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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, 1998
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
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Commission file number 0-5127
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Mercantile Bankshares Corporation
---------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-0898572
-------- ----------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Two Hopkins Plaza, P. O. Box 1477, Baltimore, Maryland 21203
- ------------------------------------------------------ -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (410) 237-5900
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
None None
---- ----
Securities registered pursuant to section 12(g) of the Act:
Common Stock ($2 par value)
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(Title of class)
Preferred Stock Purchase Rights
-------------------------------
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
- --------------------------------------------------------------------------------
At February 26, 1999, the aggregate market value of shares of Common
Stock held by non-affiliates of Registrant (including fiduciary accounts
administered by affiliates) was $2,503,849,635 based on the last sale price on
the Nasdaq National Market on February 26, 1999.
As of February 26, 1999, 69,536,010 shares of common stock were
outstanding.
Documents Incorporated by Reference: Parts I, II and IV - Portions of
Registrant's Annual Report to Stockholders for year ended December 31, 1998, as
indicated, Part III - Definitive Proxy Statement of Registrant filed with the
Securities and Exchange Commission under Regulation 14A.
1
PART I
ITEM 1. BUSINESS
General
Mercantile Bankshares Corporation was incorporated under the laws of
Maryland on May 27, 1969. It is a bank holding company registered under the Bank
Holding Company Act of 1956. Mercantile Bankshares Corporation is referred to in
this report as "Mercshares" or "Registrant."
Mercshares directly owns all of the outstanding stock of 21 Affiliated
Banks and directly or indirectly owns all of the outstanding stock of certain
other Affiliates. For purposes of segment reporting, two operating components
have been identified. They are (1) the lead bank, Mercantile-Safe Deposit and
Trust Company (including its Banking and Trust Divisions), and (2) twenty
Community Banks. The entities making up each component are identified below,
with headquarters locations.
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
---------------
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
2
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, 1998, which
information is incorporated by reference herein.
Mercshares periodically reviews and considers possible acquisitions of
banks and corporations performing related activities and discusses such possible
acquisitions with managements of the subject companies, and such acquisitions
may be made from time to time. Acquisitions are normally subject to regulatory
approval.
Operations
Mercantile-Safe Deposit and Trust Company and the Community Banks are
engaged in a general commercial and retail banking business with normal banking
services, including acceptance of demand, savings and time deposits and the
making of various types of loans. Mercantile-Safe Deposit and Trust Company
offers a full range of personal trust services, investment management services
and (for corporate and institutional customers), investment advisory, financial
and pension and profit sharing services. As of December 31, 1998, assets under
the investment supervision of the Trust Division had an estimated value of $13.6
billion, assets held in its personal and corporate custody accounts had an
estimated value of $25 billion and assets held in escrow accounts had an
estimated value of $16.3 million.
Mercantile Mortgage Corporation, through offices in Maryland and
Delaware, arranges for and services various types of mortgage loans as principal
and as agent primarily for non-affiliated institutional investors and also for
the Affiliated Banks.
Hopkins Plaza Agency, Inc. acts as agent in the sale of fixed rate
3
annuities, and MBC Leasing Corp. provides tax oriented and finance leases of
equipment.
MBC Agency, Inc., provides, under group policies, credit life insurance
in connection with extensions of credit by Affiliated Banks. Mercantile Life
Insurance Company reinsures the insurance provided by MBC Agency, Inc.
MBC Realty, LLC owns and operates various properties used by
MercantileSafe Deposit and Trust Company.
For segment reporting information, see the following portions of the
Registrant's Annual Report to Stockholders for the year ended December 31, 1998,
which information is incorporated by reference herein: Note 15 of Notes to
Financial Statements on pages 43 and 44 of the Annual Report, and information
under the caption "Segment Reporting" on page 12 of the Annual Report.
Statistical Information
-----------------------
The statistical information required in this Item 1 is incorporated by
reference to the information appearing in Registrant's Annual Report to
Stockholders for the year ended December 31, 1998, as follows:
Disclosure Required by Guide 3 Reference to 1998 Annual Report
- ------------------------------ --------------------------------
(I) Distribution of Assets,
Liabilities and Stockholder
Equity; Interest Rates and
Interest Differentials ...............Analysis of Interest Rates and Interest
...............Differentials (pages 8-9)
...............Rate/Volume Analysis (page 10)
...............Non-performing Assets (pages 16-17)
(II) Investment Portfolio ...............Bond Investment Portfolio (page 13)
(III) Loan Portfolio ...............Year-End Loan Data (page 49)
...............Loan Maturity Schedule (page 19)
...............Asset/Liability and Liquidity
...............Management (pages 18,20-21)
...............Non-performing Assets (pages 16-17)
(IV) Summary of Loan Loss
Experience ...............Allowance for Loan Losses
...............(pages 15-16)
and Credit Risk Analysis (page 14)
...............Allocation of Allowance for Loan Losses
(page 15)
(V) Deposits ...............Analysis of Interest Rates and Interest
4
Differentials (pages 8-9)
...............Notes to Financial Statements, Note
5 - Deposits (page 35)
(VI) Return on Equity
and Assets ...............Return on Equity and Assets (page 51)
(VII) Short-Term Borrowings ...............Notes to Financial Statements, Note
6 (page 36)
5
Employees
At December 31, 1998, Mercshares and its Affiliates had approximately 924
officers and 1,880 other employees. Of these, Mercantile-Safe Deposit and Trust
Company employed 417 officers and 584 other employees and the Community Banks
had 506 officers and 1,270 other employees.
