Back to GetFilings.com
United States
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-5127
Mercantile Bankshares Corporation
(Exact name of registrant as specified in its charter)
Maryland 52-0898572
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
Two Hopkins Plaza, P. O. Box 1477, Baltimore, Maryland
(Address of principal executive offices)
Registrant's telephone number, including area code (410) 237-5900 21203
Securities registered pursuant to Section 12(b) of the Act: (Zip Code)
Title of each class Name of each exchange on which registered
None None
Securities registered pursuant to section 12(g) of the Act:
Common Stock ($2 par value)
(Title of class)
Preferred Stock Purchase Rights
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
At February 27, 1998, the aggregate market value of shares of Common
Stock held by non-affiliates of Registrant (including fiduciary accounts
administered by affiliates) was $2,483,443,992 based on the last sale price on
the Nasdaq National Market on February 27, 1998.
As of February 27, 1998, 71,889,202 shares of common stock were
outstanding.
Documents Incorporated by Reference: Parts I, II and IV - Portions of
Registrant's Annual Report to Stockholders for year ended December 31, 1997, as
indicated, Part III - Definitive Proxy Statement of Registrant filed with the
Securities and Exchange Commission under Regulation 14A.
1
PART I
ITEM 1. BUSINESS
General
Mercantile Bankshares Corporation ("Mercshares") was incorporated under
the laws of Maryland on May 27, 1969. Mercshares is a bank holding company
registered under the Bank Holding Company Act of 1956 and, as of December 31,
1997, owned substantially all of the outstanding shares of capital stock of
twenty-one banks (the "Affiliated Banks"): The Annapolis Banking and Trust
Company ("Annapolis"), Baltimore Trust Company ("Baltimore Trust"), Bank of
Southern Maryland ("Southern"), Calvert Bank and Trust Company ("Calvert"), The
Chestertown Bank of Maryland ("Chestertown"), The Citizens National Bank
("Citizens"), County Banking & Trust Company ("County"), The Eastville Bank
("Eastville"), Farmers & Merchants Bank - Eastern Shore ("Farmers & Merchants"),
The Fidelity Bank ("Fidelity"), The First National Bank of St. Mary's ("First
National"), The Forest Hill State Bank ("Forest Hill"), Fredericktown Bank &
Trust Company ("Fredericktown"), Mercantile-Safe Deposit and Trust Company
("Merc-Safe"), The National Bank of Fredericksburg ("Fredericksburg"), Peninsula
Bank ("Peninsula"), The Peoples Bank of Maryland ("Peoples"), Potomac Valley
Bank ("Potomac"), St. Michaels Bank ("St. Michaels"), The Sparks State Bank
("Sparks Bank") and Westminster Bank and Trust Company of Carroll County
("Westminster"). Mercshares also owns all of the outstanding shares of
Mercantile Mortgage Corporation, a mortgage banking company, MBC Agency, Inc.,
an insurance agency, and MBC Realty, Inc., which owns and operates various
properties used by Merc-Safe. Merc-Safe owns all of the outstanding shares of
Hopkins Plaza Agency, Inc., which acts as agent in the sale of fixed rate
annuities, and MBC Leasing Corp., which provides tax oriented and finance leases
of equipment. MBC Agency, Inc. owns all of the outstanding shares of Mercantile
Life Insurance Company, which is in the business of reinsuring credit insurance
made available through
2
the Affiliated Banks. The Affiliated Banks, Mercantile Mortgage Corporation, MBC
Agency, Inc., Mercantile Life Insurance Company, MBC Realty, Inc., Hopkins Plaza
Agency, Inc. and MBC Leasing Corp. are herein referred to as "Affiliates." For
information on the location and number of offices of the Affiliated Banks and
Mercantile Mortgage Corporation, at December 31, 1997, see pages 53 to 59 of
Registrant's Annual Report to Stockholders for the year ended December 31, 1997,
which information is incorporated by reference herein.
Mercshares periodically reviews and considers possible acquisitions of
banks and corporations performing related activities and discusses such possible
acquisitions with managements of the subject companies, and such acquisitions
may be made from time to time. Such acquisitions are normally subject to
regulatory approval.
In November, 1997, Mercshares entered into an agreement to acquire all
the outstanding shares of Marshall National Bank and Trust Company, of Marshall,
Virginia. Under terms of the agreement, Mercshares will issue up to 677,198
shares of its common stock representing an exchange of 1.75 shares for each
outstanding share of the common stock of Marshall National. The business of
Marshall National will be continued, with the bank as a subsidiary of
Mercshares. The affiliation has been approved by the shareholders of Marshall
National and regulatory approvals are substantially complete. The affiliation is
expected to be consummated early in 1998 and will be accounted for as a
purchase.
Operations
The Affiliated Banks are engaged in a general commercial and retail
banking business with normal banking services, including acceptance of demand,
savings and time deposits and the making of various types of loans. Merc-Safe
offers a full range of personal trust services, investment management services
and (for corporate and institutional customers), investment advisory, financial
and pension and profit sharing services. As of December 31, 1997, assets under
the
3
investment supervision of Merc-Safe's trust division had an estimated value of
$12.2 billion, assets held in its personal and corporate custody accounts had an
estimated value of $22.4 billion and assets held in escrow accounts had an
estimated value of $15.1 million.
Mercantile Mortgage Corporation, through offices in Maryland and
Delaware, arranges for and services various types of mortgage loans as principal
and as agent primarily for non-affiliated institutional investors and also for
the Affiliated Banks.
