UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended June 30, 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.)
2 Hopkins Plaza, Baltimore, Maryland 21201
---------------------------------------- ------------
(Address of principal executive offices) (Zip code)
(410) 237-5900
----------------------------------------------------
(Registrant's telephone number, including area code)
- ------------------------------------------------------------------------------
(Former name, former address and former fiscal year, if changed since last
report)
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 .
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date.
As of July 31, 1997, registrant had outstanding 71,759,088 shares of Common
Stock.
Page 1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
MERCANTILE BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
JUNE 30, December 31,
(Dollars in thousands, except per share data) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks.......................................................... $ 277,877 $ 257,337
Interest-bearing deposits in other banks......................................... 100 100
Investment securities:
U.S. Treasury and government agencies
Available-for-sale at fair value........................................... 1,512,089 1,581,517
States and political subdivisions
Held-to-maturity--market value of $12,675 (1997) and $13,642 (1996)........ 12,653 13,551
Available-for-sale at fair value........................................... 31 36
Other investments
Held-to-maturity--market value of $13,269 (1997) and $12,734 (1996)........ 13,263 12,728
Available-for-sale at fair value........................................... 15,028 15,134
------------- -------------
Total investment securities.............................................. 1,553,064 1,622,966
------------- -------------
Federal funds sold............................................................... 1,179 27,942
Loans............................................................................ 4,869,455 4,582,712
Less: allowance for loan losses.................................................. (102,127) (97,718)
------------- -------------
Loans, net............................................................... 4,767,328 4,484,994
------------- -------------
Bank premises and equipment, less accumulated depreciation of
$81,153 (1997) and $83,383 (1996).............................................. 77,055 80,738
Other real estate owned, net..................................................... 2,795 3,316
Excess cost over equity in affiliated banks, net................................. 27,276 28,276
Other assets..................................................................... 136,159 137,012
------------- -------------
Total assets............................................................. $6,842,833 $6,642,681
============= =============
LIABILITIES
Deposits:
Noninterest-bearing deposits................................................. $1,163,292 $1,090,347
Interest-bearing deposits.................................................... 4,309,657 4,249,308
------------- -------------
Total deposits........................................................... 5,472,949 5,339,655
Short-term borrowings............................................................ 363,848 336,655
Accrued expenses and other liabilities........................................... 82,615 80,940
Long-term debt................................................................... 50,032 49,395
------------- -------------
Total liabilities........................................................ 5,969,444 5,806,645
------------- -------------
STOCKHOLDERS' EQUITY
Preferred stock, no par value; authorized 2,000,000 shares; issued and
outstanding--None
Common stock, $2 par value; authorized 130,000,000 shares;
issued 71,106,750 shares in 1997 and 47,435,322 shares in 1996................. 142,214 94,872
Capital surplus.................................................................. 48,715 97,154
Retained earnings................................................................ 679,218 641,212
Unrealized gains (losses) on securities, net of taxes............................ 3,242 2,798
------------- -------------
Total stockholders' equity............................................... 873,389 836,036
------------- -------------
Total liabilities and stockholders' equity........................... $6,842,833 $6,642,681
============= =============
</TABLE>
See notes to consolidated financial statements
Page 2
MERCANTILE BANKSHARES CORPORATION
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
For the 6 Months Ended For the 3 Months Ended
June 30, June 30,
(Dollars in thousands, except per share data) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans........................... $210,143 $196,914 $107,719 $ 98,958
------------ ------------ ----------- -----------
Interest and dividends on investment securities:
Taxable interest income............................ 46,211 44,492 22,885 22,484
Tax-exempt interest income......................... 323 360 159 178
Dividends.......................................... 506 310 340 166
Other investment income............................ 232 291 111 145
------------ ------------ ----------- -----------
47,272 45,453 23,495 22,973
------------ ------------ ----------- -----------
Other interest income................................ 904 2,439 517 1,062
------------ ------------ ----------- -----------
Total interest income........................ 258,319 244,806 131,731 122,993
------------ ------------ ----------- -----------
INTEREST EXPENSE
Interest on deposits................................. 84,796 84,853 42,972 42,038
Interest on short-term borrowings.................... 7,654 6,884 3,945 3,281
Interest on long-term debt........................... 1,668 960 834 555
------------ ------------ ----------- -----------
Total interest expense....................... 94,118 92,697 47,751 45,874
------------ ------------ ----------- -----------