Competition
The banking business, in all of its phases, is highly competitive. Within
their service areas, Mercantile-Safe Deposit and Trust Company and the Community
Banks compete with commercial banks (including local banks and branches or
affiliates of other larger banks), savings and loan associations and credit
unions for loans and deposits, and with insurance companies and other financial
institutions for various types of loans. There is also competition for
commercial and retail banking business from banks and financial institutions
located outside our service areas. The Riegle-Neal Interstate Banking and
Branching Efficiency Act of 1994 (the "1994 Interstate Act"), which became law
September 29, 1994, provided, among other things that, over time, bank holding
companies that are adequately capitalized and managed will be permitted to
acquire banks in any state, preempting essentially all state laws prohibiting
interstate bank acquisitions and mergers, subject to certain state "opt-out"
rights with respect to interstate mergers, as well as certain state "opt-in"
rights with respect to other vehicles for interstate branching. Maryland,
Virginia, Pennsylvania and numerous other states have "opted-in" to these
provisions to the full extent permitted by the 1994 Interstate Act. As a result
of this and other provisions of the Interstate Act and related state actions,
competition may continue to increase.
While Mercshares is the second largest bank holding company headquartered
in Maryland, it is the largest independent bank holding company in the state.
6
Mercantile-Safe Deposit and Trust Company is the fourth largest commercial bank
in Maryland. During 1998, Mercshares also competed with Maryland-based bank
subsidiaries of the first, second, fourth and tenth largest bank holding
companies in the United States as well as banking subsidiaries of other
non-Maryland bank holding companies. Measured in terms of assets under
investment supervision, Mercantile-Safe Deposit and Trust Company believes it is
one of the largest trust institutions in the southeastern United States.
Mercantile-Safe Deposit and Trust Company competes for various classes of
fiduciary and investment advisory business with other banks and trust companies,
insurance companies, investment counseling firms, mutual funds and others.
Mercantile Mortgage Corporation is a relatively small competitor in its
area of activity. MBC Agency, Inc. is limited to providing credit life, health
and accident insurance in connection with credit extended by the Affiliated
Banks. Hopkins Plaza Agency, Inc. and MBC Leasing Corp. commenced business in
1996 and are small competitors in their areas of activity.
The 20 Community Banks ranged in asset size from $43 million to $598
million, at December 31, 1998. They face competition in their own local service
areas as well as from the larger competitors mentioned above.
Supervision and Regulation
Mercshares
Mercshares, as a registered bank holding company, is subject to
regulation and examination by the Board of Governors of the Federal Reserve
System under the Bank Holding Company Act of 1956 (the "Act") and is required to
file with the Board of Governors quarterly and annual reports and such
additional information as the Board of Governors may require pursuant to the
Act. With various exceptions, Mercshares is prohibited from acquiring direct or
indirect
7
ownership or control of more than 5% of any class of the voting shares of any
company which is not a bank or bank holding company and from engaging in any
business other than that of banking or of managing or controlling banks or of
furnishing services to, or performing services for, its Affiliated Banks. The
Act and Regulations promulgated under the Act require prior approval of the
Board of Governors of the Federal Reserve System of the acquisition by
Mercshares of more than 5% of any class of the voting shares of any additional
bank.
Further, under Section 106 of the 1970 Amendments to the Act and the
Board's Regulations, bank subsidiaries of bank holding companies are limited in
engaging in certain tie-in arrangements with bank holding companies and their
non-bank subsidiaries in connection with any extension of credit or provision of
any property or services, subject to various exceptions.
The Act, generally, restricts activities of all bank holding companies
and their subsidiaries to banking, and the business of managing and controlling
banks, and to other activities which are determined by the Board of Governors of
the Federal Reserve System to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Mercshares is also subject
to certain restrictions with respect to engaging in the securities business.
It is Federal Reserve Policy that a bank holding company should serve as
a source of financial and managerial strength for and commit resources to
support each of its subsidiary banks even in circumstances in which it might not
do so (or may not legally be required or financially able to do so) absent such
a policy.
Changes in control of Mercshares and its Affiliated Banks are regulated
under the Bank Holding Company Act of 1956, the Change in Bank Control Act of
1978 and various state laws.