Hopkins Plaza Agency, Inc. acts as agent in the sale of fixed rate
annuities, and MBC Leasing Corp. provides tax oriented and finance leases of
equipment.
MBC Agency, Inc., provides, under group policies, credit life insurance
in connection with extensions of credit by Affiliated Banks. Mercantile Life
Insurance Company, which is owned by MBC Agency, Inc., reinsures the insurance
provided by that Company.
Statistical Information
The statistical information required in this Item 1 is incorporated by
reference to the information appearing in Registrant's Annual Report to
Stockholders for the year ended December 31, 1997, as follows:
Disclosure Required by Guide 3 Reference to 1997 Annual Report
- ------------------------------ -------------------------------
(I) Distribution of Assets,
Liabilities and Stockholder
Equity; Interest Rates and
Interest Differential Analysis of Interest Rates and Interest
Differentials (pages 10-11)
Rate/Volume Analysis (page 12)
Non-performing Assets (pages 19-20)
(II) Investment Portfolio Bond Investment Portfolio (page 16)
(III) Loan Portfolio Year-End Loan Data (page 49)
Loan Maturity Schedule (page 21)
Asset/Liability and Liquidity
Management (pages 23-24)
4
Non-performing Assets (pages 19-20)
(IV) Summary of Loan Loss
Experience Allowance for Loan Losses
(pages 17-19)
and Credit Risk Analysis (page 17)
Allocation of Allowance for Loan Losses
(page 18)
(V) Deposits Analysis of Interest Rates and Interest
Differentials (pages 10-11)
Notes to Financial Statements, Note
5 - Deposits (page 37)
(VI) Return on Equity
and Assets Return on Equity and Assets (page 51)
(VII) Short-Term Borrowings Notes to Financial Statements, Note
6 (page 38)
5
Employees
At December 31, 1997, Mercshares and its Affiliates had approximately 835
officers and 2,054 other employees.
Competition
The banking business, in all of its phases, is highly competitive.
Within their service areas, the Affiliated Banks compete with commercial banks
(including local banks and branches or affiliates of other larger banks),
savings and loan associations and credit unions for loans and deposits, and with
insurance companies and other financial institutions for various types of loans.
The Affiliated Banks also face competition for commercial and retail banking
business from banks and financial institutions located outside their service
areas. The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "1994 Interstate Act"), which became law September 29, 1994, provided,
among other things that, over time, bank holding companies that are adequately
capitalized and managed will be permitted to acquire banks in any state,
preempting essentially all state laws prohibiting interstate bank acquisitions
and mergers, subject to certain state "opt-out" rights with respect to
interstate mergers, as well as certain state "opt-in" rights with respect to
other vehicles for interstate branching. Maryland, Virginia, Pennsylvania and
numerous other states have "opted-in" to these provisions to the full extent
permitted by the 1994 Interstate Act. As a result of this and other provisions
of the Interstate Act and related state actions, competition may increase.
While Mercshares is the second largest bank holding company
headquartered in Maryland, it is the largest independent bank holding company in
the state. Its largest subsidiary, Merc-Safe, is the fourth largest commercial
bank in Maryland. During 1997, Mercshares also competed with Maryland-based bank
subsidiaries of the first, second, fifth and sixth largest bank holding
companies
6
in the United States as well as banking subsidiaries of other non-Maryland bank
holding companies. Measured in terms of assets under investment supervision,
Merc-Safe believes it is one of the largest trust institutions in the
southeastern United States. Merc-Safe competes for various classes of fiduciary
and investment advisory business with other banks and trust companies, insurance
companies, investment counseling firms, mutual funds and others.
Mercantile Mortgage Corporation is a relatively small competitor in its
area of activity. MBC Agency, Inc. is limited to providing credit life, health
and accident insurance in connection with credit extended by the Affiliated
Banks. Hopkins Plaza Agency, Inc. and MBC Leasing Corp. commenced business in
1996 and are small competitors in their areas of activity.
Supervision and Regulation
Mercshares
Mercshares, as a registered bank holding company, is subject to
regulation and examination by the Board of Governors of the Federal Reserve
System under the Bank Holding Company Act of 1956 (the "Act") and is required to
file with the Board of Governors quarterly and annual reports and such
additional information as the Board of Governors may require pursuant to the
Act. With various exceptions, Mercshares is prohibited from acquiring direct or
indirect ownership or control of more than 5% of any class of the voting shares
of any company which is not a bank or bank holding company and from engaging in
any business other than that of banking or of managing or controlling banks or
of furnishing services to, or performing services for, its Affiliated Banks. The
Act and Regulations promulgated under the Act require prior approval of the
Board of Governors of the Federal Reserve System of the acquisition by
Mercshares of more than 5% of any class of the voting shares of any additional
bank.
7
Further, under Section 106 of the 1970 Amendments to the Act and the
Board's Regulations, bank subsidiaries of bank holding companies are prohibited
from engaging in certain tie-in arrangements with bank holding companies and
their non-bank subsidiaries in connection with any extension of credit or
provision of any property or services, subject to various exceptions established
in the Board's regulations.
The Act, generally, restricts activities of all bank holding companies
and their subsidiaries to banking, and the business of managing and controlling
banks, and to other activities which are determined by the Board of Governors of
the Federal Reserve System to be so closely related to banking or managing or
controlling banks as to be a proper incident thereto. Mercshares is also subject
to certain restrictions with respect to engaging in the securities business.