NET INTEREST INCOME.................................. 164,201 152,109 83,980 77,119
Provision for loan losses............................ 6,425 6,674 3,012 3,275
------------ ------------ ----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.. 157,776 145,435 80,968 73,844
------------ ------------ ----------- -----------
NONINTEREST INCOME
Trust division services.............................. 24,806 23,011 12,684 11,642
Service charges on deposit accounts.................. 8,186 7,928 4,107 4,040
Other fees........................................... 12,101 11,233 6,315 6,028
Investment securities gains and (losses)............. (1,499) 74 (288) 8
Other income......................................... 3,425 1,621 1,203 779
------------ ------------ ----------- -----------
Total noninterest income..................... 47,019 43,867 24,021 22,497
------------ ------------ ----------- -----------
NONINTEREST EXPENSES
Salaries............................................. 51,070 48,880 25,704 24,052
Employee benefits.................................... 11,437 11,554 5,537 5,011
Net occupancy expense of bank premises............... 5,561 5,768 2,949 2,713
Furniture and equipment expenses..................... 8,610 9,074 4,527 5,217
Communications and supplies.......................... 5,727 5,144 2,947 2,627
FDIC insurance premium expense....................... 314 114 172 41
Other expenses....................................... 19,967 17,330 11,470 9,750
------------ ------------ ----------- -----------
Total noninterest expenses................... 102,686 97,864 53,306 49,411
------------ ------------ ----------- -----------
Income before income taxes........................... 102,109 91,438 51,683 46,930
Applicable income taxes.............................. 37,550 34,403 19,138 17,628
------------ ------------ ----------- -----------
NET INCOME........................................... $ 64,559 $ 57,035 $ 32,545 $ 29,302
============ ============ =========== ===========
NET INCOME PER SHARE OF COMMON STOCK(2).............. $.91 $.79 $.46 $.40
============ ============ =========== ===========
</TABLE>
See notes to consolidated financial statements
Page 3
MERCANTILE BANKSHARES CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
For the 6 Months Ended
Increase (decrease) in cash and cash equivalents June 30,
(Dollars in thousands) 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fees on loans............................................................. $207,989 $195,940
Interest and dividends on investment securities........................................ 47,190 46,054
Other interest income.................................................................. 801 2,349
Noninterest income..................................................................... 45,826 39,895
Interest paid.......................................................................... (94,253) (93,890)
Noninterest expenses paid.............................................................. (84,155) (79,620)
Income taxes paid...................................................................... (43,970) (39,790)
------------ ------------
Net cash provided by operating activities...................................... 79,428 70,938
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held-to-maturity..................... 898 325
Proceeds from maturities of investment securities available-for-sale................... 310,631 313,937
Proceeds from sales of investment securities available-for-sale........................ 32,415 64,129
Purchases of investment securities held-to-maturity.................................... (535) (382)
Purchases of investment securities available-for-sale.................................. (274,173) (382,291)
Net increase in customer loans......................................................... (289,523) (158,115)
Proceeds from sales of other real estate owned......................................... 1,186 2,218
Capital expenditures................................................................... (5,520) (5,571)
Proceeds from sales of buildings....................................................... 6,610
------------ ------------
Net cash provided by (used in) investing activities............................ (218,011) (165,750)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest-bearing deposits........................................... 72,945 43,692
Net increase (decrease) in checking plus interest and savings accounts................. 1,840 (14,721)
Net increase in certificates of deposit................................................ 58,509 43,845
Net increase (decrease) in short-term borrowings....................................... 27,893 (9,153)
Proceeds from issuance of long-term debt............................................... 25,000
Repayment of long-term debt............................................................ (63) (1,214)
Proceeds from issuance of shares....................................................... 3,868 2,884
Repurchase of common shares............................................................ (6,079) (19,596)
Dividends paid......................................................................... (26,553) (21,942)
------------ ------------
Net cash provided by financing activities...................................... 132,360 48,795
------------ ------------
Net increase (decrease) in cash and cash equivalents................................... (6,223) (46,017)
Cash and cash equivalents at beginning of period....................................... 285,379 323,464
------------ ------------
Cash and cash equivalents at end of period............................................. $279,156 $277,447
============ ============
</TABLE>
<TABLE>
For the 6 Months Ended
Reconciliation of net income to net cash provided by operating activities June 30,
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income............................................................................. $64,559 $57,035
------------ ------------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization........................................................ 3,975 3,991
