 100% 100% 100%
Total of all sources of income $548.2 $587.6 $632.6 $664.1 $681.2
[GRAPH APPEARS HERE]
USES OF INCOME
(Dollars in millions)
'95 '96 '97 '98 '99
-------------------------------------------
Interest expense 33% 32% 31% 30% 28%
Provision for loan losses 1% 2% 2% 2% 2%
Salaries and employee benefits 22% 21% 20% 20% 20%
Other expenses 14% 13% 14% 13% 14%
Applicable income taxes 11% 12% 12% 13% 13%
Net income 19% 20% 21% 22% 23%
Total 100% 100% 100% 100% 100%
Total of all uses of income $548.2 $587.6 $632.6 $664.1 $681.2
at December 31,1997. As a result of the corporate effort to gain operating
efficiencies, the number of full time employees has declined 3.2% from 1997 to
1999, even though acquisitions in these periods added 60 employees. Also
included in salaries are Mercshares' Omnibus Stock Plan expenses, which were
$333,000 in 1999 compared to $1,048,000 in 1998 and $1,027,000 for 1997. The
expense reduction is a result of the vesting of options under the 1995 Stock
Option Plan being substantially completed. See Footnote No. 13 to the financial
statements for a description of the option plan. Employee benefit expenses
increased by $792,000 or 3.2% during 1999. This increase over the prior year is
primarily attributable to payroll taxes and increased pension costs.
Net occupancy expense increased $405,000 or 3.5% during 1999 to $11,975,000.
Net occupancy expense was $11,570,000 in 1998 compared to $12,246,000 in 1997.
Total furniture and equipment expenses were $20,984,000, an increase of
$2,068,000 or 10.9% compared to 1998 expenses of $18,916,000. A significant
amount of the increase is a result of hardware and software upgrades and the
consolidation of back office support functions, which included a centralized
call center. The centralized call center was a new service for Mercshares
customers in 1999. In 1997, furniture and equipment expenses were $20,417,000.
Other expenses for 1999 totaled $46,302,000, representing an increase of
$5,008,000 or 12.1% from the $41,294,000 recorded in 1998. The primary reason
for the unfavorable variance in 1999 is higher professional fees and an increase
in charitable contributions, the result of donating to a charitable fund a
substantial portion of the stock received from the demutualization of an
insurance company previously discussed. Other expenses totaled $42,027,000 for
1997.
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 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. Certain expense amounts have been reclassified from internal
financial reporting in order to provide for full cost absorption in the data
reported herein.
Net income for the Community Banks for 1999 was $87,340,000 compared to
$80,229,000 and $74,459,000 for 1998 and 1997, respectively. Return on average
assets (ROA) has increased over the past three years from 1.71% in 1997 to 1.77%
in 1999. The Community Banks have experienced a similar increase in return on
average equity (ROE) from 14.27% in 1998 to 14.65% in 1999. MSD&T recorded net
income of $73,064,000 in 1999 compared to $68,845,000 in 1998 and $60,560,000 in
1997. ROA for MSD&T was 2.59% in 1999 compared to 2.50% in 1998 and 2.35% in
1997. During the same periods, MSD&T recorded ROE of 21.75%, 21.93%, and 20.33%.
MSD&T's performance is enhanced by its Trust Division. Net income for the Trust
Division was $15,917,000 in 1999 versus $13,664,000 and $10,728,000 in 1998 and
1997, respectively. Trust Division net income reflected a compound growth rate
of 18.0% over the three year period.
Average assets for the Community Banks increased 5.6% to $4,935,303,000 in
1999 compared to the increase of 7.2% in 1998. This was a result of increases in
loans and investments for the year. Average assets for MSD&T increased 2.3% to
$2,816,545,000 in 1999 compared to a 6.6% increase in 1998. The growth in assets
at MSD&T is
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, 1999, 1998 and
1997.
<TABLE>
<CAPTION>
December 31, 1999 December 31, 1998 December 31, 1997
----------------------------- ----------------------------- ------------------------------
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................. $ 1,293 $ 1,296 7.48% $ 5,086 $ 5,107 6.93% $ 3,585 $ 3,584 7.23%
1-5 years..................... 6,193 6,175 7.29 4,010 4,103 7.38 7,246 7,282 7.35
5-10 years.................... 2,412 2,383 7.32 2,789 2,886 7.21 250 264 9.49
After 10 years................ 318 302 7.87 551 577 7.67 - - -
---------- ---------- ---------- ---------- ---------- ----------
Total....................... $ 10,216 $ 10,156 7.34% $ 12,436 $ 12,673 7.17% $ 11,081 $ 11,130 7.36%
========== ========== ===== ========== ========== ==== ========== ========== ====
Average maturity (years).... 4.1 3.2 1.6
==== ==== ====
Other bonds, notes and debentures:
After 10 years................ $ 4 $ 4 10.23% $ 8 $ 8 7.65% $ 8 $ 8 9.06%
---------- ---------- ---------- ---------- ---------- ----------
Total....................... $ 4 $ 4 10.23% $ 8 $ 8 7.65% $ 8 $ 8 9.06%
========== ========== ===== ========== ========== ==== ========== ========== ====
Average maturity (years).... 17.8 18.8 19.8
==== ==== ====
Totals:
Within 1 year................. $ 1,293 $ 1,296 7.48% $ 5,086 $ 5,107 6.93% $ 3,585 $ 3,584 7.23%
1-5 years..................... 6,193 6,175 7.29 4,010 4,103 7.38 7,246 7,282 7.35
5-10 years.................... 2,412 2,383 7.32 2,789 2,886 7.21 250 264 9.49
After 10 years................ 322 306 7.90 559 585 7.67 8 8 9.06
---------- ---------- ---------- ---------- ---------- ----------
Total ...................... $ 10,220 $ 10,160 7.34% $ 12,444 $ 12,681 7.17% $ 11,089 $ 11,138 7.36%
========== ========== ===== ========== ========== ==== ========== ========== ====
Average maturity (years).... 4.1 3.2 1.7
==== ==== ====
Securities available-for-sale
U.S. Treasury and other
U.S. government agencies:
Within 1 year................. $ 531,583 $ 531,207 5.83% $ 526,261 $ 529,883 5.96% $ 483,667 $ 484,092 5.81%
1-5 years..................... 1,216,079 1,195,961 5.52 1,308,674 1,332,099 5.62 1,096,758 1,105,750 6.08
5-10 years.................... 683 673 6.56 1,200 1,213 6.84 450 450 6.77
After 10 years................ - - - - - - - - -
---------- ---------- ---------- ---------- ---------- ----------
Total....................... $1,748,345 $1,727,841 5.62% $1,836,135 $1,863,195 5.72% $1,580,875 $1,590,292 6.00%
========== ========== ===== ========== ========== ==== ========== ========== ====
Average maturity (years).... 1.7 1.8 1.8
==== ==== ====
States and political subdivisions:
1-5 years..................... $ 801 $ 808 7.85% $ 802 $ 832 7.85% $ 702 $ 726 8.35%
5-10 years.................... 549 524 8.54 350 371 9.50 - - -
After 10 years................ - - - 199 202 6.88 30 31 11.92
---------- ---------- ---------- ---------- ---------- ----------
Total....................... $ 1,350 $ 1,332 8.14% $ 1,351 $ 1,405 8.14% $ 732 $ 757 8.49%
========== ========== ===== ========== ========== ==== ========== ========== ====
Average maturity (years).... 4.9 5.9 4.4
==== ==== ====
Other bonds, notes and debentures:
Within 1 year................. $ 561 $ 534 5.60% $ 354 $ 356 6.04% $ 33 $ 33 4.76%
1-5 years..................... 33 33 7.55 987 988 5.70 1,546 1,527 5.80
5-10 years.................... 1,142 1,111 6.33 2,134 2,153 5.85 3,113 3,088 5.77
After 10 years................ 292 286 7.29 477 488 7.38 1,170 1,170 7.11
---------- ---------- ---------- ---------- ---------- ----------
Total....................... $ 2,028 $ 1,964 6.28% $ 3,952 $ 3,985 6.02% $ 5,862 $ 5,818 6.04%
========== ========== ===== ========== ========== ==== ========== ========== ====
Average maturity (years).... 7.2 7.1 8.0
==== ==== ====
Totals:
Within 1 year................. $ 532,144 $ 531,741 5.83% $ 526,615 $ 530,239 5.96% $ 483,700 $ 484,125 5.81%
1-5 years..................... 1,216,913 1,196,802 5.52 1,310,463 1,333,919 5.63 1,099,006 1,108,003 6.08
5-10 years.................... 2,374 2,308 6.91 3,684 3,737 6.52 3,563 3,538 5.90
After 10 years................ 292 286 7.29 676 690 7.23 1,200 1,201 7.23
---------- ---------- ---------- ---------- ---------- ----------
Total....................... $1,751,723 $1,731,137 5.62% $1,841,438 $1,868,585 5.72% $1,587,469 $1,596,867 6.00%
========== ========== ===== ========== ========== ==== ========== ========== ====
Average maturity (years).... 1.7 1.8 1.8
==== ==== ====
</TABLE>
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 13
<PAGE>
[GRAPH APPEARS HERE]
ALLOWANCE AS A % OF AVERAGE LOANS;
CHARGE-OFFS (Net of Recoveries)
AS A % OF AVERAGE LOANS
'95 '96 '97 '98 '99
Loan loss allowance
as a % of average loans 2.24% 2.22% 2.20% 2.25% 2.19%
Net charge-offs
as a % of average loans .26% .19% .14% .13% .12%
related to growth in the loan portfolio. Average deposits for the Community
Banks increased 5.1% to $4,093,992,000 in 1999, while average deposits for MSD&T
declined .3%. Average loans increased 5.5% to $3,250,045,000 for the Community
Banks and 10.6% to $2,126,801,000 for MSD&T in 1999. At December 31, 1999, 60.4%
of total loans were at the Community Banks, compared to 61.6% in 1998. The
largest portion of the Community Bank loans was in the commercial category,
which accounted for 48.8% of the loans. Commercial was also the largest sector
of MSD&T's loans at 70.9% of total MSD&T loans. The commercial category
increased at both the Community Banks and MSD&T by 8.7% from year-end 1998.
Mortgages and consumer loans accounted for approximately the same portion of the
Community Bank loans at 24.3% and 22.3%, respectively in 1999. Mortgages
declined slightly by 2.1%, while consumer loans increased 7.6% from 1998 levels.
Construction loans, 4.6% of total loans at the Community Banks, are historically
a smaller contributor. At MSD&T, construction loans comprised 21.5% of total
MSD&T loans and also reflected the largest sector increase at MSD&T of 25.5%
from 1998. In 1998, 19.0% of total MSD&T loans were for construction. Mortgages
and consumer loans at 4.0% and 3.6%, respectively, are consistent with
historical trends as a percent of total MSD&T loans.
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, 1999, the total investment securities portfolio was $1,769,534,000,
reflecting a decrease of $138,007,000 or 7.2% below the prior year's
$1,907,541,000. As in the past, the portfolio is almost exclusively comprised of
short and intermediate-term U.S. Treasury securities; accordingly, more than 99%
of the total investment portfolio is classified as available-for-sale. At year-
end 1999, the average maturity of the bond component of the available-for-sale
portfolio was 1.7 years, consistent with the prior year. Reflecting the rise in
interest rates during the second half of 1999, the market value of the bond
investment portfolio as of December 31, 1999, was 98.8% of adjusted cost
compared to 101.5% at December 31, 1998. At December 31, 1999, $412,625,000 of
these investments had unrealized gains of $992,000 and the remaining
$1,349,318,000 of these investment securities had unrealized losses of
$21,638,000. 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 improved growth in loans during 1999. Continuing the
trend of the prior two years, average total loans increased by $372,602,000 or
7.4% to $5,377,367,000 for the year ended December 31, 1999. Average loans
increased in all three categories in 1999: commercial (including industrial,
financial and agricultural); real estate loans (residential and commercial
mortgages and construction loans); and consumer. Average commercial loans grew
10.9% in 1999 to an average balance of $1,982,254,000, compared to a growth rate
of 7.7% in 1998. Real estate loans grew 6.8% to an average balance of
$2,744,365,000 in 1999, which represented an increase from the 1.8% growth rate
reported in 1998. Growth in both the commercial and real estate loan portfolios
resulted from, among other things, a combination of increased market penetration
and increased business with existing customers. It is not a result of relaxation
of Mercshares' historically sound underwriting standards. Reflecting
management's decision not to compete in the mass market consumer lending arena,
consumer loans continued the trend of modest growth with an increase of 1.0% in
1999.
While average real estate loans represented over 51.0% of the average total
loan portfolio, a large portion of this portfolio consisted of loans to
individuals on private residences. At
14 [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance balance--beginning.................................... $ 112,423 $ 106,097 $ 97,718 $ 91,398 $ 91,257
Allowance of acquired banks.................................... - 1,434 1,373 - 2,818
Charge-offs:
Commercial, financial and agricultural...................... (4,372) (5,710) (2,738) (7,282) (7,867)
Real estate--construction.................................... (305) (80) (260) (325) (1,134)
Real estate--mortgage........................................ (2,037) (1,262) (2,306) (494) (1,476)
Consumer.................................................... (2,614) (2,956) (4,047) (4,109) (2,368)
---------- ---------- ---------- ---------- ----------
Total.................................................. (9,328) (10,008) (9,351) (12,210) (12,845)
---------- ---------- ---------- ---------- ----------
Recoveries:
Commercial, financial and agricultural...................... 1,219 1,234 617 1,666 917
Real estate--construction.................................... 24 177 29 4 52
Real estate--mortgage........................................ 398 634 441 944 225
Consumer.................................................... 1,205 1,366 1,567 1,250 986
---------- ---------- ---------- ---------- ----------
Total.................................................. 2,846 3,411 2,654 3,864 2,180
---------- ---------- ---------- ---------- ----------
Net charge-offs................................................ (6,482) (6,597) (6,697) (8,346) (10,665)
Provision for loan losses...................................... 12,056 11,489 13,703 14,666 7,988
---------- ---------- ---------- ---------- ----------
Allowance balance--ending....................................... $ 117,997 $ 112,423 $ 106,097 $ 97,718 $ 91,398
========== ========== ========== ========== ==========
Average loans outstanding during year.......................... $5,377,367 $5,004,765 $4,821,499 $4,411,543 $4,079,322
========== ========== ========== ========== ==========
Percent of net charge-offs to average loans outstanding
during year................................................. .12% .13% .14% .19% .26%
==== ==== ==== ==== ====
Percent of allowance for loan losses at year-end to
average loans............................................... 2.19% 2.25% 2.20% 2.22% 2.24%
==== ==== ==== ==== ====
</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, Allowance for Loan Losses.
<TABLE>
<CAPTION>
Allowance amount allocated as of December 31,
----------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance amount allocated to:
Commercial, financial and agricultural..... $ 45,300 $ 33,100 $ 30,700 $27,200 $25,400
Real estate--construction.................. 12,600 12,000 12,700 11,700 11,000
Real estate--mortgage...................... 9,900 6,100 5,300 5,100 5,200
Consumer................................... 4,800 6,000 5,400 5,200 5,300
Allowance amount not allocated................ 45,397 55,223 51,997 48,518 44,498
--------- -------- -------- ------- -------
Total................................... $ 117,997 $112,423 $106,097 $97,718 $91,398
========= ======== ======== ======= =======
</TABLE>
COMPOSITION OF LOAN PORTFOLIO
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial and agricultural........ 34.2% 34.1% 32.8% 32.9% 32.4%
Real estate--construction..................... 11.6 10.4 10.2 8.3 8.5
Real estate--mortgage......................... 42.2 43.3 44.0 45.4 45.0
Consumer...................................... 12.0 12.2 13.0 13.4 14.1
----- ----- ----- ----- -----
Total................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 15
<PAGE>
December 31, 1999, 35% of total real estate loans were one to four family
residential mortgages. Commercial mortgages made up 43% and construction loans,
at 22%, 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, 1999, 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.
Allowance for Loan Losses
The provision for loan losses charged to expense is based upon credit loss
experience and estimation of inherent losses in the current portfolio, which
includes evaluation of impaired loans as required by Statement of Financial
Accounting Standards (SFAS) No. 5, Accounting for Contingencies, SFAS No. 114,
Accounting by Creditors for Impairment of a Loan, and SFAS No. 118, Accounting
by Creditors for Impairment of a Loan- Income Recognition and Disclosure. An
allowance for loan losses is maintained sufficient to absorb losses in the
existing loan portfolio. The allowance is a function of specific loan
allowances, general loan allowances based on historic loan loss experience and
current trends and, lastly, allowances based on general economic conditions that
affect the collectibility of the loan portfolio. These can include, but are not
limited to exposure to an industry experiencing problems, changes in the nature
or volume of the portfolio and delinquency and non-accrual trends. The portfolio
review and the calculation of the allowance is performed by management at each
affiliate bank based on their knowledge of their loans and risk factors
operating in their market. Other risk factors are reviewed by the holding
company management to determine their impact on the allowance for loan losses.