It is Federal Reserve Policy that a bank holding company should serve
as a source of financial and managerial strength for and commit resources to
support each of its subsidiary banks even in circumstances in which it might not
do so (or may not legally be required or financially able to do so) absent such
a policy.
Changes in control of Mercshares and its Affiliated Banks are regulated
under the Bank Holding Company Act of 1956, the Change in Bank Control Act of
1978 and various state laws.
Affiliated Banks
All Affiliated Banks, with the exception of Citizens, Baltimore Trust,
Eastville, Farmers & Merchants, First National and Fredericksburg are Maryland
banks, subject to the banking laws of Maryland and to regulation by the
Commissioner of Financial Regulation of Maryland, who is required by statute to
make at least one examination in each calendar year (or at 18-month intervals
8
if the Commissioner determines that an examination is unnecessary in a
particular calendar year). Their deposits are insured by, and they are subject
to certain provisions of Federal law and regulations and examination by, the
Federal Deposit Insurance Corporation.
In addition, Annapolis, Forest Hill and St. Michaels are members of the
Federal Reserve System, and are thereby subject to regulation by the Board of
Governors of that System.
Citizens, First National and Fredericksburg are national banks subject
to regulation and regular examination by the Comptroller of the Currency in
addition to regulation and examination by the Board of Governors of the Federal
Reserve System and the Federal Deposit Insurance Corporation, which insures
their deposits.
Eastville and Farmers & Merchants are Virginia banks, subject to the
banking laws of Virginia and to regulation by its State Corporation Commission,
which is required by statute to make at least one examination in every three
year period. Their deposits are insured by, and they are subject to certain
provisions of Federal law and regulation and examination by, the Federal Deposit
Insurance Corporation.
Baltimore Trust is a Delaware bank, subject to the banking laws of
Delaware and to regulation by the Delaware State Bank Commissioner, who is
required by statute to make periodic examinations. Its deposits are insured by,
and it is subject to certain provisions of Federal law and regulation and
examination by the Federal Deposit Insurance Corporation.
Mercshares and its Affiliates are subject to the provisions of Section
23A of the Federal Reserve Act which limit the amount of loans or extensions of
credit to, and investments in, Mercshares and its nonbanking Affiliates by the
Affiliated Banks, and Section 23B of the Federal Reserve Act which requires that
transactions between the Affiliated Banks and Mercshares and its nonbanking
9
Affiliates be on terms and under circumstances that are substantially the same
as with non-affiliates. Under the Financial Institutions Reform, Recovery, and
Enforcement Act of 1989, there are circumstances under which Affiliated Banks
could be responsible to the Federal Deposit Insurance Corporation for losses
incurred by it with respect to other Affiliated Banks.
Other Affiliates
As affiliates of Mercshares, the nonbanking Affiliates are subject to
examination by the Board of Governors of the Federal Reserve System and, as
affiliates of the Affiliated Banks, they are subject to examination by the
Federal Deposit Insurance Corporation and the Commissioner of Financial
Regulation of Maryland. In addition, MBC Agency, Inc., Mercantile Life Insurance
Company and Hopkins Plaza Agency, Inc. are subject to licensing and regulation
by state insurance authorities.
Recent Banking Legislation
The 1994 Interstate Act made a number of major changes having a
significant effect on the operations of banks. Although there are numerous
provisions, the principal elements include those summarized below.
Commencing September 29, 1995, bank holding companies that are
adequately capitalized and managed were permitted to acquire banks in any state,
essentially preempting state laws prohibiting interstate bank acquisitions.
Commencing June 1, 1997, adequately capitalized and managed banks became able to
engage in interstate branching by merging banks in different states. States
could elect not to permit such merger generated branching by adopting specific
legislation before June 1, 1997 in which case out-of-state banks generally will
not be able to branch into such states, and banks headquartered in such states
generally will not be permitted to branch into other states. States may also
elect, by legislation, to permit acquisitions of existing branches of banks by
out-of-state banks without the acquisition of the entire bank.
10
With respect to both interstate acquisitions and branching through
mergers, states may require that banks to be acquired have been in existence for
a period of time (not more than five years), may limit, on a non-discriminatory
basis, the percent of deposits within a state that may be held by a bank, or
bank holding company, and may adopt, on a non-discriminatory basis, laws
relating to the operations of a bank within the state. The Federal Reserve Board
may not permit an acquisition, and the responsible federal agency may not permit
a merger, that would result in the acquiring institution controlling more than
10% of total insured deposits in the U. S., or 30% of a state's insured deposits
(other than in connection with an initial entry into a state or with an
interstate merger involving affiliated banks), although this 30% limit may be
increased or decreased by a state on a non-discriminatory basis. The pertinent
federal agencies must take into account the acquiring institution's record under
the Community Reinvestment Act and any applicable state community reinvestment
laws. States may impose filing requirements and may continue to regulate
intrastate branching in a non-discriminatory way, examine banks and branches
operated in that state, impose non-discriminatory notification and reporting
requirements, adopt laws relating to community reinvestment, consumer protection
and fair lending, and exercise taxing authority.
The appropriate federal banking agency may also permit an adequately
capitalized and managed bank to open and operate an interstate branch de novo in
any state that has a law that applies equally to all banks and expressly permits
all out-of-state banks to open and operate such a branch, provided the bank
complies with state filing and community reinvestment requirements.
Commencing September 29, 1995, subsidiaries of the same bank holding
company could act as agents for one another in receiving deposits, closing and
servicing loans and accepting loan payments without being deemed branches, but
the new authority does not extend to originating or approving loans or opening
deposit accounts.