Provision for loan losses............................................................ 6,425 6,674
Amortization of excess cost over equity in affiliates................................ 1,000 1,002
Investment securities (gains) and losses............................................. 1,499 (74)
Write-downs of other real estate owned............................................... 172 69
Gains on sales of other real estate owned............................................ (73) (260)
Gains on sales of buildings.......................................................... (1,382)
Increase in interest receivable...................................................... (2,339) (463)
Increase in other receivables........................................................ (1,237) (3,638)
Decrease in other assets............................................................. 6,072 8,856
Decrease in interest payable......................................................... (135) (1,193)
Increase in accrued expenses......................................................... 7,312 4,326
Decrease in taxes payable............................................................ (6,420) (5,387)
------------ ------------
Total adjustments.............................................................. 14,869 13,903
------------ ------------
Net cash provided by operating activities.............................................. $79,428 $70,938
============ ============
</TABLE>
See notes to consolidated financial statements
Page 4
MERCANTILE BANKSHARES CORPORATION
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 1997 AND 1996
<TABLE>
Unrealized
Gains
(Losses) on
Securities,
Common Capital Retained Net of
(Dollars in thousands, except per share data) Stock Surplus Earnings Taxes
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995................................ $96,545 $66,107 $620,391 $10,783
Net income................................................ 57,035
Cash dividends paid:
Common stock ($.31 per share)........................... (21,942)
Issuance of 78,032 shares for dividend
reinvestment and stock purchase plan.................... 156 1,777
Issuance of 12,504 shares for employee stock
purchase dividend reinvestment plan..................... 25 301
Issuance of 28,562 shares for employee stock option plan.. 58 567
Purchase of 726,042 shares under stock repurchase plan.... (1,452) (18,144)
Vested stock options...................................... 2,106
Change in unrealized gains (losses) on securities......... (12,238)
------------ ----------- ----------- -----------
BALANCE, JUNE 30, 1996.................................... $95,332 $52,714 $655,484 $ (1,455)
============ =========== =========== ===========
BALANCE, DECEMBER 31, 1996................................ $94,872 $97,154 $641,212 $ 2,798
Net income................................................ 64,559
Cash dividends paid:
Common stock ($.37 per share)........................... (26,553)
Issuance of 57,330 shares for dividend
reinvestment and stock purchase plan.................... 114 1,899
Issuance of 10,509 shares for employee stock
purchase dividend reinvestment plan..................... 21 351
Issuance of 72,131 shares for employee stock option plan.. 144 1,373
Purchase of 170,000 shares under stock repurchase plan.... (340) (5,739)
Issuance of 23,701,458 shares for a 3 for 2 stock split... 47,403 (47,437)
Vested stock options...................................... 1,114
Change in unrealized gains (losses) on securities......... 444
------------ ----------- ----------- -----------
BALANCE, JUNE 30, 1997.................................... $142,214 $48,715 $679,218 $ 3,242
============ =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
Page 5
MERCANTILE BANKSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) The statements include the accounts of the Corporation and all of its
affiliates, with all significant intercompany transactions eliminated, and
in the opinion of management, include all adjustments necessary for a fair
presentation of the results for the interim period. All such adjustments
are of a normal recurring nature. In view of the changing conditions in the
national economy, the effect of actions taken by regulatory authorities and
normal seasonal factors, the results for the interim period are not
necessarily indicative of annual performance. Certain previously reported
amounts have been restated to comform to the 1997 presentation.
2) Year to date per share amounts are based on the weighted average number of
common shares outstanding during the period of 71,128,269 shares for 1997
and 71,742,504 shares for 1996.
3) In June 1997, the Corporation's Board of Directors declared a 3 for 2 split
in the form of a stock dividend on its common stock. Average shares and per
share amounts have been adjusted to give effect to the Board action.
4) Under the provisions of Statements of Financial Accounting Standards
(SFAS) No. 114 and 118, "Accounting by Creditors for Impairment of a
Loan," a loan is considered impaired, based upon current information and
events, if it is probable that the Corporation will not collect all
principal and interest payments according to the contractual terms of the
loan agreement. Generally, a loan is considered impaired once either
principal or interest payments become 90 days past due at the end of a
calendar quarter. A loan may be considered impaired sooner if, in
management's judgement, such action is warranted. The impairment of a
loan is measured based upon the present value of expected future cash
flows discounted at the loan's effective interest rate, or the fair
value of the collateral if the repayment is expected to be provided
predominantly by the underlying collateral. A majority of the
Corporation's impaired loans are measured by reference to the fair value
of the collateral. Interest income on impaired loans is recognized on the
cash basis. Information with respect to impaired loans and the related
valuation allowance (if the measure of the impaired loan is less than the
recorded investment) is shown below.