Each affiliate's reserve is dedicated to that affiliate only and is not
available to absorb losses from another affiliate. All loan reserves are subject
to regulatory examinations and determination as to their methodology and
adequacy on an annual basis.
The specific allowance is based on regular analysis of the loan portfolio by
each affiliate bank and is determined by analysis of collateral value, cash flow
and guarantor capacity, as applicable. The specific allowance was $2,739,000 and
$3,548,000 at December 31,1999 and 1998, respectively.
The general allowance is calculated using internal loan grading results and
appropriate allowance factors. This process is again reviewed on a regular basis
and the factors may be revised whenever necessary to address current credit
quality trends or risks associated with particular loan types. Historic charge-
off trend analysis is utilized to obtain the factors to be applied. The general
allowance was $69,861,000 and $53,652,000 at December 31, 1999 and 1998,
respectively.
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) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans (1)......................... $19,129 $21,303 $28,456 $20,457 $21,235
Renegotiated loans (1)........................ - - - - -
Loans contractually past due 90 days or more
and still accruing interest................ - - - - -
Total non-performing loans................. 19,129 21,303 28,456 20,457 21,235
------- ------- ------- ------- -------
Other real estate owned....................... 1,663 1,281 2,627 3,316 2,858
------- ------- ------- ------- -------
Total non-performing assets................ $20,792 $22,584 $31,083 $23,773 $24,093
======= ======= ======= ======= =======
Non-performing loans as a percentage of
period end loans........................... .33% .41% .57% .45% .49%
Non-performing assets as a percentage of
period end loans and other real estate
owned...................................... .36% .43% .62% .52% .56%
</TABLE>
(1) Total interest on these loans is not considered to be material in any of the
years reported herein. Aggregate gross interest income of $1,853,000 and
$2,225,000 in 1999 and 1998 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 $564,000 and $796,000 in 1999
and 1998, respectively.
Note: The Corporation was monitoring loans estimated to aggregate $2,762,000 at
December 31, 1999 and $3,906,000 at December 31, 1998, not classified as non-
accrual or renegotiated loans. These loans had characteristics which indicated
they might result in such classification in the future.
In addition, the general allowance is based on economic conditions that
impact collectibility of the loans. While performed at the affiliate level, the
general allowance is also reviewed by management at the holding company. This
review also takes into consideration other factors such as loan quality trends,
concentration, loan volume and economic and administrative risk.
Allocation of a portion of the allowance does not preclude its availability
to absorb losses in other categories. An unallocated reserve is maintained to
recognize the imprecision in estimating and measuring loss when evaluating the
allowance for individual loans or pools of loans.
The allowance for loan losses, as a percentage of loans, was 2.06% at
December 31, 1999, compared to 2.15% at December 31, 1998 and 2.13% at December
31, 1997.
During 1999, the provision for loan loss expense was $12,056,000 compared to
a 1998 expense of $11,489,000. Management believes that the 1999 provision for
loan losses is prudent in relation to the growth in loans experienced during
1999 and the total allowance for loan losses in relation to total loans at
December 31, 1999. The 1997 provision for loan losses was $13,703,000.
Net charge-offs remained relatively unchanged at $6,482,000 during 1999,
compared to $6,597,000 in 1998. Net charge-offs totaled $6,697,000 in 1997. Net
charge-offs as a percentage of average loans were .12%, .13% and .14% for the
years ended December 31, 1999, 1998 and 1997, 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 31% in 1999, 34% in 1998 and 28% in 1997. 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
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 17
<PAGE>
[GRAPH APPEARS HERE]
LOAN COMPOSITION AND GROWTH
Average Loans (Dollars in millions)
5 Year Compound Growth Rate: 7.4%
<TABLE>
<CAPTION>
'95 '96 '97 '98 '99
<S> <C> <C> <C> <C> <C>
Commerical, financial and agricultural 33% 33% 35% 36% 37%
Real estate--construction and mortgage 52% 53% 52% 51% 51%
Consumer 15% 14% 13% 13% 12%
Total 100% 100% 100% 100% 100%
Total average loans $4,079.3 $4,411.5 $4,821.5 $5,004.8 $5,377.4
</TABLE>
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 .36% at December
31, 1999, compared to .43% and .62% in the two preceding years. At year-end
1999, non-performing assets were $20,792,000 compared with $22,584,000 and
$31,083,000 in 1998 and 1997, respectively. Non-performing loans totaled
$19,129,000 at December 31, 1999 compared to $21,303,000 at December 31, 1998
and $28,456,000 in 1997. Mercshares did not have any renegotiated loans during
or at the close of these years.
Other real estate owned increased by $382,000 to $1,663,000 at December 31,
1999, compared to $1,281,000 at December 31, 1998 and $2,627,000 in 1997. These
properties are generally sold within the next operating cycle. Therefore, while
the amount may increase, the properties will have changed from year to year. All
other real estate owned is carried at the lower of cost or fair market value.
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.
Sources of Funds
Mercshares' primary source of funding comes from deposits gathered by the 183
branches of its banking affiliates. Average total deposits were $5,896,225,000,
representing an increase of $181,256,000 or 3.2% over the prior year average of
$5,714,969,000. Average total deposits for 1997 amounted to $5,449,056,000. For
the year ended December 31, 1999, 81.5% of the funding for average earning
assets was derived from deposits. This ratio was 82.9% for 1998 and 83.9% for
1997. During 1999, two branches were acquired, adding $66,600,000 to the deposit
base.
Significant growth for 1999 was recorded in the noninterest-bearing deposit
category. Averaging $1,334,282,000 for the year and representing 22.6% of
average total deposits, this key source of funds grew by 9.7% over the prior
year's average of $1,216,726,000. The average for 1998 was up 13.8% over the
1997 average and represented 21.3% of total average deposits for 1998.
Mercshares 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 1999 grew by a more modest 1.4%
or $63,700,000. Average interest-bearing deposits amounted to $4,561,943,000, up
from the 1998 average of $4,498,243,000. The average for 1998 represented an
increase of 2.7% over 1997's average of $4,380,024,000. Most of the 1999 growth
in interest-bearing deposits was in the area of money market and checking-plus-
interest accounts.
Certificates of deposit and other time deposits have declined as a result of
lower interest rates. Averaging $2,186,868,000 for the year ended December 31,
1999, certificates of deposit decreased by 2.1% from the average of
$2,233,948,000 for 1998. The 1998 average was up 2.4% over the 1997 average of
$2,181,198,000. Certificates of deposit - $100,000 and over, averaged
$714,600,000, $711,329,000 and $713,384,000 for the years ended December 31,
1999, 1998 and 1997, respectively. Growth in this category was minimal in 1999.
Due to the fact that Mercshares' overall average earning assets grew 4.9%
while average deposits experienced a 3.2% increase during 1999, it was necessary
to increase average short-term borrowings in order to help fund this growth.
Short-term borrowings averaged $594,106,000 during 1999, $154,170,000 or 35.1%
greater than the average balance of $439,936,000 in 1998. The 1998 average
balance represented an increase of $86,349,000 or 24.4% more than the average
for 1997.
Another key source of funding is stockholders' equity. Mercshares has
18 [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
COMPOSITION OF EARNING ASSETS
<TABLE>
<CAPTION>
Average Balances
----------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Loans......................... $5,377,367 74.3% $5,004,765 72.6% $4,821,499 74.3% $4,411,543 72.4% $4,079,322 71.8%
Investment securities*........ 1,842,761 25.5 1,706,228 24.7 1,587,178 24.4 1,597,081 26.2 1,515,707 26.7
Federal funds sold............ 15,762 .2 177,049 2.6 78,786 1.2 80,246 1.3 62,721 1.1
Securities purchased under
resale agreements.......... - - 8,155 .1 5,346 .1 5,269 .1 19,980 .4
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total................. $7,235,890 100.0% $6,896,197 100.0% $6,492,809 100.0% $6,094,139 100.0% $5,677,730 100.0%
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
</TABLE>
*Includes interest-bearing deposits in other banks.
DEPOSIT MIX
<TABLE>
<CAPTION>
Average Balances
--------------------------------------------------------------------------------------------------
(Dollars in thousands) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Noninterest-bearing deposits.. $1,334,282 22.6% $1,216,726 21.3% $1,069,032 19.6% $ 982,175 18.8% $ 888,908 18.3%
Interest-bearing deposits:
Savings, checking plus
interest................. 1,584,486 26.9 1,514,577 26.6 1,460,290 26.8 1,450,993 27.8 1,420,958 29.2
Money market............... 790,589 13.4 749,718 13.1 738,536 13.6 763,664 14.6 779,246 16.0
CDs and other time deposits
-less than $100,000...... 1,472,268 25.0 1,522,619 26.6 1,467,814 26.9 1,403,241 26.9 1,228,068 25.2
CDs-$100,000
and over................. 714,600 12.1 711,329 12.4 713,384 13.1 618,186 11.9 549,460 11.3
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total................. $5,896,225 100.0% $5,714,969 100.0% $5,449,056 100.0% $5,218,259 100.0% $4,866,640 100.0%
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
</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, 1999.
<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.......... $733,815 $ 715,691 $505,191 $1,954,697
Real estate--construction....................... 223,079 326,778 116,238 666,095
-------- ---------- -------- ----------
Total................................... $956,894 $1,042,469 $621,429 $2,620,792
======== ========== ======== ==========
</TABLE>
Of the $1,663,898,000 loans maturing after one year, $849,810,000 or 51.1% have
fixed interest rates and $814,088,000 or 48.9% have variable interest
rates.
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 19
<PAGE>
INTEREST RATE SENSITIVITY ANALYSIS
<TABLE>
<CAPTION>
At December 31, 1999
- ------------------------------------------------------------------------------------------------------------------------------------
Over Over Over
3 months 6 months 1 year Non-
Within thru thru thru After sensitive
(Dollars in thousands) 3 months 6 months 1 year 5 years 5 years funds Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Securities (1).............................. $ 161,252 $119,518 $252,819 $1,223,106 $ 5,400 $ 7,591 $1,769,686
Federal funds/repos......................... 7,784 - - - - - 7,784
Loans....................................... 2,746,468 239,678 449,687 1,818,066 465,043 - 5,718,942
Other assets................................ - - - - - 398,612 398,612
---------- -------- -------- ---------- ----------- ---------- ----------
Total............................... 2,915,504 359,196 702,506 3,041,172 470,443 406,203 7,895,024
---------- -------- -------- ---------- ----------- ---------- ----------
LIABILITIES & EQUITY
Money market deposit accounts............... 773,996 - - - - - 773,996
Time deposits............................... 658,013 410,610 439,121 648,492 4,440 - 2,160,676
Other deposits (2).......................... 419,697 - - - 2,570,714 - 2,990,411
Short-term borrowings....................... 839,497 - - - - - 839,497
Long-term debt.............................. - - 7,552 25,131 50,000 - 82,683
Other liabilities........................... - - - - - 73,721 73,721
Stockholders' equity........................ - - - - - 974,040 974,040
---------- -------- -------- ---------- ----------- ---------- ----------
Total............................... 2,691,203 410,610 446,673 673,623 2,625,154 1,047,761 $7,895,024
---------- -------- -------- ---------- ----------- ---------- ----------
Excess...................................... $ 224,301 $(51,414) $255,833 $2,367,549 $(2,154,711) $ (641,558)
========== ======== ======== ========== =========== ==========
Cumulative excess........................... $ 224,301 $172,887 $428,720 $2,796,269 $ 641,558
========== ======== ======== ========== ===========
Cumulative excess as a percent
of total................................. 2.84% 2.19% 5.43% 35.42% 8.13%
</TABLE>
(1) Includes interest-bearing deposits in other banks.
(2) Reflects behavior experience which often differs from legal withdrawal
provisions.
EARNINGS SIMULATION MODEL PROJECTIONS
The following table summarizes the effect 100 and 200 basis point changes in
interest rates would have on Mercshares' net income over the next twelve months.
<TABLE>
<CAPTION>
(Dollars in thousands) As of December 31, 1999
- -------------------------------------------------------------------------------
Change in net income
Change in interest rates -----------------------------
(basis points) Amount Percentage
- ------------------------ ------ ----------
<S> <C> <C>
+200 $ 7,441 1.9%
+100 2,386 .6
-100 (2,899) (.8)
-200 (7,596) (2.0)
</TABLE>
20 [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
consistently maintained a capital/asset ratio that is greater than its peers as
reported in data furnished by our regulators. Stockholders' equity averaged
$971,837,000 during 1999, which represented an increase of $4,512,000 or .5%
greater than the prior year's average. The average was $967,325,000 in 1998, an
increase of 9.1% over 1997's average of $886,406,000. Although the increase in
stockholders' equity was minimal as a result of the stock buyback program for
1999, Mercshares was able to maintain its ratio of average total stockholders'
equity to average total assets at 12.74% for 1999. This ratio was 13.32% for
1998 and 12.98% for 1997. For a more in-depth discussion of stockholders' equity
and capital adequacy, see page 22 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,
1999, 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.
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. As seen in the Earnings
Simulation Model Projections table on page 20, within a one-year horizon, the
model forecasts that, compared to the net income projection under stable rates,
net income would increase by .6% and 1.9% if interest rates increased by 100 and
200 basis points, respectively, and that net income would decrease by .8% and
2.0% if interest rates decreased by 100 and 200 basis points, respectively.
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 and Trust Company (MSD&T), entered into a master
agreement with another 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.
[GRAPH APPEARS HERE]
RISK-BASED CAPITAL RATIOS*
Regulatory Tier One Minimum: 4%
'95 '96 '97 '98 '99
Tier two 1.3% 1.3% 1.3% 1.4% 1.3%
Tier one 17.9% 17.9% 18.1% 17.9% 16.5%
* Tier one and tier two equity as percentages of risk-adjusted total assets at
December 31.
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 21
<PAGE>
[GRAPH APPEARS HERE]
DIVIDENDS PER SHARE
5 Year Compound Growth Rate: 13.9%
'95 '96 '97 '98 '99
$.57 $.65 $.77 $.86 $.94
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, 1999, 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. Mercshares has $191,000,000 in
lines with the Federal Home Loan Bank should it need to further supplement its
liquidity.
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 Mercshares to manage its assets and liabilities effectively.
Stockholders' equity decreased 2.5% to $974,040,000 at year-end 1999 from
$999,359,000 at year-end 1998, which represented a 6.9% increase from
$935,004,000 at year-end 1997. The decrease in 1999 was attributed to the share
repurchase plan previously mentioned, and discussed in more depth in the next
paragraph, while the increase in 1998 was 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 $14.19, $14.07 and $13.01 at December 31, 1999, 1998 and 1997, respectively.
The ratio of average equity to average assets was 12.74% in 1999 compared to
13.32% in 1998 and 12.98% in 1997, 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 1999, the Board of Directors authorized repurchase of up to 2,000,000
shares of common stock.This followed the December 1998 authorization for up to
3,000,000 shares. There were prior authorizations for the purchase of 9,000,000
shares. Through December 31, 1999, 10,300,000 shares of common stock were
purchased under these programs. At December 31, 1999, remaining authorization to
purchase common stock was 3,700,000 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
22 [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
DIVIDENDS
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Quarter 4th 3rd 2nd 1st 4th 3rd 2nd 1st
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Common dividends...................................... .24 .24 .24 .22 .22 .22 .22 .20
</TABLE>
Mercshares has paid quarterly cash dividends on its Common Stock since September
1970 when such stock was first issued. Mercshares 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 Mercshares and its affiliates.
RECENT COMMON STOCK PRICES
MARKET PRICES*
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
Quarter 4th 3rd 2nd 1st 4th 3rd 2nd 1st
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
High.................................................. 37 1/8 35 3/4 39 3/8 39 15/16 38 5/8 37 7/8 40 1/4 39 3/4
Low................................................... 30 30 1/4 34 5/8 34 1/4 25 1/4 27 1/2 33 1/4 33
</TABLE>
*The stock of Mercantile Bankshares Corporation is traded on the Nasdaq National
Market under the symbol MRBK. The quotations represent actual transactions.
