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 March 31, 1998
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
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MERCANTILE BANKSHARES CORPORATION
----------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-0898572
------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2 Hopkins Plaza, Baltimore, Maryland 21201
---------------------------------------- ------------
(Address of principal executive offices) (Zip code)
(410) 237-5900
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(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 April 30, 1998, registrant had outstanding 71,973,937 shares of Common
Stock.
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
MERCANTILE BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
MARCH 31, December 31,
(Dollars in thousands, except per share data) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks.......................................................... $ 242,131 $ 337,234
Interest-bearing deposits in other banks......................................... 100 100
Investment securities:
U.S. Treasury and government agencies
Available-for-sale at fair value........................................... 1,596,626 1,590,292
States and political subdivisions
Held-to-maturity--market value of $10,276 (1998) and $11,130 (1997)........ 10,223 11,081
Available-for-sale at fair value........................................... 744 757
Other investments
Held-to-maturity--market value of $14,321 (1998) and $13,229 (1997)........ 14,321 13,229
Available-for-sale at fair value........................................... 16,228 16,264
------------- -------------
Total investment securities.............................................. 1,638,142 1,631,623
------------- -------------
Federal funds sold............................................................... 197,486 1,452
Securities purchased under resale agreements..................................... 75,000
Loans............................................................................ 4,914,965 4,978,522
Less: allowance for loan losses.................................................. (107,044) (106,097)
------------- -------------
Loans, net............................................................... 4,807,921 4,872,425
------------- -------------
Bank premises and equipment, less accumulated depreciation of
$83,816 (1998) and $85,245 (1997).............................................. 83,280 82,899
Other real estate owned, net..................................................... 2,146 2,627
Excess cost over equity in affiliated banks, net................................. 35,557 36,230
Other assets..................................................................... 130,142 131,079
------------- -------------
Total assets............................................................. $7,136,905 $7,170,669
============= =============
LIABILITIES
Deposits:
Noninterest-bearing deposits................................................. $1,212,993 $1,205,563
Interest-bearing deposits.................................................... 4,455,830 4,488,348
------------- -------------
Total deposits........................................................... 5,668,823 5,693,911
Short-term borrowings............................................................ 374,279 402,734
Accrued expenses and other liabilities........................................... 108,705 89,004
Long-term debt................................................................... 50,007 50,016
------------- -------------
Total liabilities........................................................ 6,201,814 6,235,665
------------- -------------
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 71,286,986 shares in 1998 and 71,874,297 shares in 1997................. 142,574 143,749
Capital surplus.................................................................. 41,844 62,089
Retained earnings................................................................ 739,116 717,978
Accumulated other comprehensive income........................................... 11,557 11,188
------------- -------------
Total stockholders' equity............................................... 935,091 935,004
------------- -------------
Total liabilities and stockholders' equity........................... $7,136,905 $7,170,669
============= =============
</TABLE>
See notes to consolidated financial statements
MERCANTILE BANKSHARES CORPORATION
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
For the 3 Months Ended
March 31,
(Dollars in thousands, except per share data) 1998 1997
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans........................... $109,516 $102,424
------------ ------------
Interest and dividends on investment securities:
Taxable interest income............................ 23,679 23,326
Tax-exempt interest income......................... 137 164
Dividends.......................................... 325 166
Other investment income............................ 80 121
------------ ------------
24,221 23,777
------------ ------------
Other interest income................................ 1,900 387
------------ ------------
Total interest income........................ 135,637 126,588
------------ ------------
INTEREST EXPENSE
Interest on deposits................................. 44,845 41,824
Interest on short-term borrowings.................... 4,548 3,709
Interest on long-term debt........................... 837 834
------------ ------------
Total interest expense....................... 50,230 46,367
------------ ------------
NET INTEREST INCOME.................................. 85,407 80,221
Provision for loan losses............................ 2,488 3,413
------------ ------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.. 82,919 76,808
------------ ------------
NONINTEREST INCOME