8
Affiliated Banks
All Affiliated Banks, with the exception of The Citizens National Bank,
Baltimore Trust Company, Farmers & Merchants Bank - Eastern Shore, The First
National Bank of St. Mary's, The National Bank of Fredericksburg and Marshall
National Bank and Trust Company are Maryland banks, subject to the banking laws
of Maryland and to regulation by the Commissioner of Financial Regulation of
Maryland, who is required by statute to make at least one examination in each
calendar year (or at 18-month intervals if the Commissioner determines that an
examination is unnecessary in a particular calendar year). Their deposits are
insured by, and they are subject to certain provisions of Federal law and
regulations and examination by, the Federal Deposit Insurance Corporation.
In addition, The Annapolis Banking and Trust Company, The Forest Hill
State Bank and St. Michaels Bank are members of the Federal Reserve System, and
are thereby subject to regulation by the Board of Governors of that System.
The Citizens National Bank, The First National Bank of St. Mary's, The
National Bank of Fredericksburg and Marshall National Bank and Trust Company are
national banks subject to regulation and regular examination by the Comptroller
of the Currency in addition to regulation and examination by the Board of
Governors of the Federal Reserve System and the Federal Deposit Insurance
Corporation, which insures their deposits.
Farmers & Merchants Bank - Eastern Shore is a Virginia bank, subject to
the banking laws of Virginia and to regulation by its State Corporation
Commission, which is required by statute to make at least one examination in
every three year period. Its deposits are insured by, and it is subject to
certain provisions of Federal law and regulation and examination by, the Federal
Deposit Insurance Corporation.
Baltimore Trust Company is a Delaware bank, subject to the banking laws of
9
Delaware and to regulation by the Delaware State Bank Commissioner, who is
required by statute to make periodic examinations. Its deposits are insured by,
and it is subject to certain provisions of Federal law and regulation and
examination by the Federal Deposit Insurance Corporation.
Mercshares and its Affiliates are subject to the provisions of Section
23A of the Federal Reserve Act which limit the amount of loans or extensions of
credit to, and investments in, Mercshares and its nonbanking Affiliates by the
Affiliated Banks, and Section 23B of the Federal Reserve Act which requires that
transactions between the Affiliated Banks and Mercshares and its nonbanking
Affiliates be on terms and under circumstances that are substantially the same
as with non-affiliates. Under the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, there are circumstances under which Affiliated Banks
could be responsible to the Federal Deposit Insurance Corporation for losses
incurred by it with respect to other Affiliated Banks.
Other Affiliates
As affiliates of Mercshares, the nonbanking Affiliates are subject to
examination by the Board of Governors of the Federal Reserve System and, as
affiliates of the Affiliated Banks, they are subject to examination by the
Federal Deposit Insurance Corporation and the Commissioner of Financial
Regulation of Maryland. In addition, MBC Agency, Inc., Mercantile Life Insurance
Company and Hopkins Plaza Agency, Inc. are subject to licensing and regulation
by state insurance authorities.
Other Banking Legislation
The 1994 Interstate Act made a number of major changes having a
significant effect on the operations of banks. Although there were numerous
provisions, the principal elements include those summarized below.
Bank holding companies that are adequately capitalized and managed are
10
permitted to acquire banks in any state. Adequately capitalized and managed
banks are able to engage in interstate branching by merging banks in different
states.
With respect to both interstate acquisitions and branching through
mergers, states may require that banks to be acquired have been in existence for
a period of time (not more than five years), may limit, on a non-discriminatory
basis, the percent of deposits within a state that may be held by a bank, or
bank holding company, and may adopt, on a non-discriminatory basis, laws
relating to the operations of a bank within the state. The Federal Reserve Board
may not permit an acquisition, and the responsible federal agency may not permit
a merger, that would result in the acquiring institution controlling more than
10% of total insured deposits in the U. S., or 30% of a state's insured deposits
(other than in connection with an initial entry into a state or with an
interstate merger involving affiliated banks). This 30% limit may be increased
or decreased by a state on a non-discriminatory basis. The pertinent federal
agencies must take into account the acquiring institution's record under the
Community Reinvestment Act and any applicable state community reinvestment laws.
States may impose filing requirements and may continue to regulate intrastate
branching in a non-discriminatory way, examine banks and branches operated in
that state, impose non-discriminatory notification and reporting requirements,
adopt laws relating to community reinvestment, consumer protection and fair
lending, and exercise taxing authority.
The appropriate federal banking agency may also permit an adequately
capitalized and managed bank to open and operate an interstate branch de novo in
any state that has a law that applies equally to all banks and expressly permits
all out-of-state banks to open and operate such a branch, provided the bank
complies with state filing and community reinvestment requirements.
Subsidiaries of the same bank holding company may act as agents for one
another in receiving deposits, closing and servicing loans and accepting loan
payments without being deemed branches, but the new authority does not extend to
originating or approving loans or opening deposit accounts.