As of February 29, 2000, there were 9,138 stockholders of record.
fewer regulatory hindrances in its operations than institutions which are
classified at the other end of the spectrum as "critically undercapitalized."
For instance, only "well-capitalized" banks can accept brokered deposits without
regulatory approval in advance. In addition, FDIC deposit insurance premium
rates are significantly lower for banks with higher capital levels, as compared
to poorly capitalized banks. The risk-based capital ratios graph on page 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 commitments to extend credit. Refer to Footnote
No. 8 on page 37 for information regarding Mercshares' commitments.
Dividends
For the 23rd consecutive year, the annual dividend paid on common stock exceeded
the prior year's level. Effective with the June 1999 dividend, the quarterly
cash dividend was increased to $.24 from $.22 per share. This represented a 9.1%
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 $.94 in 1999, $.86 in 1998
and $.77 in 1997. Total cash dividends paid were $65,113,000 in 1999,
$61,538,000 in 1998 and $55,277,000 in 1997. The chart above presents quarterly
dividends paid over the last two years.
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 23
<PAGE>
Acquisitions and Commitments
On January 21, 2000, Mercshares announced the approval of a definitive agreement
for the merger of Westminster Bank and Trust Company, one of our affiliates, and
Union National Bancorp and its underlying subsidiary, Union National Bank. The
agreement provides for a tax-free exchange of 1.15 shares of Mercshares' common
stock for each share of Union National Bancorp which currently has 1,965,349
shares outstanding plus options for 60,936 shares which may be exercised prior
to closing. The transaction is subject to the approval of regulatory authorities
and the stockholders of Union National Bancorp and to customary closing
conditions. The intent of the merger is to capitalize on the respective
strengths of the banking institutions to more effectively serve the market in
which they both have a long history. At December 31,1999, Union National Bank
had assets of $303,000,000 and deposits of $233,000,000.
Commitments for 2000 include plans for approximately $14,900,000 of capital
expenditures spread relatively evenly between improvements to existing banking
offices, and replacement of furniture, equipment and computer hardware and
software. For further information on commitments, see Footnotes No. 4 & 8 on
pages 35 & 37, respectively.
Recent FASB Pronouncements
Statement of Financial Accounting Standards (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 assets 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 was
effective for fiscal years beginning after June 15, 1999 with initial
application in the first quarter of the fiscal year. However, SFAS No. 137,
Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of SFAS No. 133, issued in June 1999, changed the effective date
of SFAS No. 133 to fiscal years beginning after June 15, 2000. SFAS No. 133 is
not expected to have a material effect on Mercshares' financial statements.
Mercshares has not found it necessary to utilize derivative instruments, except
for the single immaterial instance cited on page 22.
There were no other Statements issued during 1999 that were applicable to the
Corporation.
Year 2000 Date Change
Prior to January 1, 2000, we had reported regularly on preparations for the
century date change. The transition was successful. We experienced no
significant date change problems with our systems or operations and no
interruption of business.
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. Forward-looking statements appear in the
Letter to Shareholders and in this Management's Discussion concerning matters
such as identification of trends, potential effects of recent legislation, 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 of changes in stockholders' equity 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, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. 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 auditing standards generally accepted in the
United States 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
- ----------------------------------
PricewaterhouseCoopers LLP
Baltimore, Maryland
January 20, 2000
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 25
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
(Dollars in thousands, except per share data) 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks.................................................................... $ 219,420 $ 254,994
Interest-bearing deposits in other banks................................................... 152 100
Federal funds sold......................................................................... 7,784 57,616
---------- ----------
Cash and cash equivalents.......................................................... 227,356 312,710
---------- ----------
Investment securities held-to-maturity (1),(2)............................................. 25,592 27,079
Investment securities available-for-sale (1),(2)........................................... 1,743,942 1,880,462
Loans (3).................................................................................. 5,718,942 5,220,890
Less: allowance for loan losses (1),(3).................................................... (117,997) (112,423)
---------- ----------
Loans, net......................................................................... 5,600,945 5,108,467
---------- ----------
Bank premises and equipment, net (1),(4)................................................... 94,917 91,577
Other real estate owned, net (1)........................................................... 1,663 1,281
Excess cost over equity in affiliated banks, net (1)....................................... 46,482 50,314
Other assets............................................................................... 154,127 137,673
---------- ----------
Total...................................................................................... $7,895,024 $7,609,563
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing deposits.......................................................... $1,400,172 $1,388,378
Interest-bearing deposits............................................................. 4,524,911 4,569,968
---------- ----------
Total deposits..................................................................... 5,925,083 5,958,346
Short-term borrowings (6).................................................................. 839,497 511,945
Accrued expenses and other liabilities..................................................... 73,721 98,979
Long-term debt (7)......................................................................... 82,683 40,934
---------- ----------
Total liabilities.................................................................. 6,920,984 6,610,204
---------- ----------
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 68,645,759 shares in 1999 and 71,026,927 shares in 1998............................. 137,292 142,054
Capital surplus............................................................................ 47,798 31,357
Retained earnings.......................................................................... 796,192 803,568
Accumulated other comprehensive income (loss).............................................. (7,242) 22,380
---------- ----------
Total stockholders' equity......................................................... 974,040 999,359
---------- ----------
Total...................................................................................... $7,895,024 $7,609,563
========== ==========
</TABLE>
See notes to consolidated financial statements
26 [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
STATEMENT OF CONSOLIDATED INCOME
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
(Dollars in thousands, except per share data) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans (1).................................................. $453,825 $444,519 $434,033
-------- -------- --------
Interest and dividends on investment securities:
Taxable interest income...................................................... 102,038 98,669 93,053
Tax-exempt interest income................................................... 580 689 641
Dividends.................................................................... 1,731 1,311 1,125
Other investment income...................................................... 207 348 423
-------- -------- --------
104,556 101,017 95,242
-------- -------- --------
Other interest income........................................................... 787 9,856 4,695
-------- -------- --------
Total interest income..................................................... 559,168 555,392 533,970
-------- -------- --------
INTEREST EXPENSE
Interest on deposits (5)........................................................ 157,997 178,144 177,369
Interest on short-term borrowings............................................... 27,267 20,800 17,220
Interest on long-term debt...................................................... 4,818 3,083 3,332
-------- -------- --------
Total interest expense.................................................... 190,082 202,027 197,921
-------- -------- --------
NET INTEREST INCOME............................................................. 369,086 353,365 336,049
Provision for loan losses (1),(3)............................................... 12,056 11,489 13,703
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES............................. 357,030 341,876 322,346
-------- -------- --------
NONINTEREST INCOME
Trust division services (1)..................................................... 65,036 58,018 51,547
Service charges on deposit accounts............................................. 23,043 19,666 18,105
Other fees...................................................................... 27,900 27,107 25,184
Investment securities gains and (losses) (2).................................... (73) 8 (1,491)
Other income.................................................................... 6,085 3,894 5,308
-------- -------- --------
Total noninterest income................................................. 121,991 108,693 98,653
-------- -------- --------
NONINTEREST EXPENSES
Salaries........................................................................ 108,999 106,744 102,263
Employee benefits (12).......................................................... 25,666 24,874 22,300
Net occupancy expense of bank premises (1),(4).................................. 11,975 11,570 12,246
Furniture and equipment expenses (1),(4)........................................ 20,984 18,916 20,417
Communications and supplies..................................................... 12,662 12,163 11,804
Amortization of excess cost over equity in affiliates........................... 3,832 3,444 2,347
Other expenses.................................................................. 46,302 41,294 42,027
-------- -------- --------
Total noninterest expenses................................................ 230,420 219,005 213,404
-------- -------- --------
Income before income taxes............................................. 248,601 231,564 207,595
Applicable income taxes (1),(10)....................................... 90,864 84,436 75,552
-------- -------- --------
NET INCOME.......................................................... $157,737 $147,128 $132,043
======== ======== ========
NET INCOME PER SHARE OF COMMON STOCK (9):
BASIC........................................................................ $2.27 $2.05 $1.85
DILUTED...................................................................... $2.25 $2.04 $1.84
</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
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fees on loans.................................................... $ 450,466 $ 447,023 $ 432,491
Interest and dividends on investment securities............................... 104,419 98,338 94,822
Other interest income......................................................... 809 10,026 4,319
Noninterest income............................................................ 119,407 107,217 101,133
Interest paid................................................................. (190,139) (205,003) (195,259)
Noninterest expenses paid..................................................... (247,749) (201,421) (188,179)
Income taxes paid............................................................. (78,706) (86,637) (81,578)
--------- --------- ---------
Net cash provided by operating activities............................... 158,507 169,543 167,749
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held-to-maturity............ 5,230 3,766 3,469
Proceeds from maturities of investment securities available-for-sale.......... 537,627 492,634 519,512
Proceeds from sales of investment securities available-for-sale............... 3,074 804 34,019
Purchases of investment securities held-to-maturity........................... (3,745) (1,092) (535)
Purchases of investment securities available-for-sale......................... (451,225) (739,275) (543,950)
Net increase in customer loans................................................ (506,612) (180,976) (344,958)
Proceeds from sales of other real estate owned................................ 1,783 2,593 3,181
Capital expenditures.......................................................... (14,090) (15,589) (14,109)
Proceeds from sales of buildings.............................................. 2,540 321 6,610
--------- --------- ---------
Net cash used in investing activities................................... (425,418) (436,814) (336,761)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest-bearing deposits.................................. 11,794 147,448 102,314
Net increase (decrease) in checking plus interest and savings accounts........ 8,412 123,808 (8,350)
Net increase (decrease) in certificates of deposit............................ (53,469) (95,558) 192,503
Net increase in short-term borrowings......................................... 327,552 109,211 66,779
Proceeds from issuance of long-term debt...................................... 50,000 - -
Repayment of long-term debt................................................... (8,250) (9,082) (79)
Proceeds from issuance of shares.............................................. 7,128 6,712 7,026
Repurchase of common shares................................................... (96,497) (67,646) (12,295)
Dividends paid................................................................ (65,113) (61,538) (55,277)
--------- --------- ---------
Net cash provided by financing activities............................... 181,557 153,355 292,621
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents (1)...................... (85,354) (113,916) 123,609
Cash and cash equivalents at beginning of year................................ 312,710 413,786 285,379
Adjustment for acquired banks................................................. - 12,840 4,798
--------- --------- ---------
Cash and cash equivalents at end of year...................................... $ 227,356 $ 312,710 $ 413,786
========= ========= =========
</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
FOR THE YEARS ENDED DECEMBER 31,
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income................................................................... $157,737 $147,128 $132,043
-------- -------- --------
Adjustments to reconcile net income to net cash provided
by operating activities:
Provision for loan losses.............................................. 12,056 11,489 13,703
Depreciation and amortization.......................................... 9,017 8,527 8,268
Amortization of excess cost over equity in affiliates.................. 3,832 3,444 2,347
Provision for deferred taxes (benefit)................................. 13,420 (4,439) 1,868
Investment securities (gains) and losses............................... 73 (8) 1,491
Write-downs of other real estate owned................................. 123 217 333
Gains on sales of other real estate owned.............................. (210) (808) (457)
Gains on sales of buildings............................................ (807) (59) (1,382)
Gains on stock received from demutualization of insurance company...... (2,012) - -
(Increase) decrease in interest receivable............................. (3,474) (5) (2,358)
(Increase) decrease in other receivables............................... 372 (601) 2,828
(Increase) decrease in other assets.................................... (24,377) (2,033) 3,539
Increase (decrease) in interest payable................................ (57) (2,976) 2,662
Increase (decrease) in accrued expenses................................ (5,924) 7,429 10,758
Increase (decrease) in taxes payable................................... (1,262) 2,238 (7,894)
-------- -------- --------
Total adjustments................................................... 770 22,415 35,706
-------- -------- --------
Net cash provided by operating activities.................................... $158,507 $169,543 $167,749
======== ======== ========
</TABLE>
See notes to consolidated financial statements
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 29
<PAGE>
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Accumulated
Other Com-
Common Capital Retained prehensive
(Dollars in thousands, except per share data) Total Stock Surplus Earnings Income (Loss)
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
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 .......................................... 1,027 1,027
-------- -------- -------- --------- --------
BALANCE, DECEMBER 31, 1998 .................................... 999,359 142,054 31,357 803,568 22,380
Net income..................................................... 157,737 157,737
Unrealized gains (losses) on securities available-for-sale,
net of reclassification adjustment, net of taxes............ (29,622) (29,622)
--------
Comprehensive income........................................... 128,115
--------
Cash dividends paid:
Common stock ($.94 per share)............................... (65,113) (65,113)
Issuance of 129,575 shares for dividend
reinvestment and stock purchase plan........................ 4,216 259 3,957
Issuance of 26,550 shares for employee stock
purchase dividend reinvestment plan......................... 982 53 929
Issuance of 159,532 shares for employee stock option plan...... 1,930 319 1,611
Purchase of 2,696,825 shares under stock repurchase plan....... (96,497) (5,393) (91,104)
Vested stock options (13)...................................... 1,048 1,048
Transfer to capital surplus.................................... - 100,000 (100,000)
-------- -------- -------- --------- --------
BALANCE, DECEMBER 31, 1999 (9)................................. $974,040 $137,292 $ 47,798 $ 796,192 $ (7,242)
======== ======== ======== ========= ========
</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, which include the accounts of Mercantile
Bankshares Corporation ("Mercshares") and all of its affiliates, are prepared in
conformity with generally accepted accounting principles and follow general
practice within the banking industry. All significant intercompany transactions
have been eliminated. For purposes of comparability, certain prior period
amounts have been reclassified to conform with current period presentation.
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, the disclosure of
contingent assets and liabilities at the date of the financial statements, and
revenues and expenses during the reporting period. These estimates and
assumptions are based on information available as of the date of the financial
statements and could differ from actual results.
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. Acquisitions accounted for as
purchases are included in the financial statements from the respective dates of
affiliation.
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 maintained at a level considered by management
to be adequate to absorb inherent losses in the loan portfolio. Management's
assessment includes the systematic evaluation of several factors: current
economic conditions and their impact on specific borrowers and industry groups;
the level of classified and nonperforming loans; the historical loss experience
by loan type; the results of regulatory examinations; and, in specific cases,
the estimated value of underlying collateral. The assessments of economic
conditions, results of regulatory examinations and other risk elements are
determined primarily by management at each affiliate and reviewed by Mercshares.
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 borrowers' 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. Excess Cost Over Equity in Affiliated Banks
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 15-
year period from the respective dates of affiliation. Accumulated amortization
amounted to $25,496,000 and $21,664,000 at December 31, 1999 and 1998,
respectively.
H. 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.
I. 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.
2. INVESTMENT SECURITIES
The amortized cost and market values of investment securities at December 31,
1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------------------------- -------------------------------------------
Gross Gross Gross Gross
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
(Dollars in thousands) Cost Gains Losses Value Cost Gains Losses Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Securities held-to-maturity
States and political subdivisions $ 10,216 $ 23 $ 83 $ 10,156 $ 12,436 $ 237 $ - $ 12,673
Other bonds, notes
and debentures................. 4 - - 4 8 - - 8
---------- ------ ------- ---------- ---------- -------- ----- ----------
Total bonds.................... 10,220 23 83 10,160 12,444 237 - 12,681
Other investments............... 15,372 - - 15,372 14,635 - - 14,635
---------- ------ ------- ---------- ---------- -------- ----- ----------
Total ....................... $ 25,592 $ 23 $ 83 $ 25,532 $ 27,079 $ 237 $ - $ 27,316
========== ====== ======= ========== ========== ======== ===== ==========
Securities available-for-sale
U.S. Treasury................... $1,706,664 $ 952 $21,010 $1,686,606 $1,819,400 $ 27,255 $ 391 $1,846,264
U.S. government agencies........ 41,681 8 454 41,235 16,735 196 - 16,931
States and political subdivisions 1,350 8 26 1,332 1,351 54 - 1,405
Other bonds, notes
and debentures................. 2,028 - 64 1,964 3,952 47 14 3,985
---------- ------ ------- ---------- ---------- -------- ----- ----------
Total bonds.................... 1,751,723 968 21,554 1,731,137 1,841,438 27,552 405 1,868,585
Other investments............... 4,012 8,793 - 12,805 3,216 8,661 - 11,877
---------- ------ ------- ---------- ---------- -------- ----- ----------
Total........................ $1,755,735 $9,761 $21,554 $1,743,942 $1,844,654 $ 36,213 $ 405 $1,880,462
========== ====== ======= ========== ========== ======== ===== ==========
</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, 1999 and 1998 are shown below:
<TABLE>
<CAPTION>
1999 1998
---------------------- ----------------------
Amortized Market Amortized Market
(Dollars in thousands) Cost Value Cost Value
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Securities held-to-maturity
Within 1 year........................................................ $ 1,293 $ 1,296 $ 5,086 $ 5,107
1-5 years............................................................ 6,193 6,175 4,010 4,103
5-10 years........................................................... 2,412 2,383 2,789 2,886
After 10 years....................................................... 322 306 559 585
---------- ---------- ---------- ----------
Total ............................................................ $ 10,220 $ 10,160 $ 12,444 $ 12,681
========== ========== ========== ==========
Securities available-for-sale
Within 1 year........................................................ $ 532,144 $ 531,741 $ 526,615 $ 530,239
1-5 years............................................................ 1,216,913 1,196,802 1,310,463 1,333,919
5-10 years........................................................... 2,374 2,308 3,684 3,737
After 10 years....................................................... 292 286 676 690
---------- ---------- ---------- ----------
Total ............................................................ $1,751,723 $1,731,137 $1,841,438 $1,868,585
========== ========== ========== ==========
</TABLE>
At December 31, 1999 and 1998, no single issue of investment securities exceeded
ten percent of stockholders' equity.