Trust division services.............................. 13,874 12,122
Service charges on deposit accounts.................. 4,179 4,079
Other fees........................................... 6,456 5,786
Investment securities gains and (losses)............. 9 (1,211)
Other income......................................... 677 2,222
------------ ------------
Total noninterest income..................... 25,195 22,998
------------ ------------
NONINTEREST EXPENSES
Salaries............................................. 26,275 25,366
Employee benefits.................................... 6,428 5,900
Net occupancy expense of bank premises............... 2,570 2,612
Furniture and equipment expenses..................... 4,383 4,083
Communications and supplies.......................... 2,987 2,780
FDIC insurance premium expense....................... 184 142
Other expenses....................................... 9,528 8,497
------------ ------------
Total noninterest expenses................... 52,355 49,380
------------ ------------
Income before income taxes........................... 55,759 50,426
Applicable income taxes.............................. 20,240 18,412
------------ ------------
NET INCOME........................................... $ 35,519 $ 32,014
============ ============
NET INCOME PER SHARE OF COMMON STOCK(2):
Basic.............................................. $.49 $.45
============ ============
Diluted............................................ $.49 $.45
============ ============
</TABLE>
See notes to consolidated financial statements
MERCANTILE BANKSHARES CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
For the 3 Months Ended
Increase in cash and cash equivalents March 31,
(Dollars in thousands) 1998 1997
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fees on loans............................................................. $109,759 $101,663
Interest and dividends on investment securities........................................ 22,984 22,705
Other interest income.................................................................. 2,226 387
Noninterest income..................................................................... 24,146 22,716
Interest paid.......................................................................... (52,503) (46,656)
Noninterest expenses paid.............................................................. (45,098) (42,019)
Income taxes paid...................................................................... 584 (2,177)
------------ ------------
Net cash provided by operating activities...................................... 62,098 56,619
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held-to-maturity..................... 858 380
Proceeds from maturities of investment securities available-for-sale................... 102,806 159,858
Proceeds from sales of investment securities available-for-sale........................ 804 29,893
Purchases of investment securities held-to-maturity.................................... (1,092) (535)
Purchases of investment securities available-for-sale.................................. (109,291) (132,956)
Net (increase) decrease in customer loans.............................................. 61,885 (110,108)
Proceeds from sales of other real estate owned......................................... 626 421
Capital expenditures................................................................... (2,704) (2,351)
Proceeds from sales of buildings....................................................... 321 6,610
------------ ------------
Net cash provided by (used in) investing activities............................ 54,213 (48,788)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in noninterest-bearing deposits........................................... 7,430 1,438
Net increase in checking plus interest and savings accounts............................ 44,130 21,908
Net increase (decrease) in certificates of deposit..................................... (76,648) 51,037
Net decrease in short-term borrowings.................................................. (28,455) (51,507)
Repayment of long-term debt............................................................ (9) (8)
Proceeds from issuance of shares....................................................... 1,860 1,684
Repurchase of common shares............................................................ (24,307) (534)
Dividends paid......................................................................... (14,381) (12,341)
------------ ------------
Net cash provided by (used in) financing activities............................ (90,380) 11,677
------------ ------------
Net increase in cash and cash equivalents.............................................. 25,931 19,508
Cash and cash equivalents at beginning of period....................................... 413,786 285,379
------------ ------------
Cash and cash equivalents at end of period............................................. $439,717 $304,887
============ ============
</TABLE>
<TABLE>
For the 3 Months Ended
Reconciliation of net income to net cash provided by operating activities March 31,
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net income............................................................................. $35,519 $32,014
------------ ------------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization........................................................ 2,061 2,023
Provision for loan losses............................................................ 2,488 3,413
Amortization of excess cost over equity in affiliates................................ 673 499
Investment securities (gains) and losses............................................. (9) 1,211
Write-downs of other real estate owned............................................... 83 82
Gains on sales of other real estate owned............................................ (97) (38)