Generally, foreign banks will be allowed to engage in interstate
banking in the same way as domestic banks without establishing U. S. bank
subsidiaries.
11
There are many other provisions of the 1994 Interstate Act, such as
prohibitions against interstate branches being operated primarily to produce
deposits, requiring hearings on closing of certain branches, and requiring
separate evaluations and ratings of a bank's Community Reinvestment Act
performance in each state in which it operates, and separate evaluations for
each metropolitan area and for the remaining non-metropolitan area in which the
bank maintains a branch.
Although the 1994 Interstate Act, and regulations implementing its
provisions, became effective over a multi-year period so that the ultimate
impact cannot now be predicted, it is clear that it will have a substantial
impact on the manner in which the banking business in the United States is
conducted. In this regard also, Maryland, Virginia, Pennsylvania and numerous
other states have adopted legislation "opting-in" to the provisions of the 1994
Interstate Act with respect to interstate de novo branching and interstate
acquisition of existing branches without acquisition of the whole institution.
Generally speaking, these "opt-in" provisions are initially on a reciprocal
basis.
In addition, the Riegle Community Development and Regulatory
Improvement Act of 1994, which contains a number of provisions affecting the
operations of financial institutions, became law September 23, 1994. Among these
provisions are those that, (1) establish a Community Development Financial
Institutions Fund to promote economic revitalization and development in
communities considered to be financially underserved, through investment in
Community Development Financial Institutions, (2) add protections to individuals
entering into reverse mortgage transactions and "high cost" mortgage
transactions, (3) remove certain impediments to the securitization of small
business loans and leases in an effort to improve access to capital by small
businesses, (4) reduce or simplify administrative requirements, previously
imposed by regulations, of financial institutions to the extent consistent with
safe and sound banking practices, (5) reduce and revise reporting requirements
relating to money laundering, (6) improve compliance with the National Flood
Insurance Program by lenders and secondary market purchasers in order to
increase participation nationally by
12
individuals with mortgaged homes or businesses in special flood hazard areas who
have not purchased or maintained flood insurance coverage, and (7) ameliorate
certain provisions of Section 39 of the Federal Deposit Insurance Act relating
to the establishment of regulatory requirements with respect to asset quality,
among other things. Regulations and standards designed to implement certain
provisions of this law have been issued. The various provisions of this Act
should facilitate the operations of banks but their overall impact cannot be
predicted.
The "Economic Growth and Regulatory Paperwork Reduction Act of 1996"
made numerous changes in Federal banking laws to recapitalize the Savings
Association Insurance Fund ("SAIF"), provide regulatory burden relief, amend the
Fair Credit Reporting Act, and limit lender liability for environmental cleanup.
The recapitalization of SAIF requires certain payments by banks to help pay
interest on the bonds that funded the initial capitalization of SAIF and
mandates regulatory actions to prevent the shifting of deposits from SAIF to the
Bank Insurance Fund ("BIF"). It also provides for the merger of SAIF and BIF on
January 1, 1999, but only if no insured depository institution is a savings
association on that date and with no merger provision otherwise, and mandates a
Treasury Department study on the development of a common charter for all insured
depository institutions. The provisions designed to provide regulatory relief
establish expedited procedures to permit bank holding companies to engage in
permissible non-banking activities and alleviate some of the constraints in the
Depository Institution Management Interlocks Act.
In addition, in the past few years, the Board of Governors of the
Federal Reserve System recently adopted numerous changes to their existing
procedures with respect to (1) the acquisition of banks and non-banks, (2)
changes in bank control, (3) commencement of non-banking activity de novo, (4)
simplifying and expanding the regulatory list of permissible non-banking
activities, (5) alleviating the tying rules, and (6) removing outmoded
restrictions on bank holding company activity. The Board of Governors of the
Federal Reserve System has also adopted significant changes designed to
facilitate entry of holding
13
companies into the securities business within the confines of the Glass-Steagall
Act.
Year 2000 Issue
Mercshares is implementing a comprehensive program to prepare the
systems of Mercshares and its Affiliates for year 2000 compliance. The year 2000
issue relates to systems designed to use two digits rather than four to define
the applicable year. This flaw can cause system failures and disruptions,
including inability to process transactions. As noted in Management's Discussion
and Analysis of Financial Condition and Results of Operations (pages 14-15 of
the Annual Report to Stockholders for the year ended December 31, 1997),
Mercshares has incurred external costs of approximately $9,300,000 during the
three years ended December 31, 1997 in implementation of its year 2000
compliance program and related system improvements. At this time, management
does not anticipate material additional costs for the program, nor has
management identified significant uncertainties concerning its achievement of
year 2000 compliance. Investors should be aware, however, that any business can
be seriously impacted by the failure of others, such as contractors, suppliers
and customers, to attain compliance. Although Mercshares and Affiliates are
sharing knowledge with customers (including borrowers) and others concerning
these issues, the ultimate success or failure of such persons in attaining
compliance is beyond Mercshares' control.
Effects of Monetary Policy
All commercial banking operations are affected by the Federal Reserve
System's conduct of monetary policy and its policies change from time to time
based on changing circumstances. A function of the Federal Reserve System is to
regulate the national supply of bank credit in order to achieve economic results
deemed appropriate by its Board of Governors, including efforts to combat
unemployment, recession or inflationary pressures. Among the instruments of
monetary policy used to implement these objectives are open market operations in
the purchase and sale of U.S. Government securities, changes in the discount
rate charged on bank borrowings and changes in reserve requirements against bank
14
deposits. These means are used in varying combinations to influence the general
level of interest rates and the general availability of credit. More
specifically, actions by the Board of Governors of the Federal Reserve influence
the levels of interest rates paid on deposits and other bank funding sources and
charged on bank loans as well as the level of availability of bank funds with
which loans and investments can be made.