<TABLE>
JUNE 30, December 31,
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with a valuation allowance............................................ $ 2,560 $ 2,649
Impaired loans with no valuation allowance........................................... 25,384 13,128
------------- ------------
Total impaired loans............................................................... $ 27,944 $ 15,777
============= ============
Allowance for loan losses applicable to impaired loans............................... $ 1,534 $ 1,194
Allowance for loan losses applicable to other than impaired loans.................... 100,593 96,524
------------- ------------
Total allowance for loan losses.................................................... $ 102,127 $ 97,718
============= ============
Year-to-date interest income on impaired loans recorded on the cash basis............ $ 576 $ 672
============= ============
Year-to-date average recorded investment in impaired loans during the period......... $ 20,800 $ 19,300
============= ============
Quarter-to-date interest income on impaired loans recorded on the cash basis......... $ 429 $ 34
============= ============
Quarter-to-date average recorded investment in impaired loans during the period...... $ 23,200 $ 18,400
============= ============
</TABLE>
NOTE: Impaired loans do not include large groups of smaller balance
homogeneous loans that are evaluated collectively for impairment (e.g.
residential mortgages and consumer installment loans). The allowance for loan
losses related to these loans is included in the allowance for loan losses
applicable to other than impaired loans.
5) Various commitments to extend credit (lines of credit) are made in the
normal course of banking business. At June 30, 1997, total unused lines
of credit approximated $2,120,390,000. In addition, letters of credit are
issued for the benefit of customers by affiliated banks. Outstanding
letters of credit were $136,910,000 at June 30, 1997.
Page 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MERCANTILE BANKSHARES CORPORATION
EARNINGS SUMMARY
Consolidated net income per share for the first quarter of 1997 was $.46,
an increase of 15.0% over the $.40 for the comparable period last year.
Consolidated net income was $32,545,000, an increase of 11.1% over the
$29,302,000 for the second quarter of 1996.
Consolidated net income per share for the six months ended June 30, 1997
was $.91, an increase of 15.2% over the $.79 for the comparable period last
year. Consolidated net income was $64,559,000, an increase of 13.2% over the
$57,035,000 for the first six months of 1996.
In June 1997, the Corporation's Board of Directors declared a 3 for 2 split
in the form of a stock dividend on its common stock. Average shares and per
share amounts have been adjusted to give effect to the Board action.
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income for the three months ended June 30, 1997 was 8.9%
higher than the amount for the comparable period in 1996 due to an increase
of 5.3% in average earning assets and an increase of 3.1%, or 16 basis
points, in net interest margin on earning assets. Average total loans
increased by 8.9% over the second quarter of 1996 to $4,781,200,000.
Net interest income for the six months ended June 30, 1997 was 7.9%
higher than the amount for the comparable period in 1996 due to an increase
of 4.9% in average earning assets and an increase of 3.3%, or 17 basis
points, in net interest margin on earning assets. Average total loans
increased by 8.1% over the first half of 1996 to $4,694,700,000 for the
first half of 1997.
NONINTEREST INCOME
Total noninterest income for the quarter ended June 30, 1997 increased
6.8% to $24,021,000 from $22,497,000 for the second quarter of 1996. Factors
contributing to this increase include an increase in trust division revenues
and an increase in other fee income from general bank services and products.
These increases were partially offset by securities losses of $288,000
compared to securities gains of $8,000.
For the first six months of 1997, total noninterest income increased 7.2%
to $47,019,000 from $43,867,000 for the first half of 1996. Factors
contributing to this increase include an increase in trust division
revenues, an increase in other income primarily due to a gain of $1,175,000
on the sale of a bank owned building during the first quarter of 1997, and
an increase in other fee income from general bank services and products.
These increases were partially offset by securities losses of $1,499,000
during the first half of 1997 compared to securities gains of $74,000 in 1996.