Gains on sales of buildings.......................................................... (59) (1,382)
Increase in interest receivable...................................................... (668) (1,833)
Increase in other receivables........................................................ (884) (73)
Decrease in other assets............................................................. 2,489 6,596
Decrease in interest payable......................................................... (2,273) (289)
Increase (decrease) in accrued expenses.............................................. 1,951 (1,839)
Increase in taxes payable............................................................ 20,824 16,235
------------ ------------
Total adjustments.............................................................. 26,579 24,605
------------ ------------
Net cash provided by operating activities.............................................. $62,098 $56,619
============ ============
</TABLE>
See notes to consolidated financial statements
MERCANTILE BANKSHARES CORPORATION
STATEMENT OF CHANGES IN CONSOLIDATED STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 1998 AND 1997
<TABLE>
Accu-
mulated
Other
Compre-
Common Capital Retained hensive
(Dollars in thousands, except per share data) Total Stock Surplus Earnings Income
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996................................ $836,036 $ 94,872 $97,154 $641,212 $ 2,798
Net income................................................ 32,014 32,014
Unrealized gains (losses) on securities,
net of reclassification adjustment,
net of taxes............................................ (6,458) (6,458)
--------
Comprehensive income...................................... 25,556
--------
Cash dividends paid:
Common stock ($.17 per share)........................... (12,341) (12,341)
Issuance of 30,112 shares for dividend
reinvestment and stock purchase plan.................... 973 60 913
Issuance of 5,697 shares for employee stock
purchase dividend reinvestment plan..................... 193 11 182
Issuance of 23,670 shares for employee stock option plan.. 518 47 471
Purchase of 15,000 shares under stock repurchase plan..... (534) (30) (504)
Vested stock options...................................... 1,114 1,114
-------- -------- ------- -------- -------
BALANCE, MARCH 31, 1997................................... $851,515 $ 94,960 $99,330 $660,885 $(3,660)
======== ======== ======= ======== =======
BALANCE, DECEMBER 31, 1997................................ $935,004 $143,749 $62,089 $717,978 $11,188
Net income................................................ 35,519 35,519
Unrealized gains (losses) on securities,
net of reclassification adjustment,
net of taxes(5)......................................... 369 369
--------
Comprehensive income...................................... 35,888
--------
Cash dividends paid:
Common stock ($.20 per share)........................... (14,381) (14,381)
Issuance of 29,758 shares for dividend
reinvestment and stock purchase plan.................... 1,032 59 973
Issuance of 5,958 shares for employee stock
purchase dividend reinvestment plan..................... 214 12 202
Issuance of 46,973 shares for employee stock option plan.. 614 94 520
Purchase of 670,000 shares under stock repurchase plan..... (24,307) (1,340) (22,967)
Vested stock options...................................... 1,027 1,027
-------- -------- ------- -------- -------
BALANCE, MARCH 31, 1998................................... $935,091 $142,574 $41,844 $739,116 $11,557
======== ======== ======= ======== =======
</TABLE>
See notes to consolidated financial statements
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.
2) Year to date basic earnings per share amounts are based on the weighted
average number of common shares outstanding during the period of
71,831,123 shares for 1998 and 71,165,889 shares for 1997. Diluted
earnings per share amounts are based on the weighted average number of
common shares outstanding during the period adjusted for the effect of
dilutive stock options. The adjusted average shares for the three months
ended March 31, 1998 and 1997 was 72,383,945, and 71,561,155,
respectively.
3) 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>
MARCH 31, December 31,
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with a valuation allowance............................................ $ 2,945 $ 2,785
Impaired loans with no valuation allowance........................................... 18,383 20,805
------------- ------------
Total impaired loans............................................................... $ 21,328 $ 23,590
============= ============
Allowance for loan losses applicable to impaired loans............................... $ 1,370 $ 1,317
Allowance for loan losses applicable to other than impaired loans.................... 105,674 104,780
------------- ------------
Total allowance for loan losses.................................................... $ 107,044 $ 106,097
============= ============
Year-to-date interest income on impaired loans recorded on the cash basis............ $ 154 $ 1,207
============= ============
Year-to-date average recorded investment in impaired loans during the period......... $ 21,300 $ 22,600
============= ============
Quarter-to-date interest income on impaired loans recorded on the cash basis......... $ 154 $ 367
============= ============
Quarter-to-date average recorded investment in impaired loans during the period...... $ 21,300 $ 24,300
============= ============
</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.
4) Various commitments to extend credit (lines of credit) are made in the
normal course of banking business. At March 31, 1998, total unused lines
of credit approximated $2,394,200,000. In addition, letters of credit are
issued for the benefit of customers by affiliated banks. Outstanding
letters of credit were $124,800,000 at March 31, 1998.