The monetary policies of bank regulatory and other authorities have
affected the operating results of commercial banks in the past and are expected
to continue to do so in the future. In view of changing conditions in the
national economy, in the money markets, and in the relationships of
international currencies, as well as the effect of legislation and of actions by
monetary and fiscal authorities, no prediction can be made as to possible future
changes in interest rates, deposit levels, loan demand, or the business and
earnings of the Affiliated Banks.
ITEM 2. PROPERTIES
The main offices of Merc-Safe and Mercshares are located in a 21-story
building at Hopkins Plaza in Baltimore owned by MBC Realty, Inc., a wholly owned
subsidiary of Mercshares. At December 31, 1997, approximately 150,000 square
feet were occupied by Merc-Safe and Mercshares. At December 31, 1997, Merc-Safe
also occupied approximately 132,000 square feet of leased space in a building
located in Linthicum, Maryland, in which its operations and certain other
departments are located. This building is also owned by MBC Realty, Inc. Of the
18 banking and bank-related offices occupied by Merc-Safe, four are owned in
fee, four are owned subject to ground leases and ten are leased with aggregate
annual rentals of approximately $1,225,000, not including rentals for the main
office and adjacent premises owned by MBC Realty, Inc.
Of the 155 banking offices of the other Affiliated Banks, 89 are owned
in fee, ten are owned subject to ground leases and 56 are leased, with aggregate
annual rentals of approximately $2,670,000 as of December 31, 1997.
ITEM 3. LEGAL PROCEEDINGS
There was no matter which is required to be disclosed in this Item 3
15
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 66
and Chief Executive Officer
Hugh W. Mohler Executive Vice President 52
J. Marshall Reid (1) President and Chief 52
Operating Officer (Merc-Safe)
Jack E. Steil (1) Chairman - Credit Policy 51
(Merc-Safe)
Alan D. Yarbro General Counsel and Secretary 56
Terry L. Troupe Chief Financial Officer and
Treasurer 50
Robert W. Johnson Senior Vice President 55
O. James Talbott, II Senior Vice President 54
- --------
(1) Messrs. Reid and Steil are officers of Merc-Safe. They are included above as
executive officers because they participate in policy-making functions
concerning Mercshares.
No family relationships, as defined by the Rules and Regulations of
the Securities and Exchange Commission, exist among any of the Executive
Officers.
All officers are elected annually by the Board of Directors and hold
office at the pleasure of the Board.
Mr. Baldwin has been Chairman of the Board of Mercshares since 1984,
and has been its Chief Executive Officer since 1976. He assumed the presidency
of Mercshares in 1997. He has been Chairman of the Board and Chief Executive
Officer of Merc-Safe since 1976.
Mr. Mohler was elected an Executive Vice President of Mercshares in
March, 1994. He was a Senior Vice President of Merc-Safe from March, 1994 until
September, 1994 when he was elected an Executive Vice President. He was
President and Chief Executive Officer of Peninsula from 1978 until February,
1994.
Mr. Reid was elected President and Chief Operating Officer of
Merc-Safe
16
in September, 1997. He joined Merc-Safe as a Senior Vice President in 1993 and
served as an Executive Vice President from 1994 until September, 1997.
Mr. Steil was elected Chairman - Credit Policy of Merc-Safe in
September, 1997. He had previously served Merc-Safe as an Executive Vice
President since 1994, and as Senior Vice President from 1988 to 1994.
Mr. Yarbro has been General Counsel of Mercshares and Merc-Safe since
April, 1996 and was elected Secretary of both companies in June, 1996. His prior
employment was as a partner of Venable, Baetjer and Howard, LLP, where he
practiced law for 29 years.
Mr. Troupe has been Chief Financial Officer of Mercshares and
Merc-Safe, and Treasurer of Mercshares, since September, 1996. He was Vice
President and Chief Financial Officer of IREX Corporation, a specialty
mechanical insulation contractor and distributor, from May, 1993 to May, 1996.
Prior thereto, Mr. Troupe was Vice Chairman of Meridian Bancorp, Inc.
Mr. Johnson has been Senior Vice President of Mercshares since 1989.
He has been a Vice President of Merc-Safe since 1982.
Mr. Talbott has been a Senior Vice President of Mercshares since
1989. He has been a Vice President of Merc-Safe since 1977.
Edward K. Dunn, Jr. (age 62), served Mercshares and Merc-Safe in
various executive capacities commencing in 1988, most recently as President of
both companies. He resigned these positions in September, 1997, becoming
Chairman of the Board of Mercantile Mortgage Corporation, and is no longer an
executive officer of Mercshares or Merc-Safe.
Jay M. Wilson (age 52), was an Executive Vice President of Mercshares
and Merc-Safe from 1994 until December 31, 1997, when he resigned these
positions. He is no longer an executive officer of Mercshares or Merc-Safe.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Information required by this Item 5 is incorporated by reference to
the information appearing under the captions "Dividends" and "Recent Common
Stock Prices" on page 26 of the Registrant's Annual Report to Stockholders for
the year
17
ended December 31, 1997.