NONINTEREST EXPENSES
Total noninterest expenses, excluding the provision for loan losses, for
the second quarter of 1997 increased 7.9% from the comparable period in 1996
principally due to non-recurring expenses of approximately $2,250,000
associated with the successful conversion to year 2000 compliant software
during the second quarter of 1997. Increases in salaries, employee benefits,
communications and supplies, and net occupancy expense of bank premises, were
partially offset by lower expenses related to furniture and equipment
expenses.
Total noninterest expenses, excluding the provision for loan losses, for
the first half of 1997 increased 4.9% from the comparable period in 1996
which also reflects year 2000 compliant software non-recurring expenses.
Increases in salaries and communications and supplies, were partially offset
by lower expenses related to occupancy and equipment expenses, and employee
benefits.
ANALYSYS OF FINANCIAL CONDITION
Investment securities decreased 4.3% to $1,553,064,000 at June 30, 1997
from $1,622,966,000 at December 31, 1996. Total loans outstanding increased
6.3% to $4,869,455,000 at June 30,1997 from $4,582,712,000 at December 31,
1996.
Total deposits increased 2.5% to $5,472,949,000 at June 30, 1997 from
$5,339,655,000 at December 31, 1996. Interest-bearing deposits increased
1.4% to $4,309,657,000 which represents 78.7% of total deposits at June 30,
1997, compared to $4,249,308,000 which represents 79.6% of total deposits at
December 31, 1996. The growth in interest-bearing deposit accounts is due
primarily to an increase in time deposits. Noninterest-bearing deposits
increased 6.7% to $1,163,292,000 as of June 30, 1997, compared to
$1,090,347,000 at December 31, 1996.
Total stockholders' equity increased 4.5% to $873,389,000 at June 30, 1997
from $836,036,000 at December 31, 1996. The increase from net income was
largely offset by dividends paid and, to a smaller extent, by share
repurchases. The continued strong capital position is evidenced by the ratio
of stockholders' equity to total assets of 12.76% at June 30, 1997 compared
to 12.59% at December 31, 1996. For more details see the Statement of Changes
in Consolidated Stockholders' Equity on page 5 and Footnote No. 3.
ASSET QUALITY
Non-Performing Assets
Non-performing assets consist of non-accrual loans, renegotiated loans and
other real estate owned (i.e., real estate acquired in foreclosure or in lieu
of foreclosure). With respect to non-accrual loans, the Corporation's policy
is that, regardless of the value of the underlying collateral and/or
guarantees, no interest is accrued on the entire balance once either
principal or interest payments on any loan become 90 days past due at the
end of a calendar quarter. All accrued and uncollected interest on such loans
is eliminated from the income statement and is recognized only as collected.
A loan may be put on non-accrual status sooner than this standard if, in
management's judgement, such action is warranted. During the six months
ended June 30, 1997, non-performing assets increased $10,736,000 to
$34,509,000. Non-performing loans, one of the components of non-performing
assets, increased $11,257,000 while other real estate owned, the other
component, decreased $521,000. The increase in non-performing loans is
primarily attributable to a single commercial loan customer.
Page 7
<TABLE>
Non-Performing Assets JUNE 30, December 31,
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual loans (1)................................................................... $31,714 $20,457
Renegotiated loans (1).................................................................. NONE NONE
Loans contractually past due 90 days or more and still accruing interest................ NONE NONE
------- -------
Total non-performing loans.......................................................... 31,714 20,457
Other real estate owned................................................................. 2,795 3,316
------- -------
Total non-performing assets......................................................... $34,509 $23,773
======= =======
</TABLE>
1) Total interest on these loans is not considered to be material in any of
the periods reported herein. Aggregate gross interest income of $1,488,000
and $1,982,000 for the first six months of 1997 and the year 1996,
respectively, on non-accrual and renegotiated loans, would have been
recorded if these loans had been accruing on their original terms
throughout the period or since origination if held for part of the period.
The amount of interest income on the non-accrual and renegotiated loans
that was recorded totalled $666,000 and $875,000 for the first six months
of 1997 and the year 1996, respectively.
NOTE: As of June 30, 1997, the Corporation was monitoring loans estimated
to aggregate $4,103,000 not currently classified as non-accrual or
renegotiated loans. These loans have characteristics which indicate they may
result in such classification in the future.
Provision and Allowance for Loan Losses
Each Mercantile Bankshares Corporation (MBC) affiliate is required to maintain
an adequate allowance for loan losses and their boards of directors, along
with MBC management, maintain a regular overview to assure that adequacy. On a
periodic basis, significant credit exposures, non-accrual loans, impaired
loans and other non-performing assets and various statistical measurements of
asset quality are examined to assure the adequacy of the allowance for loan
losses.