At December 31, 1999 and 1998, securities with an amortized cost of
$1,164,842,000 and $709,218,000, 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 1999,
1998 and 1997 are as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------- --------------------- -------------------
Gross Gross Gross Gross Gross Gross
Realized Realized Realized Realized Realized Realized
(Dollars in thousands) Gains Losses Gains Losses Gains Losses
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Securities available-for-sale
Debt........................... $ - $ 74 $ - $ - $ - $ 1,284
Non-debt....................... 8 7 8 - 43 250
---- ---- ---- ----- ---- -------
Total....................... $ 8 $ 81 $ 8 $ - $ 43 $ 1,534
==== ==== ==== ===== ==== =======
</TABLE>
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 33
<PAGE>
3. LOANS AND ALLOWANCE FOR LOAN LOSSES
Loans at December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial........................................................................................ $1,954,697 $1,777,711
Construction...................................................................................... 666,095 544,723
Mortgage.......................................................................................... 2,411,990 2,260,217
Consumer.......................................................................................... 686,160 638,239
---------- ----------
Total........................................................................................... $5,718,942 $5,220,890
</TABLE>
At December 31, 1999 and 1998, $19,129,000 and $21,303,000 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>
(Dollars in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Allowance balance at beginning of year............................................ $112,423 $106,097 $ 97,718
Allowance of acquired banks....................................................... - 1,434 1,373
Charge-offs....................................................................... (9,328) (10,008) (9,351)
Recoveries........................................................................ 2,846 3,411 2,654
Provision for loan losses......................................................... 12,056 11,489 13,703
-------- -------- --------
Allowance balance at end of year.................................................. $117,997 $112,423 $106,097
======== ======== ========
</TABLE>
Information with respect to impaired loans and the related valuation allowance
(if the measure of the impaired loan is less than the recorded investment) as of
December 31, 1999 and 1998 is shown below. Refer to Note 1C for an expanded
discussion on impaired loans.
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with a valuation allowance.............................................................. $ 2,983 $ 2,152
Impaired loans with no valuation allowance............................................................. 12,185 14,159
-------- --------
Total impaired loans................................................................................. $ 15,168 $ 16,311
======== ========
Allowance for loan losses applicable to impaired loans................................................. $ 1,186 $ 1,046
Allowance for loan losses applicable to other than impaired loans...................................... 116,811 111,377
-------- --------
Total allowance for loan losses...................................................................... $117,997 $112,423
======== ========
Year-to-date interest income on impaired loans recorded on the cash basis.............................. $ 241 $ 690
======== ========
Year-to-date average recorded investment in impaired loans during the period........................... $ 17,482 $ 21,395
======== ========
Quarter-to-date interest income on impaired loans recorded on the cash basis........................... $ 44 $ 122
======== ========
Quarter-to-date average recorded investment in impaired loans during the period........................ $ 17,471 $ 20,340
======== ========
</TABLE>
34 [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
4. BANK PREMISES AND EQUIPMENT
Bank premises and equipment at December 31, 1999 and 1998 consist of the
following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land................................................................................................... $ 19,843 $ 18,267
Buildings and leasehold improvements................................................................... 105,871 106,356
Equipment.............................................................................................. 66,130 57,587
-------- --------
191,844 182,210
Accumulated depreciation and amortization.............................................................. (96,927) (90,633)
-------- --------
Bank premises and equipment, net....................................................................... $ 94,917 $ 91,577
======== ========
</TABLE>
Mercshares' bank affiliates conduct a 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 1999, 1998 and 1997 was:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Bank premises*............................................................................. $ 5,174 $ 5,111 $ 4,211
Equipment/software expense................................................................. 6,232 5,587 6,344
------- ------- -------
Total rental expense.................................................................... $11,406 $10,698 $10,555
======= ======= =======
</TABLE>
*Amounts do not reflect offset for rental income.
At December 31, 1999, the aggregate minimum rental commitments under
noncancelable operating leases are as follows: 2000-$8,691,000; 2001-$6,581,000;
2002-$5,349,000; 2003-$4,833,000; 2004-$2,381,000; thereafter-$13,255,000.
5. DEPOSITS
Included in time deposits are certificates of deposit issued in denominations of
$100,000 or more which totaled $715,616,000 and $710,743,000 at December 31,
1999 and 1998, respectively. Other time deposits issued in denominations of
$100,000 or more totaled $1,000,000 at December 31, 1999 and 1998, respectively.
At December 31, 1999, 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 1 Over 2 Over 3 Over 4
1 year through through through through Over
(Dollars in thousands) Total or less 2 years 3 years 4 years 5 years 5 years
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Time certificates of deposit--
$100,000 or more............................. $715,616 $500,618 $97,741 $38,841 $37,471 $40,402 $543
======== ======== ======= ======= ======= ======= ====
Other time deposits--
$100,000 or more............................. $ 1,000 $ 1,000
======== ========
</TABLE>
Interest on deposits for the years ended December 31, 1999, 1998 and 1997
consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Savings deposits.......................................................................... $ 48,442 $ 56,720 $ 57,702
Certificates of deposit ($100,000 or more)................................................ 38,347 39,905 39,378
Other time deposits....................................................................... 71,208 81,519 80,289
-------- -------- --------
Total interest on deposits............................................................. $157,997 $178,144 $177,369
======== ======== ========
</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 weighted average interest rates at December 31, 1999
and 1998:
<TABLE>
<CAPTION>
Year-end During year
-------------------- -------------------------------
1999 (Dollars in thousands) Amount Rate Highest Average Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal funds purchased and securities
sold under repurchase agreements............................ $662,921 4.83% $662,921 $427,339 4.65%
Commercial paper.............................................. 174,239 4.35 184,818 165,789 4.43
Other short-term borrowings................................... 2,337 4.47 2,718 978 5.13
-------- --------
Total................................................... $839,497 4.73% $594,106 4.59%
======== ==== ======== ====
<CAPTION>
1998 (Dollars in thousands)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal funds purchased and securities
sold under repurchase agreements............................ $326,496 4.38% $362,452 $287,874 4.65%
Commercial paper.............................................. 185,074 4.25 185,074 150,628 4.86
Other short-term borrowings................................... 375 4.07 4,341 1,434 6.22
-------- --------
Total................................................... $511,945 4.33% $439,936 4.73%
======== ==== ======== ====
</TABLE>
Other short-term borrowings consist of notes payable to the U.S. Treasury.
During 1999 and 1998, commercial paper borrowings were partially supported by
back-up lines of credit which ranged from a low of $30,000,000 to a high of
$45,000,000. Unused lines of credit at December 31, 1999 were $30,000,000. These
lines of credit are paid for on a fee basis of .09% annually.
7. LONG-TERM DEBT
Long-term debt at December 31, 1999 and 1998 consists of the following:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
3% Unsecured debenture............................................................................ $ 95 $ 142
6.45% Unsecured senior notes...................................................................... - 7,500
6.64% Unsecured senior notes...................................................................... 7,500 7,500
6.72% Unsecured senior notes...................................................................... 35,000 -
6.80% Unsecured senior notes...................................................................... 15,000 -
6.94% Unsecured senior notes...................................................................... 25,000 25,000
Other............................................................................................. 88 792
------- -------
Total ...................................................................................... $82,683 $40,934
======= =======
</TABLE>
The 3% debenture is payable in five equal annual payments beginning July 1,
1997 with the final payment due on July 1, 2001. All payments include principal
and interest and Mercshares has the option to prepay any or all of the remaining
principal balance on any payment date.
The 6.64% senior notes are due on July 15, 2000. Interest is payable semi-
annually, on January 15 and July 15, until maturity.
The 6.72% senior notes are due on April 30, 2006. Interest is payable semi-
annually, on April 30 and October 30, until maturity.
The 6.80% senior notes are due on April 30, 2009. Interest is payable semi-
annually, on April 30 and October 30, 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:
2000-$7,552,000; 2001-$8,431,000; 2002-$8,300,000; 2003-$8,400,000; 2004-$0.
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, 1999, included $2,634,858,000 in variable rate loan commitments and
$146,896,000 in fixed rate loan commitments. Fixed rate commitments were at
current market rates with $116,421,000 expiring within one year and the
remaining $30,475,000 expiring on various dates through May 2019. Total
commitments to extend credit at December 31, 1998, included $2,446,835,000 in
variable rate loan commitments and $155,821,000 in fixed rate loan commitments.
Fixed rate commitments, at December 31, 1998, were 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.
Standby letters of credit are commitments issued to guarantee the performance
of a customer to a third party. Outstanding letters of credit were $163,009,000
at December 31, 1999 and $147,378,000 at December 31, 1998.
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 Corporation has a Dividend Reinvestment and Stock Purchase Plan. The Plan
allows shareholders to automatically invest their cash dividends in Mercshares
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 926,940 shares. The Corporation
reserves the right to amend, modify, suspend or terminate the Plan at any time
at its discretion.
The Corporation has an Employee Stock Purchase Plan. The Plan allows
employees (other than executive officers of the Corporation) 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 865,586 shares. The Corporation reserves the right to amend, modify,
suspend or terminate the Plan at any time at its discretion.
The Board of Directors has approved plans authorizing the Corporation to
purchase shares of its common stock. Purchases may be made from time to time,
subject to regulatory requirements, in the open market or in privately
negotiated transactions. Purchased shares will be used from time to time for
corporate purposes including issuance under the Corporation's dividend
reinvestment plans and stock-based compensation plans. The number of shares
remaining available for purchase under the plans was 3,683,528 shares at
December 31, 1999.
Pursuant to a Shareholders Protection Rights Agreement adopted in June 1999,
each share of outstanding common stock carries a right, initially for the
purchase of 1/1,000 of a share of preferred stock at an exercise price of $150
(subject to adjustment). The rights, which do not carry voting or dividend
rights, may be redeemed by Mercshares at $.01 per right. The rights expire on
September 29, 2009 unless sooner exercised, exchanged or redeemed. The rights
will not become exercisable and will not trade separately from the common stock
until the tenth business day (or such other date as the Board of Directors
selects) after commencement of a tender or exchange offer for, or announcement
of the 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,
1/1,000 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.
[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 1999, 1998,
and 1997 were $113,014,000, $106,036,000 and $97,522,000, respectively. The
amount of dividends that Mercshares' affiliates could have paid to the holding
company without approval from bank regulators at December 31, 1999 was
$650,067,000.
Earnings Per Share
Basic earnings per share (EPS) amounts are based on the weighted average number
of common shares outstanding during the period of 69,437,073 shares for 1999,
71,662,051 shares for 1998 and 71,465,976 shares for 1997. Diluted EPS amounts
are based on the weighted average number of common shares outstanding during the
period adjusted for the effect of dilutive stock options. The following tables
provide a reconciliation between the computation of basic EPS and diluted EPS
for the years ended December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
Net Common
1999 (In thousands, except per share data) Income Shares EPS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS.............................................................................. $157,737 69,437 $2.27
Effect of dilutive stock options....................................................... 583
-------- ------
Diluted EPS............................................................................ $157,737 70,020 $2.25
======== ====== =====
<CAPTION>
Net Common
1998 (In thousands, except per share data) Income Shares EPS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS.............................................................................. $147,128 71,662 $2.05
Effect of dilutive stock options....................................................... 575
-------- ------
Diluted EPS............................................................................ $147,128 72,237 $2.04
======== ====== =====
<CAPTION>
Net Common
1997 (In thousands, except per share data) Income Shares EPS
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Basic EPS.............................................................................. $132,043 71,466 $1.85
Effect of dilutive stock options....................................................... 438
-------- ------
Diluted EPS............................................................................ $132,043 71,904 $1.84
======== ====== =====
</TABLE>
Comprehensive Income
The provisions of Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, established standards for disclosing comprehensive income
in financial statements. For each of the three years in the period ended
December 31, 1999, the following table summarizes the related tax effect of
unrealized gains (losses) on securities available-for-sale, with the net amount
included in accumulated other comprehensive income (loss), as shown in the
Statement of Changes in Consolidated Stockholders' Equity on page 30.
<TABLE>
<CAPTION>
1999 1998 1997
---------------------------- ---------------------------- -------------------------
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........... $(47,674) $18,008 $(29,666) $18,047 $(6,850) $11,197 $11,919 $(4,430) $7,489
Reclassification adjustment for (gains)
losses included in net income....... 73 (29) 44 (8) 3 (5) 1,491 (590) 901
-------- ------- -------- ------- ------- ------- ------- ------- ------
Total................................. $(47,601) $17,979 $(29,622) $18,039 $(6,847) $11,192 $13,410 $(5,020) $8,390
======== ======= ======== ======= ======= ======= ======= ======= ======
</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, 1999, that Mercshares and its bank affiliates
exceed all capital adequacy requirements to which they are subject.
As of December 31, 1999, 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 and Trust Company (MSD&T), 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, 1999:
Total Capital
(as percentage of Risk Weighted Assets):
Mercshares Consolidated........................ $1,005,281 17.81% 8.00% (1)
MSD&T.......................................... $ 374,851 15.27% 8.00% 10.00%
Tier I Capital
(as percentage of Risk Weighted Assets):
Mercshares Consolidated........................ $ 930,177 16.48% 4.00% (1)
MSD&T.......................................... $ 343,984 14.02% 4.00% 6.00%
Tier I Capital
(as percentage of Quarter-to-Date Average Assets):
Mercshares Consolidated........................ $ 930,177 11.96% 4.00% (1)
MSD&T.......................................... $ 343,984 11.81% 4.00% 5.00%
As of December 31, 1998:
Total Capital
(as percentage of Risk Weighted Assets):
Mercshares Consolidated $ 994,233 19.28% 8.00% (1)
MSD&T.......................................... $ 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)
MSD&T.......................................... $ 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)
MSD&T.......................................... $ 322,028 11.33% 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 1999, 1998 and 1997 consist of the
following:
<TABLE>
<CAPTION>
1999 1998 1997
--------------------------- ------------------------- --------------------------
(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...................... $75,895 $1,549 $77,444 $82,402 $6,473 $88,875 $67,756 $5,928 $73,684
Deferred tax expense (benefit)........... 11,286 2,134 13,420 (3,545) (894) (4,439) 1,338 530 1,868
------- ------ ------- ------- ------ ------- ------- ------ -------
Total................................. $87,181 $3,683 $90,864 $78,857 $5,579 $84,436 $69,094 $6,458 $75,552
======= ====== ======= ======= ====== ======= ======= ====== =======
</TABLE>
Significant components of the Company's deferred tax assets and liabilities as
of December 31, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
(Dollars in thousands) 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses........................................................................ $45,744 $43,603
Accrued employee benefits........................................................................ 8,994 15,324
Accrued other expenses........................................................................... - 4,534
Write-downs of other real estate owned........................................................... 103 126
Deferred income.................................................................................. 12,657 5,005
Net unrealized losses on available-for-sale securities........................................... 4,551 -
------- -------
Total deferred tax assets...................................................................... 72,049 68,592
------- -------
Deferred tax liabilities:
Net unrealized gains on available-for-sale securities............................................ - 13,430
Depreciation..................................................................................... 26,500 14,273
Prepaid items.................................................................................... 168 171
Other............................................................................................ 112 10
------- -------
Total deferred tax liabilities................................................................. 26,780 27,884
------- -------
Net deferred tax assets........................................................................ $45,269 $40,708
======= =======
</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,
1999 follows:
<TABLE>
<CAPTION>
1999 1998 1997
----------------- ------------------ -----------------
% 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....................... $87,010 35.0% $81,047 35.0% $72,658 35.0%
Increases (decreases) in tax resulting from:
Tax-exempt interest income......................... (2,402) (1.0) (2,663) (1.1) (2,519) (1.2)
State income taxes, net of Federal
income tax benefit............................... 2,394 1.0 3,626 1.6 4,200 2.0
Non-deductible goodwill amortization............... 1,341 .5 1,205 .5 821 .4
Other, net......................................... 2,521 1.1 1,221 .5 392 .2
------- ---- ------- ---- ------- ----
Actual tax expense............................... $90,864 36.6% $84,436 36.5% $75,552 36.4%
======= ==== ======= ==== ======= ====
</TABLE>
11. RELATED PARTY TRANSACTIONS
In the normal course of banking business, loans are made to officers and
directors of Mercshares and its affiliates, as well as to their related
interests. In the opinion of management, these loans are consistent with sound
banking practices, are within regulatory lending limitations and do not involve
more than the normal risk of collectibility. At December 31, 1999 and 1998,
loans to executive officers and directors of Mercshares and its principal
affiliates, including loans to their related interests, totalled $48,688,000 and
$75,506,000, respectively. During 1999, loan additions and loan deletions were
$64,501,000 and $91,319,000, respectively.