The following information is given in response to Item 701 of
Regulation S-K. In December, 1997, two directors of Mercshares received an
aggregate of 393 shares of Mercshares common stock, at fair market value, in
lieu of a cash retainer fee, under the Mercshares Retainer Stock Plan for Non
Employee Directors. The shares issuable under the Plan have not been registered
under the Securities Act of 1933 in reliance on Release 33-6188 (1980) and
Release 33- 6281 (1981). The only potential Plan participants are 17 outside
directors. Mercshares common stock is actively traded on the Nasdaq National
Market. The maximum number of shares (450,000) issuable over ten years under the
Plan is less than 1% of the total shares outstanding.
ITEM 6. SELECTED FINANCIAL DATA
The information required by this Item 6 is incorporated by reference
to the information appearing under the caption "Five Year Selected Financial
Data" on page 49 of the Registrant's Annual Report to Stockholders for the year
ended December 31, 1997.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
The information required by this Item 7 is incorporated by
reference to the information appearing under the caption "Management's
Discussion and Analysis of Financial Condition and Results of Operations" on
pages 8 to 26 of the Registrant's Annual Report to Stockholders for the year
ended December 31, 1997.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information required by this Item 8 and the auditor's report
thereon are incorporated by reference to pages 27 to 48 of the Registrant's
Annual Report to Stockholders for the year ended December 31, 1997.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There was no matter which is required to be disclosed in this Item
9
18
pursuant to the instructions contained in the form for this Report.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 with respect to the
Executive Officers of Registrant appears in Part I of this Report. The remaining
information required by this Item 10 is incorporated by reference to the
definitive proxy statement of Registrant filed with the Securities and Exchange
Commission under Regulation 14A.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 is incorporated by
reference to the definitive proxy statement of Registrant filed with the
Securities and Exchange Commission under Regulation 14A.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item 12 is incorporated by
reference to the definitive proxy statement of Registrant filed with the
Securities and Exchange Commission under Regulation 14A.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item 13 is incorporated by
reference to the definitive proxy statement of Registrant filed with the
Securities and Exchange Commission under Regulation 14A.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report, except
as indicated.
(1) (2) The financial statements and schedules filed herewith or
incorporated by reference are listed in the accompanying Index to
Financial Statements.
(3) Exhibits filed herewith or incorporated by reference herein are
set forth in the following table prepared in accordance with Item 601
of Regulation S-K.
19
Exhibit Table
(3) Charter and by-laws
A. Charter of the Registrant (Exhibits 3-A(1) through 3-A(5)
listed below are incorporated by reference to Exhibits 3-A(1)
through 3-A(5) to Form S-1 of the Registrant, No. 2-39545,
Exhibit 3-A(6) listed below is incorporated by reference to
Exhibit 3-A(6) of Form S-1 of the Registrant, No. 2-41379,
Exhibit 3-A(7) listed below is incorporated by reference to
Registrant's Annual Report on Form 10-K for the year ended
1993, Exhibit 3-A(7), Commission File No. 0-5127, Exhibit
3-A(8) listed below is incorporated by reference to
Registrant's Annual Report on Form 10-K for the year ended
1993, Exhibit 3-A(8), Commission File No. 0-5127, Exhibit
3-A(9) listed below is incorporated by reference to Exhibit
B attached to Exhibit 4-A of Form 8-K of Registrant filed
September 27, 1989, Commission File No. 0-5127, Exhibit
3-A(10) listed below is incorporated by reference to Exhibit
B attached to Exhibit 4-A of Form 8-K of the Registrant filed
January 9, 1990, Commission File No. 0-5127, Exhibit 3-A(11)
listed below is incorporated by reference to Exhibit 3-A(11)
of the Annual Report on Form 10-K for the year ended December
31, 1990, Commission File No. 0-5127, and Exhibit 3-A(12)
listed below is incorporated by reference to Exhibit 3(i)(F)
to Form S-4 of the Registrant, No. 333-43651.
(1) Articles of Incorporation effective May 27, 1969.
(2) Articles of Amendment effective June 6, 1969.
(3) Articles Supplementary effective August 28, 1970.
(4) Articles of Amendment effective December 14, 1970.
(5) Articles Supplementary effective May 10, 1971.
(6) Articles Supplementary effective July 30, 1971.
(7) Articles of Amendment effective May 8, 1986.
(8) Articles of Amendment effective April 27, 1988.
(9) Articles Supplementary effective September 13, 1989.
(10) Articles Supplementary effective January 3, 1990.
(11) Articles of Amendment effective April 26, 1990.
(12) Articles of Amendment effective April 30, 1997.
20
B. By-Laws of the Registrant, as amended to date (filed herewith).
(4) Instruments defining the rights of security holders, including
indentures, Charter and by-laws: See Item 14(a)(3) above.
A. Rights Agreement dated as of September 12, 1989 between
Registrant and the Rights Agent, including Form of
Rights Certificate and Articles Supplementary
(Incorporated by reference to Form 8-K of the
Registrant filed September 27, 1989, Exhibit 4-A,
Commission File No. 0-5127).
B. First Amendment, dated as of December 31, 1989, to
Rights Agreement dated as of September 12, 1989
between Registrant and the Rights Agent, including
amended Form of Rights Certificate and amended Form
of Articles Supplementary (Incorporated by reference
to Form 8-K of the Registrant filed January 9, 1990,
Exhibit 4-A, Commission File No. 0-5127).