The following table presents a summary of the activity in the Allowance for
Loan Losses.
<TABLE>
For the 6 Months Ended For the 3 Months Ended
Allowance for Loan Losses June 30, June 30,
(Dollars in thousands) 1997 1996 1997 1996
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance balance--beginning.................... $ 97,718 $ 91,398 $ 100,202 $ 94,997
Charge-offs:
Commercial, financial and agricultural........ (892) (1,340) (444) (631)
Real estate--construction..................... (6) (55) (55)
Real estate--mortgage......................... (146) (187) (44) (125)
Consumer...................................... (2,050) (1,710) (1,082) (801)
------------ ------------ ------------ ------------
Totals...................................... (3,094) (3,292) (1,570) (1,612)
------------ ------------ ------------ ------------
Recoveries:
Commercial, financial and agricultural........ 188 1,079 88 153
Real estate--construction..................... 2 4 2
Real estate--mortgage......................... 81 797 26 120
Consumer...................................... 807 630 367 357
------------ ------------ ------------ ------------
Totals...................................... 1,078 2,510 483 630
------------ ------------ ------------ ------------
Net charge-offs................................. (2,016) (782) (1,087) (982)
Provision for loan losses....................... 6,425 6,674 3,012 3,275
------------ ------------ ------------ ------------
Allowance balance--ending....................... $ 102,127 $ 97,290 $ 102,127 $ 97,290
============ ============ ============ ============
Average loans outstanding during period......... $4,694,700 $4,342,200 $4,781,200 $4,389,400
============ ============ ============ ============
Net charge-offs (annualized) as a percentage of
average loans outstanding during period....... .09% .04% .09% .09%
=== === === ===
Allowance for loan losses at period end as a
percentage of average loans................... 2.18% 2.24% 2.14% 2.22%
==== ==== ==== ====
Allowance for loan losses at period end as a
percentage of non-performing loans at period
end........................................... 322.02% 422.80%
====== ======
</TABLE>
Charge-Offs
Intensive collection efforts continue after charge-off in order to maximize
the recovery of amounts previously charged off. Net charge-offs were
$2,016,000 for the first half of 1997 versus $782,000 during the first six
months of 1996. For further details of charge-offs and recoveries see the
preceding Allowance For Loan Losses table.
Page 8
MERCANTILE BANKSHARES CORPORATION
ANALYSIS OF INTEREST RATES AND INTEREST DIFFERENTIALS
The following table presents the distribution of the average consolidated
balance sheets, interest income/expense and annualized yields earned and rates
paid through the first six months of the year.
<TABLE>
1997 1996
-------------------------------------- --------------------------------
Average Income*/ Yield*/ Average Income*/ Yield*/
(Dollars in thousands) Balance Expense Rate Balance Expense Rate
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Earning assets
Loans:
Commercial....................................... $1,576,300 $ 71,352 9.13% $1,417,200 $ 66,317 9.41%
Real estate...................................... 2,473,700 111,598 9.10 2,297,100 103,375 9.05
Consumer**....................................... 644,700 29,102 9.10 627,900 29,070 9.31
----------- ----------- ----------- ----------
Total loans.................................. 4,694,700 212,052 9.11 4,342,200 198,762 9.21
----------- ----------- ----------- ----------
Federal funds sold................................. 34,400 901 5.29 81,800 2,110 5.19
Securities purchased under resale agreements....... 10,600 325 6.18
Securities***:
Taxable securities
U.S. Treasury securities....................... 1,530,700 45,800 6.03 1,529,800 43,961 5.78
U.S. Agency securities......................... 15,000 411 5.54 19,800 531 5.39
Other stocks and bonds......................... 22,600 882 7.86 16,600 651 7.86
Tax-exempt securities
States and political subdivisions.............. 13,200 509 7.79 15,100 568 7.57
----------- ----------- ----------- ----------
Total securities............................. 1,581,500 47,602 6.07 1,581,300 45,711 5.81
----------- ----------- ----------- ----------
Interest-bearing deposits in other banks........... 100 3 5.97 200 4 4.61
----------- ----------- ----------- ----------
Total earning assets......................... 6,310,700 260,558 8.32 6,016,100 246,912 8.25
----------- ----------
Cash and due from banks.............................. 186,100 209,200
Bank premises and equipment, net..................... 78,700 79,500
Other assets......................................... 155,800 152,000
Less: allowance for loan losses...................... (99,900) (94,700)
----------- -----------