40 [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
12. PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS
Mercshares sponsors qualified and nonqualified pension plans and other
postretirement benefit plans for its employees. With regard to 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, 1999:
<TABLE>
<CAPTION>
Pension Benefits
--------------------------------------------------------------
1999 1998 Other Benefits
------------------------------ ------------------------------ -----------------
Non- Non-
(Dollars in thousands) Qualified qualified Total Qualified qualified Total 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CHANGE IN BENEFIT OBLIGATION
Benefit obligation at beginning of year.... $ 123,125 $ 2,924 $ 126,049 $ 97,945 $ 2,112 $ 100,057 $ 9,934 $ 10,293
Service cost............................... 4,095 258 4,353 3,416 183 3,599 148 129
Interest cost.............................. 8,127 242 8,369 7,457 171 7,628 687 698
Plan participants' contributions........... - - - - - - 601 494
Amendments................................. - - - 9,317 266 9,583 - -
Actuarial (gain) loss...................... (8,565) 502 (8,063) 10,105 225 10,330 315 (476)
Acquisition................................ 1,956 - 1,956 - - - - -
Benefits paid.............................. (5,575) (277) (5,852) (5,115) (33) (5,148) (1,581) (1,204)
--------- -------- --------- -------- -------- --------- -------- --------
Benefit obligation at end of year.......... 123,163 3,649 126,812 123,125 2,924 126,049 10,104 9,934
--------- -------- --------- -------- -------- --------- -------- --------
CHANGE IN PLAN ASSETS
Fair value of plan assets at beginning of
year..................................... 116,946 - 116,946 108,108 - 108,108 - -
Actual return on plan assets............... 11,259 - 11,259 13,953 - 13,953 - -
Acquisition................................ 2,311 - 2,311 - - - - -
Employer contribution...................... 12,000 277 12,277 - 33 33 980 710
Plan participants' contributions........... - - - - - - 601 494
Benefits paid.............................. (5,575) (277) (5,852) (5,115) (33) (5,148) (1,581) (1,204)
--------- -------- --------- -------- -------- --------- -------- --------
Fair value of plan assets at end of year... 136,941 - 136,941 116,946 - 116,946 - -
--------- -------- --------- -------- -------- --------- -------- --------
Funded status.............................. 13,778 (3,649) 10,129 (6,179) (2,924) (9,103) (10,104) (9,934)
Unrecognized net actuarial (gain) loss..... (15,956) 1,057 (14,899) (6,126) 625 (5,501) (119) (448)
Unrecognized prior service cost............ 6,944 171 7,115 8,118 186 8,304 - -
Unrecognized transition asset.............. (1,387) 490 (897) (2,082) 589 (1,493) - -
--------- -------- --------- -------- -------- --------- -------- --------
Prepaid (accrued) benefit cost............. $ 3,379 $ (1,931) $ 1,448 $ (6,269) $(1,524) $ (7,793) $(10,223) $(10,382)
========= ======== ========= ======== ======== ========= ======== ========
</TABLE>
The components of net periodic benefit cost for the pension plans for 1999,
1998 and 1997 follow:
<TABLE>
<CAPTION>
Pension Benefits
-------------------------------------------------------------------------------------------
1999 1998 1997
----------------------------- ---------------------------- ----------------------------
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........................ $ 4,095 $258 $ 4,353 $ 3,416 $183 $ 3,599 $ 2,988 $162 $ 3,150
Interest cost....................... 8,127 242 8,369 7,457 171 7,628 6,537 145 6,682
Expected return on plan assets...... (9,994) - (9,994) (8,488) - (8,488) (7,247) - (7,247)
Amortization of prior service cost.. 819 15 834 849 15 864 73 (7) 66
Recognized net actuarial (gain)
loss.............................. - 70 70 - 25 25 - 21 21
Amortization of transition asset.... (695) 99 (596) (695) 99 (596) (695) 99 (596)
------- ---- ------- ------- ---- ------- ------- ---- -------
Net periodic benefit cost........... $ 2,352 $684 $ 3,036 $ 2,539 $493 $ 3,032 $ 1,656 $420 $ 2,076
======= ==== ======= ======= ==== ======= ======= ==== =======
</TABLE>
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 41
<PAGE>
The components of net periodic benefit cost for the other postretirement benefit
plans for 1999, 1998 and 1997 follow:
<TABLE>
<CAPTION>
Other Benefits
------------------------------------
(Dollars in thousands) 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost............................................................................ $148 $129 $131
Interest cost........................................................................... 687 698 731
Expected return on plan assets.......................................................... - - -
Amortization of prior service cost...................................................... - - -
Recognized net actuarial (gain) loss.................................................... (14) (20) (14)
Amortization of transition asset........................................................ - - -
---- ---- ----
Net periodic benefit cost............................................................... $821 $807 $848
==== ==== ====
</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, 1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Discount rate.......................................................... 7.00% 6.50% 7.00% 6.50%
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 4.0% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 2000 and to 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 1% change in assumed health
care cost trend rates would have the following effects:
<TABLE>
<CAPTION>
1% Increase 1% Decrease
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Effect on total of service and interest cost components................ $ 49 $ (44)
Effect on postretirement benefit obligation............................ $547 $(491)
</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 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 1999, 1998 and 1997
follows:
<TABLE>
<CAPTION>
Options Issued Weighted Average
and Outstanding Exercise Price
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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
Granted .................................................................................. - -
Terminated/forfeited...................................................................... - -
Exercised................................................................................. (180,803) 15.116
---------
Balance, December 31, 1999................................................................ 1,003,626 15.554
=========
Options exercisable at December 31, 1999 ................................................. 954,313 15.221
</TABLE>
42 [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
The following table provides selected information on stock options outstanding
and exercisable at December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
----------------------------------------------------- ---------------------------------
Weighted
Average
Remaining Weighted Weighted
Number Contractual Average Number Average
Exercise Prices Outstanding Life (Years) Exercise Price Exercisable Exercise Price
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$14.583 828,746 5.20 $14.583 828,746 $14.583
$17.042-$18.417 133,380 6.29 17.294 104,317 17.250
$27.000-$35.125 41,500 7.93 29.346 21,250 30.153
</TABLE>
The weighted average fair value of options granted during 1998 and 1997 was
$9.77 and $12.45, respectively. No options were granted during 1999.
Compensation cost associated with the options granted or expected to vest for
1999, 1998 and 1997 was $333,000, $1,048,000 and $1,027,000, respectively.
The weighted average fair value of options granted is estimated as of the
date of grant using the Black-Scholes option pricing model and assumes: (a)
dividend yield of 2.6% to 3.5%; (b) weighted average volatility of 22.0%; (c)
weighted average risk-free interest rate of 5.0% to 7.5%; and (d) weighted
average expected term of 4.3 years. 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. ACQUISITIONS
The following table provides information concerning acquisitions completed
during the three years ended December 31, 1999. These acquisitions were
accounted for as purchases. The results of operations of these acquisitions
subsequent to the acquisition dates are included in Mercshares' Statements of
Consolidated Income. Individually, the results of operations of these
acquisitions prior to the acquisition dates were not material to Mercshares'
results of operations.
<TABLE>
<CAPTION>
Common Shares Asset Size at Original
(Dollars in thousands) Issued Acquisition Date Intangible Asset
- -----------------------------------------------------------------------------------------------------------------------------------
Date Acquisition
- ---- -----------
<S> <C> <C> <C> <C>
12/98 Marine Bank 124,620 $20,000 $ 2,476
4/98 Marshall National Bank and Trust Company 675,680 80,000 15,052
7/97 Home Bank 699,821 47,000 8,755
7/97 Farmers Bank of Mardela Springs 172,553 30,000 1,545
</TABLE>
15. SEGMENT REPORTING
The provisions of Statement of Financial Accounting Standards No. 131,
Disclosures about Segments of an Enterprise and Related Information, established
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 two reportable segments: its twenty Community Banks and
Mercantile-Safe Deposit and 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, 1999, 1998 and 1997. 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
1999 (Dollars in thousands) Banking Trust MSD&T Banks Other Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income......................... $124,767 $ - $ 124,767 $ 245,692 $ (1,373) $ 369,086
Provision for loan losses................... (4,433) - (4,433) (7,623) - (12,056)
Noninterest income.......................... 27,953 64,372 92,325 40,674 (11,008) 121,991
Noninterest expenses ....................... (72,650) (35,392) (108,042) (128,586) 6,208 (230,420)
Adjustments................................. 13,673 (2,451) 11,222 (12,391) 1,169 -
-------- -------- ---------- ---------- --------- ----------
Income (loss) before income taxes........... 89,310 26,529 115,839 137,766 (5,004) 248,601
Income tax (expense) benefit................ (32,163) (10,612) (42,775) (50,426) 2,337 (90,864)
-------- -------- ---------- ---------- --------- ----------
Net income (loss)........................... $ 57,147 $ 15,917 $ 73,064 $ 87,340 $ (2,667) $ 157,737
======== ======== ========== ========== ========= ==========
Average assets.............................. $2,816,545 $4,935,303 $(123,188) $7,628,660
Average equity.............................. 335,851 596,147 39,839 971,837
<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.............................. $2,752,179 $4,671,377 $(162,779) $7,260,777
Average equity.............................. 313,946 562,193 91,186 967,325
<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.............................. $2,582,278 $4,359,388 $(112,823) $6,828,843
Average equity.............................. 297,886 523,433 65,087 886,406
</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
----------------------------------------------
1999 (Dollars in thousands, except per share data) Dec. 31 Sept. 30 June 30 March 31
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income.......................................................... $95,864 $93,480 $91,037 $88,705
Provision for loan losses.................................................... 6,119 2,894 1,648 1,395
Net income................................................................... 40,828 40,819 38,900 37,190
Per share of common stock:
Basic..................................................................... .59 .59 .56 .53
Diluted................................................................... .59 .59 .55 .53
<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>
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, 1999 and 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
--------------------- ---------------------
Book Fair Book Fair
(Dollars in thousands) Value Value Value Value
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS
Cash and short-term investments........................................ $ 227,356 $ 227,356 $ 312,710 $ 312,710
Investment securities.................................................. 1,769,534 1,769,474 1,907,541 1,907,778
Loans.................................................................. 5,718,942 5,220,890
Less: allowance for loan losses........................................ (117,997) (112,423)
---------- ----------
Loans, net....................................................... 5,600,945 5,769,777 5,108,467 5,221,316
---------- ---------- ---------- ----------
Total financial assets........................................... $7,597,835 $7,766,607 $7,328,718 $7,441,804
========== ========== ========== ==========
LIABILITIES
Deposits............................................................... $5,925,083 $5,914,143 $5,958,346 $5,968,154
Short-term borrowings.................................................. 839,497 839,497 511,945 511,945
Long-term debt......................................................... 82,683 84,623 40,934 42,550
---------- ---------- ---------- ----------
Total financial liabilities...................................... $6,847,263 $6,838,263 $6,511,225 $6,522,649
========== ========== ========== ==========
</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, 1999 and 1998:
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 using a discounted cash flow
calculation that applies interest rates and remaining maturities for currently
offered certificates of deposit.
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
<TABLE>
<CAPTION>
Balance Sheets
DECEMBER 31,
(Dollars in thousands, except per share data) 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash.................................................................................................. $ 13,552 $ 6,221
Interest-bearing deposits with bank affiliate......................................................... 42,000 16,000
Securities purchased under resale agreements with bank affiliate...................................... 44,239 185,074
---------- ----------
Cash and cash equivalents........................................................................... 99,791 207,295
---------- ----------
Investment in bank affiliates......................................................................... 939,860 914,836
Investment in bank-related affiliates................................................................. 18,039 17,489
Loans and advances to affiliates...................................................................... 133,800 39,300
Investment securities available-for-sale.............................................................. 3,299 3,126
Excess cost over equity in affiliates................................................................. 46,482 50,314
Other assets.......................................................................................... 1,477 547
---------- ----------
Total............................................................................................. $1,242,748 $1,232,907
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Commercial paper.................................................................................... $ 174,239 $ 185,074
Accounts payable and other liabilities.............................................................. 11,969 8,474
Long-term debt...................................................................................... 82,500 40,000
---------- ----------
Total liabilities................................................................................. 268,708 233,548
---------- ----------
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 68,645,759 shares in 1999 and 71,026,927 shares in 1998.................................... 137,292 142,054
Capital surplus..................................................................................... 47,798 31,357
Retained earnings................................................................................... 796,192 803,568
Accumulated other comprehensive income (loss)....................................................... (7,242) 22,380
---------- ----------
Total stockholders' equity........................................................................ 974,040 999,359
---------- ----------
Total........................................................................................... $1,242,748 $1,232,907
========== ==========
<CAPTION>
Statement of Income
(Dollars in thousands)
---------------------------------
For the Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME
Dividends from bank affiliates............................................................ $111,674 $104,476 $ 96,091
Dividends from bank-related affiliates.................................................... 1,340 1,560 1,431
Interest on interest-bearing deposits with bank affiliate................................. 2,002 2,390 2,212
Interest on securities purchased under resale agreements with bank affiliate.............. 1,994 7,191 7,004
Interest on loans to affiliates........................................................... 6,459 1,564 1,233
Other income.............................................................................. 133 104 51
-------- -------- --------
Total income.......................................................................... 123,602 117,285 108,022
-------- -------- --------
EXPENSES
Amortization of excess cost over equity in affiliates..................................... 3,832 3,444 2,347
Interest on short-term borrowings......................................................... 7,344 7,321 7,004
Interest on long-term debt................................................................ 4,773 3,016 3,268
Other expenses............................................................................ 3,891 3,531 3,938
-------- -------- --------
Total expenses........................................................................ 19,840 17,312 16,557
-------- -------- --------
Income before income tax benefit and equity in undistributed net income of affiliates..... 103,762 99,973 91,465
Income tax (benefit)...................................................................... 1,214 537 (424)
-------- -------- --------
102,548 99,436 91,889
Equity in undistributed net income of:
Bank affiliates......................................................................... 54,641 46,856 39,667
Bank-related affiliates................................................................. 548 836 487
-------- -------- --------
NET INCOME............................................................................ $157,737 $147,128 $132,043
======== ======== ========
</TABLE>
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 47
<PAGE>
18. MERCANTILE BANKSHARES CORPORATION (PARENT CORPORATION ONLY) FINANCIAL
INFORMATION (cont.)