5) The following table summarizes the related tax effect of unrealized gains
(losses) on securities included in other comprehensive income:
<TABLE>
FOR THE 3 MONTHS ENDED MARCH 31,
1998 1997
-------------------------------------- -----------------------------------
Tax Tax
Pretax (Expense) Net Pretax (Expense) Net
(Dollars in thousands) Amount Benefit Amount Amount Benefit Amount
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Unrealized gains (losses) on securites:
Unrealized holding gains (losses)
arising during the period.......................... $ 604 $ (230) $ 374 $ (11,315) $ 4,125 $ (7,190)
Reclassification adjustment for
(gains) losses included in
net income......................................... (9) 4 (5) 1,211 (479) 732
---------- -------- ------- ---------- -------- ---------
Total................................................ $ 595 $ (226) $ 369 $ (10,104) $ 3,646 $ (6,458)
========== ======== ======= ========== ======== =========
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MERCANTILE BANKSHARES CORPORATION
EARNINGS SUMMARY
Net income per share for the first quarter of 1998 was $.49, an increase
of 8.9% over the $.45 for the comparable period last year. Net income was
$35,519,000, an increase of 10.9% over the $32,014,000 for the first quarter
of 1997.
NET INTEREST INCOME AND NET INTEREST MARGIN
Net interest income for the three months ended March 31, 1998 was
$85,407,000. This was 6.5% higher than the amount for the comparable period
in 1997 due to an increase of 7.5% in average earning assets. Average loans
increased by 7.2% over the first quarter of 1997 to $4,938,600,000 for the
first quarter of 1998. Net interest margin on earning assets was 5.24% for
the first quarter of 1998 and 5.28% for the same period in 1997.
NONINTEREST INCOME
Total noninterest income for the quarter ended March 31, 1998 increased
9.6% to $25,195,000 from $22,998,000 for the first quarter of 1997. Factors
contributing to this increase include an increase in trust division
revenues, investment securities gains of $9,000 during 1998 compared to
securities losses of $1,211,000 during 1997, and an increase in other fee
income from general bank services and products. These increases were
partially offset by a decrease in other income which included a gain of
$1,175,000 on the sale of a bank owned building during 1997.
NONINTEREST EXPENSES
Total noninterest expenses, excluding the provision for loan losses, for
the first quarter of 1998 was $52,355,000, an increase of 6.0% from the
comparable period in 1997. Increases in salaries, employee benefits, and
other expenses, accounted for most of the additional expense.
ANALYSIS OF FINANCIAL CONDITION
Investment securities increased slightly to $1,638,142,000 at March 31,
1998 from $1,631,623,000 at December 31, 1997. Total loans outstanding
decreased 1.3% to $4,914,965,000 at March 31, 1998 from $4,978,522,000 at
December 31, 1997.
Total deposits decreased slightly to $5,668,823,000 as of March 31, 1998
from $5,693,911,000 at December 31, 1997. Interest-bearing deposits were
$4,455,830,000 (78.6% of total deposits), as of March 31, 1998, reflecting
a less than 1% decline from the $4,488,348,000 (78.8% of total deposits),
at December 31, 1997. Noninterest-bearing deposits increased slightly to
$1,212,993,000 as of March 31, 1998, compared to $1,205,563,000 at
December 31, 1997.
Total stockholders' equity remained relatively unchanged at $935,091,000
as of March 31, 1998 from $935,004,000 at December 31, 1997. The increase
from net income was offset by dividends paid and by share repurchases. The
Corporation's continued strong capital position is evidenced by the ratio
of stockholders' equity to total assets of 13.10% at March 31, 1998
compared to 13.04% at December 31, 1997. For more details see the
Statement of Changes in Consolidated Stockholders' Equity on page 5.
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 three months ended March 31, 1998, non-performing assets
decreased $2,599,000 to $28,484,000. Non-performing loans, one of the
components of non-performing assets, decreased $2,118,000 while other real
estate owned, the other component, decreased $481,000.
<TABLE>
Non-Performing Assets MARCH 31, December 31,
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual loans (1)................................................................... $26,338 $28,456
Renegotiated loans (1).................................................................. NONE NONE
Loans contractually past due 90 days or more and still accruing interest................ NONE NONE
------- -------
Total non-performing loans.......................................................... 26,338 28,456
Other real estate owned................................................................. 2,146 2,627
------- -------
Total non-performing assets......................................................... $28,484 $31,083
======= =======
</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 $685,000
and $2,273,000 for the first quarter of 1998 and the year 1997,
respectively, on non-accrual and renegotiated loans, would have been
recorded if these loans had been accruing on their original terms
throughout the period or since origination if held for part of the period.