11
Generally, foreign banks are allowed to engage in interstate banking in
the same way as domestic banks without establishing U. S. bank subsidiaries.
There are many other provisions of the 1994 Interstate Act, such as
prohibitions against interstate branches being operated primarily to produce
deposits, requiring hearings on closing of certain branches, and requiring
separate evaluations and ratings of a bank's Community Reinvestment Act
performance in each state in which it operates, and separate evaluations for
each metropolitan area and for the remaining non-metropolitan area in which the
bank maintains a branch. The 1994 Interstate Act has had a substantial impact on
the manner in which the banking business in the United States is conducted.
The Riegle Community Development and Regulatory Improvement Act was also
enacted in 1994. It contains a number of provisions affecting the operations of
financial institutions. Among these provisions were those that, (1) established
a Community Development Financial Institutions Fund to promote economic
revitalization and development in communities considered to be financially
underserved, through investment in Community Development Financial Institutions,
(2) removed certain impediments to the securitization of small business loans
and leases in an effort to improve access to capital by small businesses, (3)
reduced administrative requirements, previously imposed by regulations, of
financial institutions to the extent consistent with safe and sound banking
practices, (4) reduced and revised reporting requirements relating to money
laundering, and (5) ameliorated certain provisions of Section 39 of the Federal
Deposit Insurance Act relating to the establishment of regulatory requirements
with respect to asset quality.
The "Economic Growth and Regulatory Paperwork Reduction Act of 1996" made
numerous changes in Federal banking laws to recapitalize the Savings Association
Insurance Fund ("SAIF"), provide regulatory burden relief, amend the Fair Credit
Reporting Act, and limit lender liability for environmental cleanup. The
recapitalization of SAIF required certain payments by banks to help pay interest
on the bonds that funded the initial capitalization of SAIF and mandated
regulatory actions to prevent the shifting of deposits from SAIF to the Bank
12
Insurance Fund ("BIF").
In addition, in the past few years, all of the Federal bank regulatory
agencies have undertaken to clarify, modernize and expedite many of their
regulations and procedures. In this regard, the Board of Governors of the
Federal Reserve System has adopted numerous changes to its procedures with
respect to (1) the acquisition of banks and non-banks, (2) changes in bank
control, (3) commencement of non-banking activity de novo, (4) simplifying and
expanding the regulatory list of permissible non-banking activities, (5)
alleviating the tying rules, and (6) removing outmoded restrictions on bank
holding company activity. It has also adopted significant changes designed to
facilitate entry of holding companies into the securities business within the
confines of the Glass-Steagall Act.
Recently a variety of proposals have been considered by Congress for
changes in the regulation of financial institutions, some of which could
substantially alter Glass-Steagall Act restrictions and permit further
consolidation among the commercial banking and investment industries. Such
proposals have been controversial and the outcome is unpredictable.
Year 2000 Issue
Mercshares is implementing a comprehensive program to prepare the systems
of Mercshares and its Affiliates for year 2000 compliance. The year 2000 issue
relates to systems designed to use two digits rather than four to define the
applicable year. This flaw can cause system failures and disruptions, including
inability to process transactions. For information concerning this matter, see
the text under the captions "Year 2000 Issues" and "Cautionary Statement" on
pages 23 and 24 of the Registrant's Annual Report to Stockholders for the year
ended December 31, 1998, which information is incorporated by reference herein.
Effects of Monetary Policy
All commercial banking operations are affected by the Federal Reserve
System's conduct of monetary policy and its policies change from time to time
based on changing circumstances. A function of the Federal Reserve System is to
regulate the national supply of bank credit in order to achieve economic
13
results deemed appropriate by its Board of Governors, including efforts to
combat unemployment, recession or inflationary pressures. Among the instruments
of monetary policy used to implement these objectives are open market operations
in the purchase and sale of U.S. Government securities, changes in the discount
rate charged on bank borrowings and changes in reserve requirements against bank
deposits. These means are used in varying combinations to influence the general
level of interest rates and the general availability of credit. More
specifically, actions by the Board of Governors of the Federal Reserve influence
the levels of interest rates paid on deposits and other bank funding sources and
charged on bank loans as well as the level of availability of bank funds with
which loans and investments can be made.
The monetary policies of bank regulatory and other authorities have
affected the operating results of commercial banks in the past and are expected
to continue to do so in the future. In view of changing conditions in the
national economy, in the money markets, and in the relationships of
international currencies, as well as the effect of legislation and of actions by
monetary and fiscal authorities, no prediction can be made as to possible future
changes in interest rates, deposit levels, loan demand, or the business and
earnings of the Affiliated Banks.