Total assets................................. $6,631,400 $6,362,100
=========== ===========
Interest-bearing liabilities
Deposits:
Savings deposits................................. $2,198,800 28,539 2.62 $2,218,700 29,024 2.63
Time deposits.................................... 2,087,200 56,257 5.44 2,008,800 55,829 5.59
----------- ----------- ----------- ----------
Total interest-bearing deposits.............. 4,286,000 84,796 3.99 4,227,500 84,853 4.04
Short-term borrowings.............................. 331,700 7,654 4.65 281,700 6,884 4.91
Long-term debt..................................... 49,800 1,668 6.75 29,700 960 6.50
----------- ----------- ----------- ----------
Total interest-bearing funds................. 4,667,500 94,118 4.07 4,538,900 92,697 4.11
----------- ----------
Noninterest-bearing deposits......................... 1,018,200 949,700
Other liabilities and accrued expenses............... 84,300 76,000
----------- -----------
Total liabilities............................ 5,770,000 5,564,600
Stockholders' equity................................. 861,400 797,500
----------- -----------
Total liabilities and stockholders' equity... $6,631,400 $6,362,100
=========== ===========
Net interest income.................................. $166,440 $154,215
======== ========
Net interest rate spread............................. 4.25% 4.14%
Effect of noninterest-bearing funds.................. 1.07 1.01
-------- -------
Net interest margin on earning assets................ 5.32% 5.15%
======== =======
Taxable-equivalent adjustment included in:
Loan income...................................... $ 1,909 $ 1,848
Investment securities income..................... 330 258
----------- ----------
Total........................................ $ 2,239 $ 2,106
=========== ==========
</TABLE>
*Presented on a tax equivalent basis using the statutory federal corporate
income tax rate of 35%.
**Includes home equity lines of credit which were previously classified as
real estate loans.
***Balances reported at amortized cost; excludes pretax unrealized gains
(losses) on securities available-for-sale.
Page 9
RECENT FASB PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per
Share, was issued in February 1997. This Statement specifies the computation,
presentation, and disclosure requirements for earnings per share (EPS). This
Statement's objective is to simplify the computation of earnings per share
and to make the U.S. standard for computing earnings per share more
compatible with the EPS standards of other countries. This Statement is
effective for financial statements for both interim and annual
periods ending after December 15, 1997. Earlier application is not
permitted. After the effective date, all prior period EPS data presented
shall be restated to conform with the provisions of this Statement. This
Statement is not expected to have a material effect on the computation,
presentation or disclosure of EPS for Mercantile Bankshares Corporation.
Statement of Financial Accounting Standards No. 130, Reporting
Comprehensive Income, was issued in June 1997. This Statement establishes
standards for disclosing comprehensive income and its components in a full
set of general-purpose financial statements. Comprehensive income is defined
as the change in equity from transactions and other events and circumstances
from nonowner sources. Comprehensive income includes net income which is
adjusted for items such as unrealized gains and losses on certain investment
securities and minimum pension liability adjustments. This Statement is
effective for fiscal years beginning after December 15, 1997. Reclassification
of financial statements for earlier periods provided for comparative purposes
is required.
Statement of Financial Accounting Standards No. 131, Disclosure
about Segments of an Enterprise and Related Information, was issued in
June 1997. This Statement establishes standards for disclosing information
about operating segments in financial statements. Operating segments are
components of a business about which separate financial information is
available that is evaluated by management in deciding how to allocate
resources and in assessing performance. Management has not determined yet
whether additional disclosure will be necessary under the requirements of
SFAS No. 131. For year-end disclosure, this Statement is effective for
fiscal years beginning after December 15, 1997. Interim reporting disclosures
would not be required in the first year of adoption, but would begin the
first quarter immediately after the first year of providing year-end
disclosures. For interim reporting, the preceding year's interim information
must be presented on a comparative basis.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS.
Description of matters voted upon and vote at Annual Meeting of
Shareholders held April 30, 1997.