<TABLE>
<CAPTION>
Statement of Cash Flows
(Dollars in thousands)
Increase (decrease) in cash and cash equivalents -------------------------------
For the Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Dividends from affiliates....................................................................... $ 113,014 $ 106,036 $ 97,522
Interest on securities purchased under resale agreements with bank affiliate.................... 1,994 7,191 7,004
Interest on loans to affiliates................................................................. 6,756 1,607 1,157
Other income.................................................................................... 1,956 3,856 3,025
Interest paid................................................................................... (11,747) (10,589) (10,272)
Other expenses.................................................................................. (1,992) (1,425) 664
Income taxes (paid) benefit..................................................................... 7 (1,125) (48)
--------- --------- --------
Net cash provided by operating activities................................................... 109,988 105,551 99,052
--------- --------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in loans to affiliates............................................................. (94,500) (5,930) (14,370)
Net increase in other investments............................................................... (173) (1,088) (1,038)
Investment in affiliates........................................................................ (2) - (1,910)
--------- --------- --------
Net cash used in investing activities....................................................... (94,675) (7,018) (17,318)
--------- --------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in commercial paper..................................................... (10,835) 16,381 52,013
Proceeds from issuance of long-term debt........................................................ 50,000 - -
Repayment of long-term debt..................................................................... (7,500) (9,000) -
Proceeds from issuance of shares................................................................ 7,128 6,712 7,026
Repurchase of common shares..................................................................... (96,497) (67,646) (12,295)
Dividends paid.................................................................................. (65,113) (61,538) (55,277)
--------- --------- --------
Net cash used in financing activities....................................................... (122,817) (115,091) (8,533)
--------- --------- --------
Net increase (decrease) in cash and cash equivalents............................................ (107,504) (16,558) 73,201
Cash and cash equivalents at beginning of year.................................................. 207,295 223,853 150,652
--------- --------- --------
Cash and cash equivalents at end of year........................................................ $ 99,791 $ 207,295 $ 223,853
========= ========= =========
<CAPTION>
(Dollars in thousands)
Reconciliation of net income to net cash provided by operating activities -----------------------------
For the Years Ended December 31, 1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income...................................................................................... $157,737 $147,128 $132,043
-------- -------- --------
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed net income of affiliates.............................................. (55,189) (47,692) (40,154)
Amortization of excess cost over equity in affiliates......................................... 3,832 3,444 2,347
(Increase) decrease in interest receivable.................................................... 297 43 (76)
(Increase) decrease in other receivables...................................................... (179) 1,362 762
Increase (decrease) in interest payable....................................................... 370 (253) -
Increase in accrued expenses.................................................................. 1,899 2,107 4,602
Increase (decrease) in taxes payable.......................................................... 1,221 (588) (472)
-------- -------- --------
Total adjustments........................................................................... (47,749) (41,577) (32,991)
-------- -------- --------
Net cash provided by operating activities....................................................... $109,988 $105,551 $ 99,052
======== ======== ========
</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) 1999 1998 1997 1996 1995
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
NET INTEREST INCOME.................................... $ 369,086 $ 353,365 $ 336,049 $ 310,581 $ 286,788
========== ========== ========== ========== ==========
NET INCOME............................................. $ 157,737 $ 147,128 $ 132,043 $ 117,400 $ 104,432
========== ========== ========== ========== ==========
NET INCOME PER SHARE OF COMMON STOCK
Basic.................................................. $2.27 $2.05 $1.85 $1.64 $1.46
Diluted................................................ $2.25 $2.04 $1.84 $1.64 $1.46
TOTAL ASSETS........................................... $7,895,024 $7,609,563 $7,170,669 $6,642,681 $6,349,103
========== ========== ========== ========== ==========
LONG-TERM DEBT......................................... $ 82,683 $ 40,934 $ 50,016 $ 49,395 $ 25,623
========== ========== ========== ========== ==========
PROVISION FOR LOAN LOSSES.............................. $ 12,056 $ 11,489 $ 13,703 $ 14,666 $ 7,988
========== ========== ========== ========== ==========
PER SHARE CASH DIVIDENDS
Common................................................. $.94 $.86 $.77 $.65 $.57
CASH DIVIDENDS DECLARED AND PAID
On common stock........................................ $ 65,113 $ 61,538 $ 55,277 $ 46,579 $ 41,013
YEAR END LOAN DATA
Commercial, financial and agricultural................. $1,954,697 $1,777,711 $1,632,893 $1,506,662 $1,393,145
Real estate-construction............................... 666,095 544,723 508,804 380,007 363,570
Real estate-mortgage:
Commercial........................................... 1,330,261 1,227,565 1,178,728 1,087,434 965,640
1-4 family residential............................... 1,081,729 1,032,652 1,013,394 993,953 969,235
Home equity lines...................................... 156,569 147,330 156,603 144,284 130,934
Consumer............................................... 529,591 490,909 488,100 470,372 478,746
---------- ---------- ---------- ---------- ----------
Total loans........................................ 5,718,942 5,220,890 4,978,522 4,582,712 4,301,270
Less:
Allowance for loan losses............................ (117,997) (112,423) (106,097) (97,718) (91,398)
---------- ---------- ---------- ---------- ----------
Loans, net......................................... $5,600,945 $5,108,467 $4,872,425 $4,484,994 $4,209,872
========== ========== ========== ========== ==========
</TABLE>
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 49
<PAGE>
FIVE YEAR STATISTICAL SUMMARY
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
(Dollars in thousands) 1999 1998 1997 1996 1995
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
AVERAGE BALANCE SHEET STATISTICS
Average loans:
Commercial (including time & demand) loans........... $1,982,254 $1,787,033 $1,659,967 $1,438,938 $1,351,606
Mortgage and construction loans...................... 2,744,365 2,570,447 2,523,863 2,348,161 2,116,485
Consumer loans....................................... 650,748 647,285 637,669 624,444 611,231
---------- ---------- ---------- ---------- ----------
Total loans........................................ 5,377,367 5,004,765 4,821,499 4,411,543 4,079,322
---------- ---------- ---------- ---------- ----------
Federal funds sold..................................... 15,762 177,049 78,786 80,246 62,721
Securities purchased under resale agreements........... - 8,155 5,346 5,269 19,980
Average securities:
U.S. government obligations.......................... 1,807,264 1,668,632 1,551,226 1,564,611 1,491,863
States and political subdivisions.................... 12,024 14,325 13,079 14,695 13,541
Other investments*................................... 23,473 23,271 22,873 17,775 10,303
---------- ---------- ---------- ---------- ----------
Total securities................................... 1,842,761 1,706,228 1,587,178 1,597,081 1,515,707
---------- ---------- ---------- ---------- ----------
Total earning assets............................. $7,235,890 $6,896,197 $6,492,809 $6,094,139 $5,677,730
========== ========== ========== ========== ==========
Average deposits:
Noninterest-bearing deposits......................... $1,334,282 $1,216,726 $1,069,032 $ 982,175 $ 888,908
Savings deposits..................................... 2,375,075 2,264,295 2,198,826 2,214,657 2,200,204
Time deposits........................................ 2,186,868 2,233,948 2,181,198 2,021,427 1,777,528
---------- ---------- ---------- ---------- ----------
Total deposits..................................... $5,896,225 $5,714,969 $5,449,056 $5,218,259 $4,866,640
========== ========== ========== ========== ==========
Average borrowed funds:
Short-term borrowings................................ $ 594,106 $ 439,936 $ 353,587 $ 292,957 $ 280,916
Long-term debt....................................... 70,836 45,802 49,939 39,619 27,831
---------- ---------- ---------- ---------- ----------
Total borrowed funds............................... $ 664,942 $ 485,738 $ 403,526 $ 332,576 $ 308,747
========== ========== ========== ========== ==========
AVERAGE RATES**
Loans:
Commercial (including time & demand) loans........... 8.58% 9.01% 9.09% 9.32% 9.76%
Mortgage and construction loans...................... 8.47 8.95 9.08 9.06 9.12
Consumer loans....................................... 8.51 8.95 9.06 9.27 9.59
Total loans........................................ 8.52 8.97 9.08 9.17 9.40
Federal funds sold..................................... 4.95 5.30 5.57 5.22 5.72
Securities purchased under resale agreements........... - 5.69 5.63 6.13 5.63
Securities:
U.S. government obligations.......................... 5.65 5.91 6.00 5.82 5.45
States and political subdivisions.................... 7.98 7.96 7.74 7.59 7.75
Other investments*................................... 8.97 8.83 8.23 7.20 8.01
Total securities................................... 5.70 5.97 6.05 5.84 5.49
Composite rate earned............................ 7.79% 8.13% 8.29% 8.24% 8.30%
==== ==== ==== ==== ====
Deposits:
Savings deposits..................................... 2.04% 2.50% 2.62% 2.63% 2.94%
Time deposits........................................ 5.01 5.44 5.49 5.57 5.56
Total interest-bearing deposits.................... 3.46 3.96 4.05 4.03 4.11
Borrowed funds:
Short-term borrowings................................ 4.59 4.73 4.87 4.85 5.38
Long-term debt....................................... 6.80 6.73 6.67 6.55 6.48
Total borrowed funds............................... 4.83 4.92 5.09 5.05 5.48
Composite rate paid.............................. 3.64% 4.05% 4.14% 4.11% 4.21%
==== ==== ==== ==== ====
</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) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
RETURN ON EQUITY AND ASSETS
Average total assets................................... $7,628,660 $7,260,777 $6,828,843 $6,436,307 $6,000,410
========== ========== ========== ========== ==========
Average stockholders' equity........................... $ 971,837 $ 967,325 $ 886,406 $ 810,511 $ 753,491
========== ========== ========== ========== ==========
Return on average total assets......................... 2.07% 2.03% 1.93% 1.82% 1.74%
Return on average stockholders' equity................. 16.23% 15.21% 14.90% 14.48% 13.86%
Average stockholders' equity as a percentage
of average total assets............................. 12.74% 13.32% 12.98% 12.59% 12.56%
Dividends paid per share as a percentage
of basic net income per share....................... 41.4% 42.0% 41.6% 39.6% 39.0%
SOURCES OF INCOME
Commercial (including time & demand) loans............. 24.5% 23.7% 23.3% 22.2% 23.4%
Mortgage and construction loans........................ 34.0 34.5 36.2 36.2 35.1
Consumer loans......................................... 8.1 8.7 9.1 9.8 10.7
Federal funds sold..................................... .1 1.4 .7 .7 .7
Securities purchased under resale agreements........... - .1 - .1 .2
Securities............................................. 15.4 15.2 15.1 15.8 15.1
----- ----- ----- ----- -----
Total interest income.............................. 82.1 83.6 84.4 84.8 85.2
Trust division services................................ 9.5 8.7 8.1 7.9 8.1
Other income........................................... 8.4 7.7 7.5 7.3 6.7
----- ----- ----- ----- -----
Total income....................................... 100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
NET INTEREST INCOME
(Taxable Equivalent)
Interest earned:
Loans................................................ $457,936 $449,044 $437,829 $404,530 $383,523
Federal funds sold................................... 781 9,387 4,389 4,195 3,587
Securities purchased under resale agreements......... - 464 301 325 1,126
Taxable securities................................... 104,144 100,726 94,937 92,211 82,094
Tax-exempt securities................................ 959 1,141 1,012 1,115 1,046
-------- -------- -------- -------- --------
Total interest income.............................. 563,820 560,762 538,468 502,376 471,376
-------- -------- -------- -------- --------
Interest paid:
Savings deposits..................................... 48,442 56,720 57,702 58,187 64,732
Time deposits........................................ 109,555 121,424 119,667 112,576 98,824
-------- -------- -------- -------- --------
Total interest-bearing deposits.................... 157,997 178,144 177,369 170,763 163,556
Short-term borrowings................................ 27,267 20,800 17,220 14,199 15,123
Long-term debt....................................... 4,818 3,083 3,332 2,596 1,808
-------- -------- -------- -------- --------
Total interest expense............................. 190,082 202,027 197,921 187,558 180,487
-------- -------- -------- -------- --------
Net interest income.............................. $373,738 $358,735 $340,547 $314,818 $290,889
======== ======== ======== ======== ========
</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) 1999 1998 1997 1996 1995
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans............................. $453,825 $444,519 $434,033 $400,800 $379,888
Interest and dividends on securities................... 104,556 101,017 95,242 92,812 82,670
Other interest income.................................. 787 9,856 4,695 4,527 4,717
-------- -------- -------- -------- --------
Total interest income.............................. 559,168 555,392 533,970 498,139 467,275
-------- -------- -------- -------- --------
INTEREST EXPENSE
Interest on deposits................................... 157,997 178,144 177,369 170,763 163,556
Interest on short-term borrowings...................... 27,267 20,800 17,220 14,199 15,123
Interest on long-term debt............................. 4,818 3,083 3,332 2,596 1,808
-------- -------- -------- -------- --------
Total interest expense............................. 190,082 202,027 197,921 187,558 180,487
-------- -------- -------- -------- --------
NET INTEREST INCOME.................................... 369,086 353,365 336,049 310,581 286,788
Provision for loan losses.............................. 12,056 11,489 13,703 14,666 7,988
-------- -------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES........................... 357,030 341,876 322,346 295,915 278,800
-------- -------- -------- -------- --------
NONINTEREST INCOME
Trust division services................................ 65,036 58,018 51,547 46,244 44,273
Service charges on deposit accounts.................... 23,043 19,666 18,105 17,792 17,211
Other income........................................... 33,912 31,009 29,001 25,392 19,422
-------- -------- -------- -------- --------
Total noninterest income........................... 121,991 108,693 98,653 89,428 80,906
-------- -------- -------- -------- --------
NONINTEREST EXPENSES
Salaries and employee benefits......................... 134,665 131,618 124,563 120,783 117,512
Net occupancy and equipment expenses................... 32,959 30,486 32,663 29,491 27,999
Amortization of excess cost over equity in affiliates.. 3,832 3,444 2,347 1,975 1,276
Other expenses......................................... 58,964 53,457 53,831 46,166 46,910
-------- -------- -------- -------- --------
Total noninterest expenses......................... 230,420 219,005 213,404 198,415 193,697
-------- -------- -------- -------- --------
Income before income taxes............................. 248,601 231,564 207,595 186,928 166,009
Applicable income taxes................................ 90,864 84,436 75,552 69,528 61,577
-------- -------- -------- -------- --------
NET INCOME............................................. $157,737 $147,128 $132,043 $117,400 $104,432
======== ======== ======== ======== ========
</TABLE>
52 [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
PRINCIPAL AFFILIATES
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] Robert E. Henel, Jr. George R. Benson, Jr.
THE ANNAPOLIS President and Clarence A. Blackwell
BANKING AND Chief Executive Officer Bennett Crain, Jr.
TRUST COMPANY Carolyn D. O'Leary Ralph W. Crosby
Executive Vice President Francis E. Gardiner, Jr.
Main Street and Ernest R. Amadio Robert E. Henel, Jr.
Church Circle Senior Vice President John K. Hopkins
Annapolis, William A. Busik John R. Moses
Maryland 21401 Senior Vice President Patricia A. Roche, Ph.D.
410/268-3366 Mildred L. Henry Harry A. Seymour, Jr.
Senior Vice President
11 Offices Charles E. Ruch, Jr.
Senior Vice President
Chartered in 1904 Pamela Bowen Falsis
Vice President and
Corporate Secretary
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $270,080
from banks $ 6,232 Short-term borrowings 33,190
Earning assets 328,170 Other liabilities and
Allowance for accrued expenses 239
loan losses (3,854) Long-term debt -
Other assets 6,420 Stockholders' equity 33,459
-------- --------
Total assets $336,968 Total liabilities
======== and equity $336,968
Net income $ 6,130 ========
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] Robert E. Dickerson R. Carol Campbell-Hansen
BALTIMORE TRUST President and Robert E. Dickerson
COMPANY Chief Executive Officer David C. Doane
D. Brent Hurley D. Brent Hurley
One West Church Street Senior Vice President Richard I. Lewis
Selbyville, B. Philip Lynch, Jr. Jay C. Murray
Delaware 19975 Vice President and Cashier William O. Murray
302/436-8236 Janet L. McCabe John E. Willey, Jr.
Vice President and Secretary
7 Offices Kenneth R. Graham
Vice President
Chartered in 1903
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $206,838
from banks $ 7,202 Short-term borrowings 17,630
Earning assets 256,848 Other liabilities and
Allowance for accrued expenses 1,956
loan losses (3,020) Long-term debt -
Other assets 8,748 Stockholders' equity 43,354
-------- --------
Total assets $269,778 Total liabilities
======== and equity $269,778
Net income $ 5,732 ========
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] Wesley E. Hughes, Jr. Warren E. Barley
BANK OF President and Wesley E. Hughes, Jr.
SOUTHERN Chief Executive Officer Evelyn Susan Hungerford
MARYLAND James E. Shook Edward L. Sanders, Jr.
Senior Vice President Robert J. Schick
304 Charles Street James F. DiMisa James C. Simpson
LaPlata, Vice President and John L. Sprague
Maryland 20646 Cashier J. Blacklock Wills, Jr.
301/934-1000 J. Wayne Welsh
Vice President
6 Offices Diane M. Kestler
Chief Financial Officer
Chartered in 1906
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $169,114
from banks $ 2,883 Short-term borrowings -
Earning assets 191,408 Other liabilities and
Allowance for accrued expenses 395
loan losses (2,896) Long-term debt -
Other assets 4,524 Stockholders' equity 26,410
-------- --------
Total assets $195,919 Total liabilities
======== and equity $195,919
Net income $ 4,521 ========
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] Harold J. Kahl Charles R. Bailey, Jr.