ITEM 2. PROPERTIES
The main offices of Mercshares and Mercantile-Safe Deposit and Trust
Company are located in a 21-story building at Hopkins Plaza in Baltimore owned
by MBC Realty, LLC, a wholly owned subsidiary of Mercshares. At December 31,
1998, these offices occupied approximately 142,000 square feet (together with
about 11,000 square feet leased in a nearby building). At December 31, 1998,
Mercantile-Safe Deposit and Trust Company also occupied approximately 132,000
square feet of leased space in a building located in Linthicum, Maryland, in
which its operations and certain other departments are located. This building is
also owned by MBC Realty, LLC. Of the 18 banking and bank-related offices
occupied by Mercantile-Safe Deposit and Trust Company, four are owned in fee,
four are owned subject to ground leases and ten are leased with aggregate annual
rentals of approximately $1,346,000, not including rentals for the main office
and adjacent premises owned by MBC Realty, LLC.
14
Of the 161 banking offices of the Community Banks, 91 are owned in fee,
15 are owned subject to ground leases and 55 are leased, with aggregate annual
rentals of approximately $3,558,000 as of December 31, 1998.
ITEM 3. LEGAL PROCEEDINGS
There was no matter which is required to be disclosed in this Item 3
pursuant to the instructions contained in the form for this Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of the fiscal year
covered by this report to a vote of security holders which is required to be
disclosed pursuant to the instructions contained in the form for this Report.
SPECIAL ITEM: EXECUTIVE OFFICERS OF THE REGISTRANT
The Executive Officers of Registrant are:
Name Position Age
- ---- -------- ---
H. Furlong Baldwin Chairman of the Board, President 67
and Chief Executive Officer
J. Marshall Reid (1) President and Chief 53
Operating Officer (Mercantile-
Safe Deposit and Trust Company)
Jack E. Steil Executive Vice President. 52
Chairman - Credit Policy
(Mercantile-Safe Deposit
and Trust Company)
Alan D. Yarbro General Counsel and Secretary 57
Terry L. Troupe Chief Financial Officer and
Treasurer 51
Robert W. Johnson Senior Vice President 56
O. James Talbott, II Senior Vice President 55
- ---------------------------
(1) Mr. Reid is an officer of Mercantile-Safe Deposit and Trust Company. He is
included above as an executive officer because he participates in policy-making
functions concerning Mercshares.
No family relationships, as defined by the Rules and Regulations of the
Securities and Exchange Commission, exist among any of the Executive Officers.
All officers are elected annually by the Board of Directors and hold
office at the pleasure of the Board.
Mr. Baldwin has been Chairman of the Board of Mercshares since 1984,
and has been its Chief Executive Officer since 1976. He assumed the presidency
of Mercshares in 1997. He has been Chairman of the Board and Chief Executive
Officer of Mercantile-Safe Deposit and Trust Company since 1976.
15
Mr. Reid was elected President and Chief Operating Officer of
Mercantile-Safe Deposit and Trust Company in September, 1997. He joined
Mercantile-Safe Deposit and Trust Company as a Senior Vice President in 1993 and
served as an Executive Vice President from 1994 until September, 1997.
Mr. Steil was elected Chairman - Credit Policy of Mercantile-Safe Deposit
and Trust Company in September, 1997. He had previously served Mercantile-Safe
Deposit and Trust Company as an Executive Vice President since 1994, and as
Senior Vice President from 1988 to 1994. In March, 1999, Mr. Steil was elected
an Executive Vice President of Mercshares.
Mr. Yarbro has been General Counsel of Mercshares and Mercantile-Safe
Deposit and Trust Company since April, 1996 and was elected Secretary of both
companies in June, 1996. His prior employment was as a partner of Venable,
Baetjer and Howard, LLP, where he practiced law for 29 years.
Mr. Troupe has been Chief Financial Officer of Mercshares and Mercantile-
Safe Deposit and Trust Company, and Treasurer of Mercshares, since September,
1996. He was Vice President and Chief Financial Officer of IREX Corporation, a
specialty mechanical insulation contractor and distributor, from May, 1993 to
May, 1996. Prior thereto, Mr. Troupe was Vice Chairman of Meridian Bancorp, Inc.
Mr. Johnson has been Senior Vice President of Mercshares since 1989. He
has been a Vice President of Mercantile-Safe Deposit and Trust Company since
1982.
Mr. Talbott has been a Senior Vice President of Mercshares since 1989. He
has been a Vice President of Mercantile-Safe Deposit and Trust Company since
1977.
Hugh W. Mohler was an Executive Vice President of Mercshares and
Mercantile-Safe Deposit and Trust Company from 1994 until February, 1999, when
he relinquished these positions with eligibility for retirement. He is no longer
an executive officer.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information required by this Item 5 is incorporated by reference to the
16
information appearing under the captions "Dividends" and "Recent Common Stock
Prices" on page 23 of the Registrant's Annual Report to Stockholders for the
year ended December 31, 1998.