The amount of interest income on the non-accrual and renegotiated loans
that was recorded totalled $170,000 and $1,144,000 for the first quarter
of 1998 and the year 1997, respectively.
NOTE: The Corporation was monitoring loans estimated to aggregate $4,915,000
at March 31, 1998 and $3,662,000 at December 31, 1997, not classified as
non-accrual or renegotiated loans. These loans had characteristics which
indicated they might result in such classification in the future.
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, 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 3 Months Ended
Allowance for Loan Losses March 31,
(Dollars in thousands) 1998 1997
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
Allowance balance--beginning.............................. $ 106,097 $ 97,718
Charge-offs:
Commercial, financial and agricultural.................. (1,275) (448)
Real estate--construction............................... (6)
Real estate--mortgage................................... (214) (102)
Consumer................................................ (733) (968)
------------ ------------
Totals................................................ (2,222) (1,524)
------------ ------------
Recoveries:
Commercial, financial and agricultural.................. 232 100
Real estate--construction............................... 101
Real estate--mortgage................................... 47 55
Consumer................................................ 301 440
------------ ------------
Totals................................................ 681 595
------------ ------------
Net charge-offs........................................... (1,541) (929)
Provision for loan losses................................. 2,488 3,413
------------ ------------
Allowance balance--ending................................. $ 107,044 $ 100,202
============ ============
Average loans outstanding during period................... $4,938,600 $4,607,200
============ ============
Net charge-offs (annualized) as a percentage of average
loans outstanding during period......................... .13 % .08 %
==== ====
Allowance for loan losses at period end as a percentage of
average loans........................................... 2.17 % 2.17 %
==== ====
Allowance for loan losses at period end as a percentage of
non-performing loans at period end...................... 406.42 % 440.72 %
======= =======
</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
$1,541,000 for the first quarter of 1998 versus $929,000 during the first
quarter of 1997. For further details of charge-offs and recoveries see the
preceding Allowance For Loan Losses table.
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 three months of the year.
<TABLE>
1998 1997
-------------------------------------- --------------------------------
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....................................... $1,741,600 $ 39,243 9.14% $1,523,400 $ 34,567 9.20%
Real estate...................................... 2,549,500 57,034 9.07 2,440,600 54,444 9.05
Consumer......................................... 647,500 14,391 9.01 643,200 14,408 9.08
----------- ----------- ----------- ----------
Total loans.................................. 4,938,600 110,668 9.09 4,607,200 103,419 9.10
----------- ----------- ----------- ----------
Federal funds sold................................. 113,700 1,543 5.51 29,900 385 5.22
Securities purchased under resale agreements....... 26,300 356 5.48
Securities**:
Taxable securities
U.S. Treasury securities....................... 1,580,800 23,420 6.00 1,553,900 23,116 6.03
U.S. Agency securities......................... 17,500 259 6.00 15,300 210 5.58
Other stocks and bonds......................... 22,700 512 9.14 22,500 321 5.80
Tax-exempt securities
States and political subdivisions.............. 11,500 227 8.05 13,400 258 7.83
----------- ----------- ----------- ----------
Total securities............................. 1,632,500 24,418 6.07 1,605,100 23,905 6.04
----------- ----------- ----------- ----------
Interest-bearing deposits in other banks........... 100 1 5.17 100 2 6.91
----------- ----------- ----------- ----------
Total earning assets......................... 6,711,200 136,986 8.28 6,242,300 127,711 8.30
----------- ----------
Cash and due from banks.............................. 204,600 184,600
Bank premises and equipment, net..................... 83,300 81,000
Other assets......................................... 161,400 156,200
Less: allowance for loan losses...................... (107,000) (98,500)
----------- -----------
Total assets................................. $7,053,500 $6,565,600
=========== ===========
Interest-bearing liabilities
Deposits:
Savings deposits................................. $2,210,400 14,184 2.60 $2,188,400 13,981 2.59
Time deposits.................................... 2,246,700 30,661 5.53 2,080,900 27,843 5.43
----------- ----------- ----------- ----------
Total interest-bearing deposits.............. 4,457,100 44,845 4.08 4,269,300 41,824 3.97
Short-term borrowings.............................. 381,200 4,548 4.84 318,000 3,709 4.73
Long-term debt..................................... 50,100 837 6.78 49,600 834 6.81
----------- ----------- ----------- ----------
Total interest-bearing funds................. 4,888,400 50,230 4.17 4,636,900 46,367 4.06
----------- ----------
Noninterest-bearing deposits......................... 1,131,600 990,900
Other liabilities and accrued expenses............... 91,900 85,500
----------- -----------
Total liabilities............................ 6,111,900 5,713,300
Stockholders' equity................................. 941,600 852,300
----------- -----------
Total liabilities and stockholders' equity... $7,053,500 $6,565,600
=========== ===========
Net interest income.................................. $ 86,756 $ 81,344
======== ========
Net interest rate spread............................. 4.11% 4.24%
Effect of noninterest-bearing funds.................. 1.13 1.04
-------- -------
Net interest margin on earning assets................ 5.24% 5.28%
======== =======
Taxable-equivalent adjustment included in:
Loan income...................................... $ 1,152 $ 995
Investment securities income..................... 197 128
----------- ----------
Total........................................ $ 1,349 $ 1,123
=========== ==========
</TABLE>
*Presented on a tax equivalent basis using the statutory federal corporate
income tax rate of 35%.