CALVERT BANK AND President and Gordon F. Bowen
TRUST COMPANY Chief Executive Officer Bedford C. Glascock
Donald M. Parsons, Jr. Dana M. Jones
Calvert Village Senior Vice President, Harold J. Kahl
Shopping Center Loans/Business Development Larry D. Kelley, RPh
P.O. Box 590 Kathy A. Boyce Maurice T. Lusby, III
Prince Frederick, Vice President John D. Murray
Maryland 20678 Leonard J. Clements John A. Simpson, Jr.
410/535-3535 Vice President Guffrie M. Smith, Jr.
Patricia A. Diedrich W. David Sneade
6 Offices Vice President
R. Linda Hipsley
Chartered in 1963 Vice President and Treasurer
Christine L. Lewis
Vice President
Judith T. McManus
Vice President and
Assistant Corporate Secretary
Faye S. Shields
Vice President
Janice M. Lomax
Corporate Secretary
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $169,737
from banks $ 5,613 Short-term borrowings 1,850
Earning assets 183,878 Other liabilities and
Allowance for accrued expenses 535
loan losses (2,439) Long-term debt -
Other assets 4,431 Stockholders' equity 19,361
-------- --------
Total assets $191,483 Total liabilities
======== and equity $191,483
Net income $ 4,847 ========
========
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 53
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] R. Raymond Tarrach Edward M. Athey
THE CHESTERTOWN President and Alton E. Darling, Sr.
BANK OF MARYLAND Chief Executive Officer Edward S. Gillespie
Russell W. Carlow George H. Godfrey
211 High Street Senior Vice President Clarence A. Hawkins
Chestertown, and Senior Loan Officer R. Raymond Tarrach
Maryland 21620 Sharon A. Usilton Eugenia C. Wootton
410/778-2400 Vice President and
Senior Administrative
8 Offices Officer
Chartered in 1904
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $142,724
from banks $ 4,550 Short-term borrowings 8,434
Earning assets 173,591 Other liabilities and
Allowance for accrued expenses 770
loan losses (2,522) Long-term debt -
Other assets 4,715 Stockholders' equity 28,406
-------- --------
Total assets $180,334 Total liabilities
======== and equity $180,334
Net income $ 3,746 ========
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] Peter W. Floeckher, Jr. Larry P. Bormel
THE CITIZENS President and William H. Carter, Jr.
NATIONAL BANK Chief Executive Officer Charles E. Castle, Jr.
Glenn L. Wilson John N. Faigle
517 Main Street Executive Vice President Peter W. Floeckher, Jr.
Laurel, and Senior Credit Officer Martin L. Goozman
Maryland 20707 Joseph F. Pipitone Thomas E. Lynch, Sr.
301/725-3100 Executive Vice President, Michele K. Ryan
Washington: Community Banking, and
301/953-3044 Secretary
Baltimore:
410/792-7626
17 Offices
Chartered in 1890
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $485,765
from banks $ 19,654 Short-term borrowings 55,740
Earning assets 586,795 Other liabilities and
Allowance for accrued expenses 3,545
loan losses (8,042) Long-term debt -
Other assets 18,982 Stockholders' equity 72,339
-------- --------
Total assets $617,389 Total liabilities
======== and equity $617,389
Net income $ 11,943 ========
========
EXECUTIVE OFFICERS DIRECTORS
- ------------------------------------------------------------------------------
[LOGO] S. Dell Foxx Thomas F. Bradlee
COUNTY BANKING President and S. Dell Foxx
& TRUST Chief Executive Officer Samuel M. Gawthrop, Jr.
COMPANY Raymond W. Hamm, Jr. Ruth N. Graybeal
Executive Vice President Harry E. Hammond
123 North Street B. Keith Webster Ralph R. Lanphar
P.O. Box 100 Executive Vice President Howard D. McFadden
Elkton, G. Eugene Mackie
Maryland 21921 Franklin T. Williams, III
410/398-2600
9 Offices
Chartered in 1908
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $264,361
from banks $ 9,858 Short-term borrowings 9,505
Earning assets 293,638 Other liabilities and
Allowance for accrued expenses 740
loan losses (4,436) Long-term debt -
Other assets 8,955 Stockholders' equity 33,409
-------- --------
Total assets $308,015 Total liabilities
======== and equity $308,015
Net income $ 5,595 ========
========
EXECUTIVE OFFICERS DIRECTORS
- --------------------------------------------------------------------------------
[LOGO] George N. McMath Kelly B. Conklin
FARMERS & Chairman of the Board Gene H. Crockett
MERCHANTS BANK- H. B. Rew, Jr. Jeffery L. Davis
EASTERN SHORE Vice Chairman and M. Carter Davis, Jr.
Chief Executive Officer John H. Duer, III
25275 Lankford Highway Ted D. Duer Ted D. Duer
P.O. Box 623 President and Croxton Gordon
Onley, Chief Operating Officer W. Revell Lewis, III
Virginia 23418 Julie M. Badger Thomas J. Mapp, Jr.
757/787-4111 Senior Vice President and George N. McMath
757/824-3052 Chief Financial Officer Katherine T. Mears
Robert J. Bloxom H. B. Rew, Jr.
7 Offices Senior Vice President and Thomas N. Richardson
Senior Lending Officer Robert L. Simpson
Chartered in 1909 Elizabeth A. Kerns Michael T. Tolbert
Senior Vice President C. A. Turner, III
and Secretary Richard W. Young
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $199,394
from banks $ 4,498 Short-term borrowings 3,859
Earning assets 228,652 Other liabilities and
Allowance for accrued expenses 872
loan losses (3,623) Long-term debt -
Other assets 10,133 Stockholders' equity 35,535
-------- --------
Total assets $239,660 Total liabilities
======== and equity $239,660
Net income $ 4,003 ========
========
54 [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
- ------------------------------------------------------------------------------
[LOGO] C. Joseph Cunningham, III C. Joseph Cunningham, III
THE FIDELITY BANK President and James A. Poland
Chief Executive Officer F. Emmett Smith
59 East Main Street Karen O. Sullivan
Frostburg, David W. Turnbull
Maryland 21532
301/689-1111
3 Offices
Chartered in 1902
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $35,264
from banks $ 2,104 Short-term borrowings 2,980
Earning assets 40,794 Other liabilities and
Allowance for accrued expenses 235
loan losses (559) Long-term debt -
Other assets 1,020 Stockholders' equity 4,880
------- -------
Total assets $43,359 Total liabilities
======= and equity $43,359
Net income $ 409 =======
=======
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[LOGO] John A. Candela Samuel M. Bailey, Jr.
THE FIRST Chairman and Martin A. Barley
NATIONAL BANK Chief Executive Officer Joseph E. Bell, II
OF ST. MARY'S William T. Sturgis Elmer J. Brown
President and Edward S. Burroughs
41615 Park Avenue Chief Operating Officer John A. Candela
P.O. Box 655 Dan Kubican Ford L. Dean
Leonardtown, Senior Vice President and Frances P. Eagan
Maryland 20650 Senior Loan Officer George A. Ferguson
301/475-8081 Genevieve M. Hunt Roger D. Hill
Senior Vice President Joseph F. Mitchell
8 Offices and Controller William T. Sturgis
Linda P. Cross Edmund W. Wettengel
Chartered in 1903 Vice President,
Human Resources
Marilyn L. Jumalon
Vice President, Cashier and
Secretary to the Board
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $251,038
from banks $ 6,031 Short-term borrowings 13,017
Earning assets 297,368 Other liabilities and
Allowance for accrued expenses 646
loan losses (3,563) Long-term debt -
Other assets 6,649 Stockholders' equity 41,784
-------- --------
Total assets $306,485 Total liabilities
======== and equity $306,485
Net income $ 7,703 ========
========
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[LOGO] Paul E. Peak Thomas A. Burke
THE FOREST HILL President and Ann K. Edie
STATE BANK Chief Executive Officer Henry S. Holloway
Russell R. Cullum Richard E. Kinard
130 South Bond Street Executive Vice President C. Ray Mann
Bel Air, Michael F. Allen Paul E. Peak
Maryland 21014 Senior Vice President Barbara Lee Rudolph
410/838-6131 R. Edward Schueler, Jr.
Baltimore: Gregory A. Szoka
410/879-1475 F. D. Whiteford
7 Offices
Chartered in 1913
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $212,607
from banks $ 5,464 Short-term borrowings 39,569
Earning assets 271,918 Other liabilities and
Allowance for accrued expenses 755
loan losses (4,358) Long-term debt -
Other assets 7,983 Stockholders' equity 28,076
-------- --------
Total assets $281,007 Total liabilities
======== and equity $281,007
Net income $ 5,320 ========
========
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[LOGO] J. Brian Gaeng W. Bert Anderson
FREDERICKTOWN President and Marvin E. Ausherman
BANK & Chief Executive Officer George W. Bruchey
TRUST COMPANY David L. Hoffman David P. Chapin
Vice President Caleb C. Ewing, Jr.
30 North Market Street J. Brian Gaeng
Frederick, Robert E. Gearinger
Maryland 21701 Richard L. Kessler
301/662-8231 Christopher T. Kline
David C. Meadows
8 Offices Peter H. Plamondon
Alfred P. Shockley
Chartered in 1828
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $169,883
from banks $ 4,441 Short-term borrowings 7,517
Earning assets 200,850 Other liabilities and
Allowance for accrued expenses 1,036
loan losses (3,469) Long-term debt -
Other assets 5,754 Stockholders' equity 29,140
-------- --------
Total assets $207,576 Total liabilities
======== and equity $207,576
Net income $ 4,250 ========
========
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 55
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
- ------------------------------------------------------------------------------
[LOGO] Donald R. Yowell George R. Thompson, Jr.
MARSHALL NATIONAL President and Chairman of the Board
BANK AND TRUST Chief Executive Officer Thomas W. diZerega
COMPANY Anita L. Shull Vice Chairman
Executive Vice President Randolph S. E. Carter
8372 West Main Street and Chief Financial Officer Wm. Hunter deButts, Jr.
Marshall, Jerry D. Medlock Thomas B. Glascock
Virginia 20115 Senior Vice President Richard C. Riemenschneider
540/364-1555 Carol C. Merewether Evelyn D. Trumbo
Vice President and Lewis S. Wiley
2 Offices Corporate Secretary Donald R. Yowell
Kevin A. Lee
Chartered in 1905 Vice President
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $80,128
from banks $ 3,016 Short-term borrowings -
Earning assets 85,120 Other liabilities and
Allowance for accrued expenses 682
loan losses (1,184) Long-term debt -
Other assets 2,639 Stockholders' equity 8,781
------- -------
Total assets $89,591 Total liabilities
======= and equity $89,591
Net income $ 1,336 =======
=======
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[LOGO] H. Furlong Baldwin Cynthia A. Archer
MERCANTILE-SAFE Chairman of the Board and H. Furlong Baldwin
DEPOSIT AND Chief Executive Officer Thomas M. Bancroft, Jr.
TRUST COMPANY J. Marshall Reid Richard O. Berndt
President and William R. Brody, M.D.
2 Hopkins Plaza Chief Operating Officer George L. Bunting, Jr.
Baltimore, Jack E. Steil Darrell D. Friedman
Maryland 21201 Chairman-Credit Policy Freeman A. Hrabowski, III
410/237-5900 Kenneth A. Bourne, Jr. Mary Junck
Executive Vice President Robert A. Kinsley
18 Offices Charles E. Siegmann William J. McCarthy
Executive Vice President Morton B. Plant
Chartered in 1864 Malcolm C. Wilson Christian H. Poindexter
Executive Vice President J. Marshall Reid
Terry L. Troupe Donald J. Shepard
Chief Financial Officer Jack E. Steil
Alan D. Yarbro Brian B. Topping
General Counsel and Secretary
Director Emeritus
Calman J. Zamoiski, Jr.
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- --------------------------- ----------------------------------
Cash and due Total deposits $1,971,675
from banks $ 138,003 Short-term borrowings 650,611
Earning assets 2,823,761 Other liabilities and
Allowance for accrued expenses 39,002
loan losses (45,866) Long-term debt -
Other assets 88,916 Stockholders' equity 343,526
---------- ----------
Total assets $3,004,814 Total liabilities
========== and equity $3,004,814
Net income $ 67,689 ==========
==========
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[LOGO] J. William Poole Leland H. Baker
THE NATIONAL Chairman of the Board John H. Chichester
BANK OF William B. Young Lewis W. Graves
FREDERICKSBURG President and Charles A. McCormack
Chief Executive Officer William E. Milby
2403 Fall Hill Avenue William E. Milby J. William Poole
Fredericksburg, Executive Vice President William J. Vakos
Virginia 22401 and Cashier William B. Young
540/899-3200 John B. Daniel
Senior Vice President
9 Offices Lloyd B. Harrison, III
Senior Vice President
Chartered in 1865 Ronald L. Pearson
Senior Vice President
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $228,234
from banks $ 8,557 Short-term borrowings 11,946
Earning assets 251,588 Other liabilities and
Allowance for accrued expenses 1,098
loan losses (3,176) Long-term debt -
Other assets 11,549 Stockholders' equity 27,240
-------- --------
Total assets $268,518 Total liabilities
======== and equity $268,518
Net income $ 4,173 ========
========
56 [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[LOGO] Jeffrey F. Turner Ralph L. Chapman
PENINSULA President and William E. Esham, Jr.
BANK Chief Executive Officer Frank B. Hanna, Sr.
F. Winfield Trice Henry H. Hanna, III
11738 Somerset Avenue Executive Vice President Charles R. Jenkins, Sr.
P.O. Box 219 and Senior Loan Officer Ralph L. Mason, Jr.
Princess Anne, Deborah S.Abbott Frederick T. Parker
Maryland 21853 Senior Vice President and George A. Purnell
410/651-2400 Regional Officer John B. Robins, IV
Harry B. Gemmell E. Scott Tawes
24 Offices Senior Vice President and Casey I. Todd
Regional Officer Jeffrey F. Turner
Chartered in 1889 W. Thomas Mears Robert B. Twilley, Jr.
Senior Vice President and
Regional Officer
F. Dennis Parker
Senior Vice President and
Regional Officer
Michael R. Walsh
Senior Vice President
and Secretary
Jerry C. Briele
Vice President and
Treasurer
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $429,158
from banks $ 14,331 Short-term borrowings 17,015
Earning assets 487,836 Other liabilities and
Allowance for accrued expenses 3,560
loan losses (9,167) Long-term debt 88
Other assets 16,465 Stockholders' equity 59,644
-------- --------
Total assets $509,465 Total liabilities
======== and equity $509,465
Net income $ 10,289 ========
========
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[LOGO] William W. Duncan, Jr. A. Curtis Andrew
THE PEOPLES Acting President and Richard A. Edwards
BANK OF Chief Executive Officer Frederick L. Hubbard
MARYLAND E. John Mills
Randolph P. Moore
205 Market Street Joseph D. Quinn
Denton, A. Orrell Saulsbury, III
Maryland 21629
410/479-2600
5 Offices
Chartered in 1919
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $77,392
from banks $ 4,323 Short-term borrowings 3,095
Earning assets 85,117 Other liabilities and
Allowance for accrued expenses 173
loan losses (1,346) Long-term debt -
Other assets 2,666 Stockholders' equity 10,100
------- -------
Total assets $90,760 Total liabilities
======= and equity $90,760
Net income $ 1,582 =======
=======
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[LOGO] James J. Cromwell Stephen E. Chase
POTOMAC Chairman of the Board Jay Milton Clogg
VALLEY BANK Kenneth C. Cook Kenneth C. Cook
President and James J. Cromwell
702 Russell Avenue Chief Executive Officer Bruce Mackey
Gaithersburg, Andrew F. Flott William C. Moyer
Maryland 20877 Senior Vice President, Rex L. Sturm
301/963-7600 Finance Division Manager C. Clifton Veirs, III
and Corporate Secretary
8 Offices William W. West
Senior Vice President and
Chartered in 1959 Chief Lending Officer
Arrel E. Godfrey
Senior Vice President
Anne R. Kline
Senior Vice President
Eugenia M. Long
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, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $205,117
from banks $ 9,907 Short-term borrowings 37,800
Earning assets 255,743 Other liabilities and
Allowance for accrued expenses 795
loan losses (3,596) Long-term debt -
Other assets 4,851 Stockholders' equity 23,193
-------- --------
Total assets $266,905 Total liabilities
======== and equity $266,905
Net income $ 4,177 ========
========
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 57
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[LOGO] William W. Duncan, Jr. William W. Duncan, Jr.