The following information is given in response to Item 701 of
Regulation S-K. In December, 1998, two directors of Mercshares received an
aggregate of 850 shares of Mercshares common stock, at fair market value, in
lieu of a cash retainer fee, under the Mercshares Retainer Stock Plan for Non
Employee Directors. The shares issuable under the Plan have not been registered
under the Securities Act of 1933 in reliance on Release 33-6188 (1980) and
Release 33- 6281 (1981). The only potential Plan participants are outside
directors, currently 16 in number. Mercshares common stock is actively traded on
the Nasdaq National Market. The maximum number of shares (450,000) issuable over
ten years under the Plan is less than 1% of the total shares outstanding.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item 6 is incorporated by reference to
the information appearing under the caption "Five Year Selected Financial Data"
on page 49 of the Registrant's Annual Report to Stockholders for the year ended
December 31, 1998.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The information required by this Item 7 is incorporated by reference to
the information appearing under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operations" on pages 6 to 24 of
the Registrant's Annual Report to Stockholders for the year ended December 31,
1998.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 and the auditors' report
thereon are incorporated by reference to pages 25 to 48 of the Registrant's
Annual Report to Stockholders for the year ended December 31, 1998.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
17
FINANCIAL DISCLOSURE
There was no matter which is required to be disclosed in this Item 9
pursuant to the instructions contained in the form for this Report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 with respect to the Executive
Officers of Registrant appears in Part I of this Report.
The remaining information required by this Item 10 is incorporated by
reference to the definitive proxy statement of Registrant filed with the
Securities and Exchange Commission under Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by reference to
the definitive proxy statement of Registrant filed with the Securities and
Exchange Commission under Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by reference to
the definitive proxy statement of Registrant filed with the Securities and
Exchange Commission under Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13, is incorporated by reference
to the definitive proxy statement of Registrant filed with the Securities and
Exchange Commission under Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report, except as
indicated.
(1) (2) The financial statements and schedules filed herewith or
incorporated by reference are listed in the accompanying Index to
Financial Statements.
(3) Exhibits filed herewith or incorporated by reference herein are set
forth in the following table prepared in accordance with Item 601 of
Regulation S-K.
18
Exhibit Table
(3) Charter and by-laws
A. Charter of the Registrant (Exhibits 3-A(1) through 3-A(5)
listed below are incorporated by reference to Exhibits 3-A(1)
through 3-A(5) to Form S-1 of the Registrant, No. 2-39545,
Exhibit 3-A(6) listed below is incorporated by reference to
Exhibit 3-A(6) of Form S-1 of the Registrant, No. 2-41379,
Exhibit 3-A(7) listed below is incorporated by reference to
Registrant's Annual Report on Form 10-K for the year ended
1993, Exhibit 3-A(7), Commission File No. 0-5127, Exhibit
3-A(8) listed below is incorporated by reference to
Registrant's Annual Report on Form 10-K for the year ended
1993, Exhibit 3-A(8), Commission File No. 0-5127, Exhibit
3-A(9) listed below is incorporated by reference to Exhibit
B attached to Exhibit 4-A of Form 8-K of Registrant filed
September 27, 1989, Commission File No. 0-5127, Exhibit
3-A(10) listed below is incorporated by reference to Exhibit
B attached to Exhibit 4-A of Form 8-K of the Registrant filed
January 9, 1990, Commission File No. 0-5127, Exhibit 3-A(11)
listed below is incorporated by reference to Exhibit 3-A(11)
of the Annual Report on Form 10-K for the year ended December
31, 1990, Commission File No. 0-5127, and Exhibit 3-A(12)
listed below is incorporated by reference to Exhibit 3(i)(F)
to Form S-4 of the Registrant, No. 333-43651.
(1) Articles of Incorporation effective May 27, 1969.
(2) Articles of Amendment effective June 6, 1969.
(3) Articles Supplementary effective August 28, 1970.
(4) Articles of Amendment effective December 14, 1970.
(5) Articles Supplementary effective May 10, 1971.
(6) Articles Supplementary effective July 30, 1971.
(7) Articles of Amendment effective May 8, 1986.
(8) Articles of Amendment effective April 27, 1988.
(9) Articles Supplementary effective September 13, 1989.
(10) Articles Supplementary effective January 3, 1990.
(11) Articles of Amendment effective April 26, 1990.
(12) Articles of Amendment effective April 30, 1997.
19
B. By-Laws of the Registrant, as amended to date (filed
herewith).
(4) Instruments defining the rights of security holders, including
indentures, Charter and by-laws: See Item 14(a)(3) above.
A. Rights Agreement dated as of September 12, 1989 between
Registrant and the Rights Agent, including Form of Rights
Certificate and Articles Supplementary (Incorporated by
reference to Form 8-K of the Registrant filed September
27, 1989, Exhibit 4-A, Commission File No. 0-5127).
B. First Amendment, dated as of December 31, 1989, to Rights
Agreement dated as of September 12, 1989 between
Registrant and the Rights Agent, including amended Form of
Rights Certificate and amended Form of Articles
Supplementary (Incorporated by reference to Form 8-K of
the Registrant filed January 9, 1990, Exhibit 4-A,
Commission File No. 0-5127).