**Balances reported at amortized cost; excludes pretax unrealized gains
(losses) on securities available-for-sale.
RECENT FASB PRONOUNCEMENTS
Statement of Financial Accounting Standards (SFAS) No. 132, Employers'
Disclosures about Pensions and Other Postretirement Benefits, was issued in
February 1998. This Statement revises the disclosure requirements for
pension and other postretirement benefit plans and is effective for fiscal
years beginning after December 15, 1997.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits--
Exhibit 27--Financial Data Schedule
(b) No Forms 8-K filed.
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
May 12, 1998 Principal Executive Officer
/s/ H. Furlong Baldwin
By: H. Furlong Baldwin
Chairman of the Board and
Chief Executive Officer
May 12, 1998 Principal Financial Officer
/s/ Terry L. Troupe
By: Terry L. Troupe
Chief Financial Officer
May 12, 1998 Chief Accounting Officer
/s/ Jerry F. Graham
By: Jerry F. Graham
Vice President and Controller
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 1998, FROM THE INCOME STATEMENT FOR THE THREE MONTHS
ENDED MARCH 31, 1998 AND FROM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE PERIOD ENDED MARCH 31, 1998, AND
IS QUALIFIED IN ITS ENTIRETY BY REFERNCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 242,131,000
<INT-BEARING-DEPOSITS> 100,000
<FED-FUNDS-SOLD> 197,486,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,613,598,000
<INVESTMENTS-CARRYING> 24,544,000
<INVESTMENTS-MARKET> 24,597,000
<LOANS> 4,914,965,000
<ALLOWANCE> 107,044,000
<TOTAL-ASSETS> 7,136,905,000
<DEPOSITS> 5,668,823,000
<SHORT-TERM> 374,279,000
<LIABILITIES-OTHER> 108,705,000
<LONG-TERM> 50,007,000
0
0
<COMMON> 142,574,000
<OTHER-SE> 792,517,000
<TOTAL-LIABILITIES-AND-EQUITY> 7,136,905,000
<INTEREST-LOAN> 109,516,000
<INTEREST-INVEST> 24,221,000
<INTEREST-OTHER> 1,900,000
<INTEREST-TOTAL> 135,637,000
<INTEREST-DEPOSIT> 44,845,000
<INTEREST-EXPENSE> 50,230,000
<INTEREST-INCOME-NET> 85,407,000
<LOAN-LOSSES> 2,488,000
<SECURITIES-GAINS> 9,000
<EXPENSE-OTHER> 52,355,000
<INCOME-PRETAX> 55,759,000
<INCOME-PRE-EXTRAORDINARY> 55,759,000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,519,000
<EPS-PRIMARY> .49
<EPS-DILUTED> .49
<YIELD-ACTUAL> 5.24
<LOANS-NON> 26,338,000
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,915,000
<ALLOWANCE-OPEN> 106,097,000
<CHARGE-OFFS> 2,222,000
<RECOVERIES> 681,000
<ALLOWANCE-CLOSE> 107,044,000
<ALLOWANCE-DOMESTIC> 107,044,000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