C. Second Amendment, dated as of September 30, 1993, to
Rights Agreement dated as of September 12, 1989
between Registrant and the Rights Agent, including
amended Form of Rights Certificate (Incorporated by
reference to Form 8-K of the Registrant filed
September 30, 1993, Exhibit 4-A, Commission
File No. 0-5127).
D. Third Amendment, dated as of June 30, 1997, to Rights
Agreement dated as of September 12, 1989, between
Registrant and the Rights Agent, including amended
form of Rights Certificate (Incorporated by reference
to Form 8-K of Registrant, filed July 11, 1997,
Exhibit 4-A, Commission File No. 0-5127).
E. Amendment No. 1 to Registrant's Registration Statement on Form
8-B, amending description of securities previously filed
(Incorporated by reference to Form 8 filed December 20, 1991,
Commission File No. 0-5127).
(10) Material contracts
A. Mercantile Bankshares Corporation and Affiliates Annual
21
Incentive Compensation Plan, as amended through March
10, 1998 (filed herewith).
B. Dividend Reinvestment and Stock Purchase Plan of
Mercantile Bankshares Corporation (Incorporated by
reference to the Plan text included in the Form S-3
Registration No. 33-44376.)
C. Executive Employment Agreement dated March 24, 1982, between
Mercantile Bankshares Corporation, Mercantile-Safe Deposit and
Trust Company and H. Furlong Baldwin, as amended by Agreements
dated March 13, 1984 and December 13, 1988 (Incorporated by
reference to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1989, Exhibit 10 D, Commission File
No. 0-5127), as amended by Agreement dated January 29, 1997
(Incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996, Exhibit 10 C,
Commission file No. 0-5127).
D. Deferred Compensation Agreement, including supplemental pension
and thrift plan arrangements, dated September 30, 1982, between
Mercantile-Safe Deposit and Trust Company and H. Furlong
Baldwin, as amended by Agreements dated as of October 24, 1983,
March 13, 1984, January 1, 1987, December 8, 1987 and January
1, 1989 (Incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989,
Exhibit 10 E, Commission File No. 0-5127), as amended by
Agreement dated February 1, 1997 (Incorporated by reference
to Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996, Exhibit 10 D, Commission File No. 0-5127).
E. Mercantile Bankshares Corporation and Participating
Affiliates Unfunded Deferred Compensation Plan for
Directors, as amended through January 1, 1984
(Incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1989, Exhibit 10 G, Commission File No. 0-5127),
22
as amended and restated by amendment effective
December 31, 1995 (Incorporated by reference to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1995, Exhibit
10 F, Commission File No. 0-5127).
F. Mercantile Bankshares Corporation Employee Stock
Purchase Dividend Reinvestment Plan dated February
13, 1995 (Incorporated by reference to Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1994, Exhibit 10 I, Commission File No.
0-5127).
G. Executive Employment Agreement dated December 13,
1988 between Mercantile Bankshares Corporation,
Mercantile-Safe Deposit and Trust Company and Edward
K. Dunn, Jr. (Incorporated by reference to
Registrant's Annual Report on Form 10-K for year
ended December 31, 1993, Exhibit 10 M, Commission
File No. 0-5127).
H. Executive Severance Agreements dated as of December 31, 1989
between Mercantile Bankshares Corporation and Mercantile-Safe
Deposit and Trust Company, and each of H. Furlong Baldwin and
Edward K. Dunn, Jr. (Incorporated by reference to Registrant's
Annual Report on Form 10-K for the year ended December 31,
1989, Exhibit 10 Q, Commission File No. 0-5127), as amended
with respect to Mr. Baldwin by Agreement dated January 29, 1997
(Incorporated by reference to Registrant's Annual Report on
Form 10-K for the year ended December 31, 1996, Exhibit 10 J,
Commission File No. 0-5127).
I. Mercantile Bankshares Corporation Omnibus Stock Plan
(Incorporated by reference to Registrant's Quarterly
Report on Form 10-Q for the period ended September
30, 1997, Exhibit 10 K, Commission File No. 0-5127).
J. Supplemental Pension Agreement dated January 10, 1992 between
Mercantile Bankshares Corporation, Mercantile-Safe Deposit and
23
Trust Company and Edward K. Dunn, Jr. (Incorporated by
reference to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1991, Exhibit 10 P, Commission File
No. 0-5127).
K. Supplemental Pension Agreement, dated February 10,
1995, between Mercantile Bankshares Corporation and
Mercantile-Safe Deposit and Trust Company, Peninsula
Bank and Hugh W. Mohler (Incorporated by reference to
Registrant's Annual Report on Form 10-K for the year
ended December 31, 1994, Exhibit 10 Q, Commission
File No. 0-5127).
L. Mercantile Bankshares Corporation and Participating
Affiliates Supplemental Cash Balance Executive
Retirement Plan, dated April 27, 1994, effective
January 1, 1994 (Incorporated by reference to
Registrant's Annual Report on Form 10-K for year
ended December 31, 1994, Exhibit 10 R, Commission
File No. 0- 5127).
M. Mercantile Bankshares Corporation and Participating
Affiliates Supplemental 401(k) Executive Retirement
Plan, dated December 13, 1994, effective January 1,
1995 (Incorporated by reference to Registrant's
Annual Report on Form 10-K for the year ended
December 31, 1994, Exhibit 10 S, Commission File No.
0-5127).