ST. MICHAELS President and Pamela P. Gardner
BANK Chief Executive Officer Mary B. Hoff
R. Ivan Thamert J. Brent Raughley
213 Talbot Street Executive Vice President Norman M. Shannahan, III
P.O. Box 70 Clifford L. Hilk R. Ivan Thamert
St. Michaels, Senior Vice President and John R. Valliant
Maryland 21663 Senior Loan Officer Donald R. Young
410/745-5091 Anita N. Parrott
Senior Vice President and
5 Offices Chief Financial Officer
Chartered in 1890
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $112,020
from banks $ 4,034 Short-term borrowings 12,460
Earning assets 135,079 Other liabilities and
Allowance for accrued expenses 618
loan losses (3,952) Long-term debt -
Other assets 3,446 Stockholders' equity 13,509
-------- --------
Total assets $138,607 Total liabilities
======== and equity $138,607
Net income $ 3,100 ========
========
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[LOGO] Richard F. Price Linda I. Alexander
THE SPARKS Chairman of the Board John E. Day
STATE BANK Bradley G. Moore James J. Hartenstein
President and J. David Lawson
14804 York Road Chief Executive Officer Bradley G. Moore
Sparks, Daniel R. Wernecke Richard F. Price
Maryland 21152 Executive Vice President Robert J. Rigger
410/771-4900 Janet M. Miller Oscar M. Schapiro
Senior Vice President and
5 Offices Corporate Treasurer
Amy G. Whiteley
Chartered in 1916 Senior Vice President
John W. Wright
Senior Vice President
Donna S. Ensor
Vice President and
Corporate Secretary
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $180,537
from banks $ 4,715 Short-term borrowings 13,695
Earning assets 217,420 Other liabilities and
Allowance for accrued expenses 1,849
loan losses (3,655) Long-term debt -
Other assets 5,207 Stockholders' equity 27,606
-------- --------
Total assets $223,687 Total liabilities
======== and equity $223,687
Net income $ 5,012 ========
========
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[LOGO] Ferdinand A. Ruppel, Jr. Robert R. Bowman
WESTMINSTER BANK Chairman of the Board Daniel S. Dulany
AND TRUST and Chief Executive Officer Todd L. Herring
COMPANY OF Mark G. Pohlhaus Robert L. Jones
CARROLL COUNTY President G. Thomas Mullinix
Mark G. Pohlhaus
71 East Main Street Marlin L. Rittase
Westminster, Ferdinand A. Ruppel, Jr.
Maryland 21157
410/848-9300
10 Offices
Chartered in 1898
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $208,906
from banks $ 7,451 Short-term borrowings 4,010
Earning assets 233,209 Other liabilities and
Allowance for accrued expenses 575
loan losses (3,273) Long-term debt -
Other assets 6,237 Stockholders' equity 30,133
-------- --------
Total assets $243,624 Total liabilities
======== and equity $243,624
Net income $ 4,758 ========
========
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[LOGO] Edward K. Dunn, Jr. Edward K. Dunn, Jr.
MERCANTILE Chairman of the Board Paul W. Parks
MORTGAGE Paul W. Parks J. Marshall Reid
CORPORATION President and
(a subsidiary of Chief Executive Officer
Mercantile-Safe Deposit Michael S. Cordes
and Trust Company) Executive Vice President,
Multifamily Finance
20 South Charles Street, Edward J. Murn, III
3rd Floor Executive Vice President,
Baltimore, Multifamily Finance
Maryland 21201 Kevin J. Michno
410/347-8940 Senior Vice President, Production
Joseph J. O'Brien, Jr.
12 Offices Senior Vice President,
Construction Lending
Incorporated in 1972 John M. Schwanky
Senior Vice President, Servicing
Nancy Hauprich
Vice President, Construction
Lending
Timothy P. Reynolds
Vice President, Construction
Lending
Francis M. Teller
Vice President, Construction
Lending
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $ -
from banks $ 1,450 Short-term borrowings 128,000
Earning assets 138,469 Other liabilities and
Allowance for accrued expenses 2,808
loan losses (3,355) Long-term debt -
Other assets 5,712 Stockholders' equity 11,468
-------- --------
Total assets $142,276 Total liabilities
======== and equity $142,276
Net income $ 3,840 ========
========
58 [LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES
<PAGE>
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[LOGO] Joseph M. Santos Kenneth A. Bourne, Jr.
MBC LEASING President David R. Bowen
CORP. W. Keith Moore J. Marshall Reid
(a subsidiary of Vice President Joseph M. Santos
Mercantile-Safe Scott H. Krieger Terry L. Troupe
Deposit and Trust Treasurer and
Company) Assistant Secretary
Dennis W. Kreiner
2 Hopkins Plaza Secretary
P.O. Box 1451 Mary L. Roberts
Baltimore, Assistant Vice President
Maryland 21203
410/237-5855
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $ -
from banks $ - Short-term borrowings 173,770
Earning assets 185,030 Other liabilities and
Allowance for accrued expenses 7,234
loan losses - Long-term debt -
Other assets 46 Stockholders' equity 4,072
-------- --------
Total assets $185,076 Total liabilities
======== and equity $185,076
Net income $ 1,451 ========
========
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[LOGO] Terry L. Troupe Kenneth A. Bourne, Jr.
MBC AGENCY, INC. President William J. McCarthy
Alan D. Yarbro Jack E. Steil
2 Hopkins Plaza Secretary O. James Talbott, II
Baltimore, William T. Skinner, Jr. Terry L. Troupe
Maryland 21201 Vice President and Treasurer
410/347-8294 Dennis W. Kreiner
Assistant Secretary
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $ -
from banks $ 448 Short-term borrowings -
Earning assets 3,477 Other liabilities and
Allowance for accrued expenses 2,147
loan losses - Long-term debt -
Other assets 72 Stockholders' equity 1,850
------ ------
Total assets $3,997 Total liabilities
====== and equity $3,997
Net income $ 292 ======
======
EXECUTIVE OFFICERS DIRECTORS
- -------------------------------------------------------------------------------
[LOGO] Ronald D. Mettam Ronald D. Mettam
MBC REALTY, LLC President J. Marshall Reid
Vernon D. Conway Charles E. Siegmann
2 Hopkins Plaza Senior Vice President Terry L. Troupe
Baltimore, W. Joseph Smith, Jr. Alan D. Yarbro
Maryland 21201 Assistant Vice President
410/237-5377 Alan D. Yarbro
Secretary
William T. Skinner, Jr.
Treasurer
Kimberly L. Talley
Assistant Treasurer
BALANCE SHEET (Dollars in thousands) December 31, 1999
- ----------------------------------------------------------------
ASSETS LIABILITIES AND EQUITY
- ------------------------- ----------------------------------
Cash and due Total deposits $ -
from banks $ 393 Short-term borrowings 3,800
Earning assets - Other liabilities and
Allowance for accrued expenses 1,717
loan losses - Long-term debt 95
Other assets 21,039 Stockholders' equity 15,820
------- -------
Total assets $21,432 Total liabilities
======= and equity $21,432
Net income $ 1,582 =======
=======
[LOGO] MERCANTILE BANKSHARES CORPORATION AND AFFILIATES 59
<PAGE>
MERCANTILE BANKSHARES CORPORATION
<TABLE>
<CAPTION>
<S> <C> <C> <C>
OFFICERS DIRECTORS Freeman A. DIRECTORS EMERITUS
Hrabowski, III
H. Furlong Baldwin *Cynthia A. Archer President of University of Calman J. Zamoiski, Jr.
Chairman of the Board, Senior Vice President of Maryland-Baltimore Chairman of the Board of
President and Chief Direct-to-Customer County Independent Distributors,
Executive Officer Operations, Williams- Incorporated, general
Sonoma, Inc., a specialty *(carat)Mary Junck wholesale distributors
Jack E. Steil retailer President and Chief
Executive Vice President Operating Officer, Lee Morris W. Offit
+H. Furlong Baldwin Enterprises, Inc., a diver- Chairman of the Board
Alan D. Yarbro Chairman of the Board, sified media company and Chief Executive
General Counsel and President and Chief Officer of OFFITBANK,
Secretary Executive Officer of +*Robert A. Kinsley a private bank offering
Mercantile Bankshares Chairman of the Board integrated investment
Terry L. Troupe Corporation and Chairman and Chief Executive services
Chief Financial Officer of the Board and Chief Officer of Kinsley
and Treasurer Executive Officer of Construction, Inc., a
Mercantile-Safe Deposit general and heavy
Robert W. Johnson and Trust Company construction firm
Senior Vice President
*Thomas M. Bancroft, Jr. +William J. McCarthy
O. James Talbott, II Former Chairman of the Principal of William
Senior Vice President Board and Chief Executive J. McCarthy, P.C., a
Officer of The New York Partner in the law firm
Jerry F. Graham Racing Association of Venable, Baetjer and
Vice President Howard, LLP
+*Richard O. Berndt
Robert C. Smith Partner in the law firm of Morton B. Plant
Auditor Gallagher, Evelius & Chairman of the Board of
Jones, LLP Keywell Corporation, a
recycler of high tempera-
William R. Brody, M.D. ture alloy scrap metal
President of The Johns
Hopkins University +(carat)Christian H. Poindexter
Chairman of the Board,
(carat)George L. Bunting, Jr. President and Chief
President and Chief Executive Officer of
Executive Officer of Bunting Constellation Energy
Management Group, a Group, Inc., a public utility
private financial manage- holding company
ment company
+(carat)Donald J. Shepard
Darrell D. Friedman President and Chief
President and Chief Executive Officer of
Executive Officer of THE AEGON USA, Inc., a hold-
ASSOCIATED: Jewish ing company owning
Community Federation of insurance and insurance
Baltimore related companies
+Member of Executive Committee
*Member of Audit Committee
(carat)Member of Compensation Committee
Listing as of February 2000
</TABLE>
60
<PAGE>
CORPORATE INFORMATION
CORPORATE PROFILE
Mercantile Bankshares Corporation is a multibank holding company, organized in
1969 under the laws of Maryland. On January 1, 2000, its principal affiliates
were twenty-one locally managed and directed community banks.
The affiliated banks are engaged in a general personal and corporate banking
business. The Corporation's largest bank, Mercantile-Safe Deposit and Trust
Company, also provides a full range of trust and investment management services
as well as specialized corporate banking services. Mortgage banking services are
available through the affiliate banks and through Mercantile Mortgage
Corporation, a subsidiary of Mercantile-Safe Deposit and Trust Company.
HEADQUARTERS
2 Hopkins Plaza, P.O. Box 1477
Baltimore,Maryland 21203
410/237-5900
MERCANTILE BANKSHARES
CORPORATE COMMUNICATIONS
P.O. Box 1477
Baltimore, Maryland 21203
410/237-5112
MERCANTILE BANKSHARES
INVESTOR RELATIONS
P.O. Box 1477
Baltimore, Maryland 21203
410/347-8374
http://www.mercantile.net
ACCOUNTANTS
PricewaterhouseCoopers, LLP
250 West Pratt Street
Baltimore, Maryland 21201
ANNUAL MEETING OF SHAREHOLDERS
10:30 A.M., Wednesday,
April 26, 2000
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:
Mercantile Bankshares Corporation
P.O. Box 1477
Baltimore, Maryland 21203
Attention: Corporate Secretary
STOCK INFORMATION
The common stock of Mercantile Bankshares Corporation is traded on the Nasdaq
National Market under the symbol MRBK.
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
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.
AUTOMATIC DIVIDEND REINVESTMENT
AND STOCK PURCHASE PLAN
Mercantile Bankshares Corporation offers its shareholders a Plan whereby they
may automatically invest their cash dividends in Mercantile stock at a price
which is 5% less than the market price on the dividend payment date. Plan
participants may also make additional cash payments to purchase stock through
the Plan at the market price. Mercantile Bankshares Corporation absorbs all fees
and transaction costs.
Shareholders who wish to enroll in the Plan should contact the Corporation's
Transfer Agent:
The Bank of New York
Mercantile Bankshares Corporation
Dividend Reinvestment and
Stock Purchase Plan
P.O. Box 1958
Newark, New Jersey 07101-9774
800/524-4458
[LOGO] MERCANTILE BANKSHARES CORPORATION
<PAGE>
[LOGO] MERCANTILE BANKSHARES CORPORATION
Baltimore, Maryland
<PAGE>
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.
<PAGE>
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, 33-44375 and 333-90307) of our report dated
January 20, 2000, on our audits of the consolidated financial statements of
Mercantile Bankshares Corporation and Affiliates as of December 31, 1999 and
1998 and for the years ended December 31, 1999, 1998 and 1997, which report is
included in this Annual Report on Form 10-K.
PricewaterhouseCoopers LLP
Baltimore, Maryland
March 27, 2000
<PAGE>
Exhibit (24)
MERCANTILE BANKSHARES CORPORATION
POWER OF ATTORNEY
<PAGE>
Exhibit (24)
MERCANTILE BANKSHARES CORPORATION
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS that the undersigned Directors of MERCANTILE
BANKSHARES CORPORATION, a Maryland Corporation, hereby constitute and appoint H.
FURLONG BALDWIN and ALAN D. YARBRO, or either of them acting alone, the true and
lawful agents and attorneys in fact of the undersigned in each case with full
power and authority in either of said agents and attorneys in fact, to sign for
the undersigned and in their respective names as Directors of the Corporation
the Annual Report of the Corporation to the Securities and Exchange Commission
for the year 1999, 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 14, 2000
<TABLE>
<CAPTION>
<S> <C> <C> <C>
/s/ George L. Bunting, Jr. Director /s/ Mary Junck Director
- ------------------------------- ---------------------------
George L. Bunting, Jr. Mary Junck
/s/ Christian H. Poindexter Director /s/ Robert A. Kinsley Director
- ------------------------------- ---------------------------
Christian H. Poindexter Robert A. Kinsley
/s/ Freeman A. Hrabowski, III Director /s/ Thomas M. Bancroft, Jr. Director
- ------------------------------- ---------------------------
Freeman A. Hrabowski, III Thomas M. Bancroft, Jr.
/s/ Darrell D. Friedman Director /s/ William J. McCarthy Director
- ------------------------------- ---------------------------
Darrell D. Friedman William J. McCarthy
/s/ Morton B. Plant Director Director
- ------------------------------- ---------------------------
Morton B. Plant
/s/ William R. Brody Director Director
- ------------------------------- ---------------------------
William R. Brody
/s/ Donald J. Shepard Director Director
- ------------------------------- ---------------------------
Donald J. Shepard
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF DECEMBER 31, 1999, FROM THE INCOME STATEMENT FOR THE YEAR ENDED
DECEMBER 31, 1999 AND FROM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE PERIOD ENDED DECEMBER 31, 1999, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 219,420
<INT-BEARING-DEPOSITS> 152
<FED-FUNDS-SOLD> 7,784
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,743,942
<INVESTMENTS-CARRYING> 25,592
<INVESTMENTS-MARKET> 25,532
<LOANS> 5,718,942
<ALLOWANCE> 117,997
<TOTAL-ASSETS> 7,895,024
<DEPOSITS> 5,925,083
<SHORT-TERM> 839,497
<LIABILITIES-OTHER> 73,721
<LONG-TERM> 82,683
0
0
<COMMON> 137,292
<OTHER-SE> 836,748
<TOTAL-LIABILITIES-AND-EQUITY> 7,895,024
<INTEREST-LOAN> 453,825
<INTEREST-INVEST> 104,556
<INTEREST-OTHER> 787
<INTEREST-TOTAL> 559,168
<INTEREST-DEPOSIT> 157,997
<INTEREST-EXPENSE> 190,082
<INTEREST-INCOME-NET> 369,086
<LOAN-LOSSES> 12,056
<SECURITIES-GAINS> (73)
<EXPENSE-OTHER> 230,420
<INCOME-PRETAX> 248,601
<INCOME-PRE-EXTRAORDINARY> 248,601
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 157,737
<EPS-BASIC> 2.27
<EPS-DILUTED> 2.25
<YIELD-ACTUAL> 5.17
<LOANS-NON> 19,129
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,762
<ALLOWANCE-OPEN> 112,423
<CHARGE-OFFS> 9,328
<RECOVERIES> 2,846
<ALLOWANCE-CLOSE> 117,997
<ALLOWANCE-DOMESTIC> 117,997
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 45,397
</TABLE>