C. Second Amendment, dated as of September 30, 1993, to
Rights Agreement dated as of September 12, 1989 between
Registrant and the Rights Agent, including amended Form of
Rights Certificate (Incorporated by reference to Form 8-K
of the Registrant filed September 30, 1993, Exhibit 4-A,
Commission File No. 0-5127).
D. Third Amendment, dated as of June 30, 1997, to Rights
Agreement dated as of September 12, 1989, between
Registrant and the Rights Agent, including amended form of
Rights Certificate (Incorporated by reference to Form 8-K
of Registrant, filed July 11, 1997, Exhibit 4-A,
Commission File No. 0-5127).
E. Amendment No. 1 to Registrant's Registration Statement
on Form 8-B, amending description of securities previously
filed (Incorporated by reference to Form 8 filed December
20, 1991, Commission File No. 0-5127).
(10) Material contracts
A. Mercantile Bankshares Corporation and Affiliates Annual
20
Incentive Compensation Plan, as amended through March 10,
1998 (Incorporated by reference to Registrant's Annual
Report on From 10-K for the year ended December 31, 1997,
Exhibit 10 A, Commission File No. 0-5127).
B. Dividend Reinvestment and Stock Purchase Plan of
Mercantile Bankshares Corporation (Incorporated by
reference to the Plan text included in the Form S-3
Registration No. 33-44376.)
C. Executive Employment Agreement dated March 24, 1982,
between Mercantile Bankshares Corporation, Mercantile-Safe
Deposit and Trust Company and H. Furlong Baldwin, as
amended by Agreements dated March 13, 1984 and December
13, 1988 (Incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989,
Exhibit 10 D, Commission File No. 0-5127), as amended by
Agreement dated January 29, 1997 (Incorporated by
reference to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996, Exhibit 10 C, Commission
file No. 0-5127), as amended by Agreement dated January
28, 1999 (filed herewith).
D. Deferred Compensation Agreement, including supplemental
pension and thrift plan arrangements, dated September 30,
1982, between Mercantile-Safe Deposit and Trust Company
and H. Furlong Baldwin, as amended by Agreements dated as
of October 24, 1983, March 13, 1984, January 1, 1987,
December 8, 1987 and January 1, 1989 (Incorporated by
reference to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1989, Exhibit 10 E, Commission
File No. 0-5127), as amended by Agreement dated February
1, 1997 (Incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1996,
Exhibit 10 D, Commission File No. 0-5127).
E. Mercantile Bankshares Corporation and Participating
Affiliates Unfunded Deferred Compensation Plan for
Directors, as amended
21
through January 1, 1984 (Incorporated by reference to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1989, Exhibit 10 G, Commission File No.
0-5127), as amended and restated by amendment effective
December 31, 1995 (Incorporated by reference to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1995, Exhibit 10 F, Commission File No.
0-5127).
F. Mercantile Bankshares Corporation Employee Stock Purchase
Dividend Reinvestment Plan dated February 13, 1995
(Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994, Exhibit
10 I, Commission File No. 0-5127).
G. Executive Severance Agreement dated as of December 31,
1989 between Mercantile Bankshares Corporation and
Mercantile-Safe Deposit and Trust Company, and H. Furlong
Baldwin (Incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989,
Exhibit 10 Q, Commission File No. 0-5127), as amended by
Agreement dated January 29, 1997 (Incorporated by
reference to Registrant's Annual Report on Form 10-K for
the year ended December 31, 1996, Exhibit 10 J, Commission
File No. 0-5127).
H. Mercantile Bankshares Corporation Omnibus Stock Plan
(Incorporated by reference to Registrant's Quarterly
Report on Form 10-Q for the period ended September 30,
1997, Exhibit 10 K, Commission File No. 0-5127).
I. Supplemental Pension Agreement, dated February 10, 1995,
between Mercantile Bankshares Corporation and
Mercantile-Safe Deposit and Trust Company, Peninsula Bank
and Hugh W. Mohler (Incorporated by reference to
Registrant's Annual Report on Form 10-K for the year ended
December 31, 1994, Exhibit 10 Q, Commission File No.
0-5127).
22
J. Mercantile Bankshares Corporation and Participating
Affiliates Supplemental Cash Balance Executive Retirement
Plan, dated April 27, 1994, effective January 1, 1994
(Incorporated by reference to Registrant's Annual Report
on Form 10-K for year ended December 31, 1994, Exhibit 10
R, Commission File No. 0-5127).