Results on voting for Election of Directors:
<TABLE>
DIRECTORS FOR WITHHELD
-------------------------- ---------------------- ----------------------
<S> <C> <C>
H. Furlong Baldwin 40,250,046 258,626
Thomas M. Bancroft, Jr. 40,278,921 229,751
Richard O. Berndt 39,809,290 699,382
James A. Block, M.D. 38,935,661 1,573,011
William R. Brody. M.D. 39,925,233 583,439
George L. Bunting, Jr. 40,266,827 241,845
Edward K. Dunn, Jr. 40,274,437 234,235
Martin L. Grass 38,957,897 1,550,775
Freeman A. Hrabowski, III 40,240,602 268,070
B. Larry Jenkins 40,283,479 225,193
Robert A. Kinsley 40,263,653 245,019
Robert D. Kunisch 40,242,209 266,463
William J. McCarthy 39,784,799 723,873
Morris W. Offit 36,348,909 4,159,763
Christian H. Poindexter 40,265,009 243,663
William C. Richardson 40,233,847 274,825
Donald J. Shepard 40,286,185 222,487
Calman J. Zamoiski, Jr. 40,236,486 272,186
</TABLE>
Page 10
Results of voting on an amendment to the Articles of Incorporation to
increase the authorized Common Stock of Mercantile Bankshares Corporation
from 67,000,000 shares to 130,000,000 shares:
For Against Abstained
-------------------------- ----------------------- -----------------------
38,547,615 1,567,813 393,244
Results of voting on the Omnibus Stock Plan, as amended to continue
qualification under Section 162 (m) of the Internal Revenue Code:
For Against Abstained
-------------------------- ----------------------- -----------------------
37,653,821 2,040,362 814,489
Results on Voting on Ratification of Appointment of Auditor (Coopers &
Lybrand L.L.P.):
For Against Abstained
-------------------------- ----------------------- -----------------------
40,107,194 114,593 286,885
There were no broker non-votes on these matters.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits--
Exhibit 27--Financial Data Schedule
(b) No Forms 8-K were filed in the quarter ended June 30, 1997.
Page 11
Signatures
Pursuant to the requirements of the Securities 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
August 12, 1997 Principal Executive Officer
/s/ H. Furlong Baldwin
By: H. Furlong Baldwin
Chairman of the Board and
Chief Executive Officer
August 12, 1997 Principal Financial Officer
/s/ Terry L. Troupe
By: Terry L. Troupe
Chief Financial Officer
August 12, 1997 Principal Accounting Officer
/s/ Jerry F. Graham
By: Jerry F. Graham
Exec. Vice President and Controller
Page 12
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF JUNE 30, 1997, FROM THE INCOME STATEMENT FOR THE SIX MONTHS
ENDED JUNE 30, 1997 AND FROM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE PERIOD ENDED JUNE 30, 1997, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 277,877,000
<INT-BEARING-DEPOSITS> 100,000
<FED-FUNDS-SOLD> 1,179,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,527,148,000
<INVESTMENTS-CARRYING> 25,916,000
<INVESTMENTS-MARKET> 25,944,000
<LOANS> 4,869,455,000
<ALLOWANCE> 102,127,000
<TOTAL-ASSETS> 6,842,833,000
<DEPOSITS> 5,472,949,000
<SHORT-TERM> 363,848,000
<LIABILITIES-OTHER> 82,615,000
<LONG-TERM> 50,032,000
0
0
<COMMON> 142,214,000
<OTHER-SE> 731,175,000
<TOTAL-LIABILITIES-AND-EQUITY> 6,842,833,000
<INTEREST-LOAN> 210,143,000
<INTEREST-INVEST> 47,272,000
<INTEREST-OTHER> 904,000
<INTEREST-TOTAL> 258,319,000
<INTEREST-DEPOSIT> 84,796,000
<INTEREST-EXPENSE> 94,118,000
<INTEREST-INCOME-NET> 164,201,000
<LOAN-LOSSES> 6,425,000
<SECURITIES-GAINS> (1,499,000)
<EXPENSE-OTHER> 102,686,000
<INCOME-PRETAX> 102,109,000
<INCOME-PRE-EXTRAORDINARY> 102,109,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,559,000
<EPS-PRIMARY> .91
<EPS-DILUTED> .91
<YIELD-ACTUAL> 5.32
<LOANS-NON> 31,714,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,103,000
<ALLOWANCE-OPEN> 97,718,000
<CHARGE-OFFS> 3,094,000
<RECOVERIES> 1,078,000
<ALLOWANCE-CLOSE> 102,127,000
<ALLOWANCE-DOMESTIC> 102,127,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