N. Mercantile Bankshares Corporation Option Agreement with each
of H. Furlong Baldwin (dated August 22, 1995 for 80,000
options), Edward K. Dunn, Jr. (dated August 17, 1995 for 45,000
options), Brian B. Topping (dated August 23, 1995 for 35,000
options), Hugh W. Mohler (dated August 22, 1995 for 30,000
options) and Jay M. Wilson (dated August 18, 1995 for 30,000
options) the Net Operating Income of each being that of
Mercantile-Safe Deposit and Trust Company, (Incorporated by
reference to Registrant's Annual Report on Form 10-K for the
year ended December 31, 1995, Exhibit 10 Q, Commission File
24
No. 0-5127).
O. Mercantile Bankshares Corporation Retainer Stock Plan
For Non- Employee Directors dated March 12, 1996
(Incorporated by reference to Registrant's Annual
Report on Form 10-K for the year ended December 31,
1995, Exhibit 10 R, Commission File No. 0-5127).
P. Supplemental Cash Balance Plan and Thrift Agreement,
dated April 12, 1996, between Mercantile Bankshares
Corporation and Alan D. Yarbro (Incorporated by
reference to Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1996, Exhibit 10
S, Commission File No. 0-5127).
Q. Executive Severance Agreement, dated as of April 24,
1996, between Mercantile Bankshares Corporation and
Alan D. Yarbro (Incorporated by reference to
Registrant's Quarterly Report on Form 10-Q for the
period ended June 30, 1996, Exhibit 10 T, Commission
File No. 0-5127).
R. Mercantile Bankshares Corporation Option Agreement
with Alan D. Yarbro, dated April 26, 1996
(Incorporated by reference to Registrant's Quarterly
Report for the period ended June 30, 1996, Exhibit 10
U, Commission File No. 0-5127).
S. Agreement, dated July 12, 1996, among Mercantile-Safe
Deposit and Trust Company, Brian B. Topping and
Mercantile Bankshares Corporation (Incorporated by
reference to Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1996, Exhibit
10 V, Commission File No. 0-5127).
T. Agreement, dated September 12, 1997 among Mercantile
Bankshares Corporation, Mercantile-Safe Deposit and
Trust Company and Edward K. Dunn, Jr. (Incorporated
by reference to Registrant's Quarterly Report on Form
10-Q for the period ended September 30, 1997, Exhibit
10 V, Commission File No. 0-5127).
U. Letter Agreement, dated December 29, 1997, amending Option
25
Agreement between Mercantile Bankshares Corporation and Jay
M. Wilson (filed herewith).
(13) Annual Report to security holders for the year ended December 31,
1997 (filed herewith).
(21) Subsidiaries of the Registrant
Information as to subsidiaries of the Registrant (filed herewith).
(23) Consent
Consent of Certified Public Accountants (filed herewith)
(24) Power of Attorney
Power of Attorney dated March 10, 1998 (filed herewith)
(b) No reports on Form 8-K were filed during the last quarter of the period
covered by this Report.
26
INDEX TO FINANCIAL STATEMENTS
The Report of Independent Certified Public Accountants as pertaining to the
Consolidated Financial Statements of Mercantile Bankshares Corporation and
Affiliates and related notes is incorporated by reference to page 27 of
the Registrant's Annual Report to Stockholders for the year ended December
31, 1997.
Consolidated Financial Statements and related notes are incorporated by
reference to the Registrant's Annual Report to Stockholders for the year
ended December 31, 1997, and may be found on the pages of said Report as
indicated in parentheses:
Consolidated Balance Sheets, December 31, 1997 and 1996 (page 28)
Statement of Consolidated Income for the years ended December 31, 1997,
1996 and 1995 (page 29)
Statement of Consolidated Cash Flows for the years ended December 31,
1997, 1996 and 1995 (pages 30 and 31)
Statement of Changes in Consolidated Stockholders' Equity for the years
ended December 31, 1997, 1996 and 1995 (page 32)
Notes to Consolidated Financial Statements (pages 33 to 48)
Supplementary Data:
Quarterly Results of Operations are incorporated by reference to the
information appearing under the caption "Quarterly Results of
Operations" on page 45 of the Registrant's Annual Report to
Stockholders for the fiscal year ended December 31, 1997.
Financial Statement Schedules are omitted because of the absence of the
conditions under which they are required or because the information
called for is included in the Consolidated Financial Statements or
notes thereto.
27
Signatures
Pursuant to the requirements of Section 13 or 15(d) of the Securities
and Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
MERCANTILE BANKSHARES CORPORATION
By: /S/ H. Furlong Baldwin March 26, 1998
______________________
H. Furlong Baldwin, Chairman of the
Board, President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated:
Principal Executive Officer
/S/ H. Furlong Baldwin March 26, 1998
______________________
H. Furlong Baldwin, Chairman of the
Board, President and Chief Executive Officer
Principal Financial Officer
/S/ Terry L. Troupe March 26, 1998
______________________
Terry L. Troupe
Chief Financial Officer
Principal Accounting Officer
/S/ Jerry F. Graham March 26, 1998
______________________
Jerry F. Graham
Vice President and Controller
A majority of the Board of Directors: Cynthia A. Archer, H. Furlong Baldwin,
James A. Block, William R. Brody, George L. Bunting, Jr., Freeman A. Hrabowski,
III, B. Larry Jenkins, Mary Junck, Robert A. Kinsley, William J. McCarthy,
Morton B. Plant, Christian H. Poindexter, William C. Richardson, Donald J.
Shepard, Calman J. Zamoiski, Jr.
By: /S/ H. Furlong Baldwin March 26, 1998
______________________
H. Furlong Baldwin
For Himself and as Attorney-in-Fact
28