K. Mercantile Bankshares Corporation and Participating
Affiliates Supplemental 401(k) Executive Retirement Plan,
dated December 13, 1994, effective January 1, 1995
(Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1994, Exhibit
10 S, Commission File No. 0-5127).
L. Mercantile Bankshares Corporation Option Agreement with
each of H. Furlong Baldwin (dated August 22, 1995 for
80,000 options) and Hugh W. Mohler (dated August 22, 1995
for 30,000 options) the Net Operating Income of each being
that of Mercantile-Safe Deposit and Trust Company,
(Incorporated by reference to Registrant's Annual Report
on Form 10-K for the year ended December 31, 1995, Exhibit
10 Q, Commission File No. 0-5127).
M. Mercantile Bankshares Corporation Retainer Stock Plan For
Non-Employee Directors dated March 12, 1996 (Incorporated
by reference to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1995, Exhibit 10 R,
Commission File No. 0-5127).
N. Supplemental Cash Balance Plan and Thrift Agreement, dated
April 12, 1996, between Mercantile Bankshares Corporation
and Alan D. Yarbro (Incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the period
ended June 30, 1996, Exhibit 10 S, Commission File No.
0-5127).
O. Executive Severance Agreement, dated as of April 24, 1996,
between Mercantile Bankshares Corporation and Alan D.
Yarbro
23
(Incorporated by reference to Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1996,
Exhibit 10 T, Commission File No. 0-5127).
P. Mercantile Bankshares Corporation Option Agreement with
Alan D. Yarbro, dated April 26, 1996 (Incorporated by
reference to Registrant's Quarterly Report for the period
ended June 30, 1996, Exhibit 10 U, Commission File No.
0-5127).
Q. Agreement dated February 24, 1999 among Mercantile
Bankshares Corporation, Mercantile-Safe Deposit and Trust
Company and Hugh W. Mohler (filed herewith).
R. Mercantile Bankshares Corporation Option Agreement with J.
Marshall Reid, dated August 21, 1995 (filed herewith).
S. Mercantile Bankshares Corporation Option Agreement with
Jack E. Steil, dated August 21, 1995 (filed herewith).
(13) Annual Report to security holders for the year ended December 31,
1998 (filed herewith).
(21) Subsidiaries of the Registrant
Information as to subsidiaries of the Registrant (filed herewith).
(23) Consent
Consent of Certified Public Accountants (filed herewith)
(24) Power of Attorney
Power of Attorney dated March 9, 1999 (filed herewith)
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
24
INDEX TO FINANCIAL STATEMENTS
The Report of Independent Certified Public Accountants as pertaining to the
Consolidated Financial Statements of Mercantile Bankshares Corporation and
Affiliates and related notes is incorporated by reference to page 25 of the
Registrant's Annual Report to Stockholders for the year ended December 31,
1998.
Consolidated Financial Statements and related notes are incorporated by
reference to the Registrant's Annual Report to Stockholders for the year
ended December 31, 1998, and may be found on the pages of said Report as
indicated in parentheses:
Consolidated Balance Sheets, December 31, 1998 and 1997 (page 26)
Statement of Consolidated Income for the years ended December 31, 1998,
1997 and 1996 (page 27)
Statement of Consolidated Cash Flows for the years ended December 31,
1998, 1997 and 1996 (pages 28 and 29)
Statement of Changes in Consolidated Stockholders' Equity for the years
ended December 31, 1998, 1997 and 1996 (page 30)
Notes to Consolidated Financial Statements (pages 31 to 48)
Supplementary Data:
Quarterly Results of Operations are incorporated by reference to the
information appearing under the caption "Quarterly Results of
Operations" on page 45 of the Registrant's Annual Report to Stockholders
for the fiscal year ended December 31, 1998.
Financial Statement Schedules are omitted because of the absence of the
conditions under which they are required or because the information
called for is included in the Consolidated Financial Statements or notes
thereto.
25
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MERCANTILE BANKSHARES CORPORATION
By: /S/ H. Furlong Baldwin March 25, 1999
---------------------------------------
H. Furlong Baldwin, Chairman of the
Board, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Principal Executive Officer
/S/ H. Furlong Baldwin March 25, 1999
- ------------------------------------
H. Furlong Baldwin, Chairman of the
Board, President and Chief Executive Officer
Principal Financial Officer
/S/ Terry L. Troupe March 25, 1999
- ------------------------------------
Terry L. Troupe
Chief Financial Officer
Principal Accounting Officer
/S/ Jerry F. Graham March 25, 1999
- ------------------------------------
Jerry F. Graham
Vice President and Controller
A majority of the Board of Directors: Cynthia A. Archer, H. Furlong Baldwin,
Thomas M. Bancroft, Jr., Richard O. Berndt, William R. Brody, George L. Bunting,
Jr., B. Larry Jenkins, Mary Junck, Robert A. Kinsley, William J. McCarthy,
Morton B. Plant, Christian H. Poindexter, Donald J. Shepard.
By: /S/ H. Furlong Baldwin March 25, 1999
--------------------------------
H. Furlong Baldwin
For Himself and as Attorney-in-Fact
26