<PAGE>
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 September 30, 2000
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 (Zip code)
offices)
(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 October 31, 2000, registrant had outstanding 69,928,476 shares of Common
Stock.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MERCANTILE BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
(Dollars in thousands, except per share data) 2000 1999
-------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks.............................................................. $ 238,885 $ 219,420
Interest-bearing deposits in other banks............................................. 154 152
Federal funds sold................................................................... 28,866 7,784
---------- ----------
Total cash and cash equivalents................................................... 267,905 227,356
---------- ----------
Investment securities:
U.S. Treasury and government agencies
Available-for-sale at fair value................................................... 1,597,770 1,727,841
States and political subdivisions
Held-to-maturity -- market value of $36,777 (2000) and $10,156 (1999).............. 36,661 10,216
Available-for-sale at fair value................................................... 1,338 1,332
Other investments
Held-to-maturity -- market value of $12,109 (2000) and $15,376 (1999).............. 12,109 15,376
Available-for-sale at fair value................................................... 62,770 14,769
---------- ----------
Total investment securities....................................................... 1,710,648 1,769,534
---------- ----------
Loans................................................................................ 6,442,356 5,718,942
Less: allowance for loan losses...................................................... (133,209) (117,997)
---------- ----------
Loans, net........................................................................ 6,309,147 5,600,945
---------- ----------
Bank premises and equipment, less accumulated depreciation of
$101,931 (2000) and $96,927 (1999).................................................. 100,806 94,917
Other real estate owned, net......................................................... 1,138 1,663
Excess cost over equity in affiliated banks, net..................................... 84,062 46,482
Other assets......................................................................... 174,192 154,127
---------- ----------
Total assets...................................................................... $8,647,898 $7,895,024
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing deposits........................................................ $1,546,883 $1,400,172
Interest-bearing deposits........................................................... 4,892,100 4,524,911
---------- ----------
Total deposits.................................................................... 6,438,983 5,925,083
Short-term borrowings................................................................ 914,294 839,497
Accrued expenses and other liabilities............................................... 106,815 73,721
Long-term debt....................................................................... 92,547 82,683
---------- ----------
Total liabilities................................................................. 7,552,639 6,920,984
---------- ----------
SHAREHOLDERS' 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 69,950,736 shares in 2000 and 68,645,759 shares in 1999...................... 139,901 137,292
Capital surplus...................................................................... 178,839 47,798
Retained earnings.................................................................... 773,527 796,192
Accumulated other comprehensive income (loss)........................................ 2,992 (7,242)
---------- ----------
Total shareholders' equity........................................................ 1,095,259 974,040
---------- ----------
Total liabilities and shareholders' equity....................................... $8,647,898 $7,895,024
========== ==========
</TABLE>
See notes to consolidated financial statements
Page 2
<PAGE>
MERCANTILE BANKSHARES CORPORATION
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
For the 9 Months Ended For the 3 Months Ended
September 30, September 30,
(Dollars in thousands, except per share data) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans........ $ 399,361 $ 333,886 $ 142,454 $ 114,170
----------- ----------- ----------- -----------
Interest and dividends on
investment securities:
Taxable interest income.......... 69,332 76,977 22,862 25,481
Tax-exempt interest income....... 780 443 431 138
Dividends........................ 1,020 1,341 338 345
Other investment income.......... 844 163 776 48
----------- ----------- ----------- -----------
71,976 78,924 24,407 26,012
----------- ----------- ----------- -----------
Other interest income............. 1,319 636 712 120
----------- ----------- ----------- -----------
Total interest income.......... 472,656 413,446 167,573 140,302
----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits.............. 130,232 118,682 47,901 38,936
Interest on short-term
borrowings....................... 36,022 18,129 13,191 6,433
Interest on long-term debt........ 4,304 3,413 1,497 1,453
----------- ----------- ----------- -----------
Total interest expense......... 170,558 140,224 62,589 46,822
----------- ----------- ----------- -----------
NET INTEREST INCOME............... 302,098 273,222 104,984 93,480
Provision for loan losses......... 12,745 5,937 4,316 2,894
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES........ 289,353 267,285 100,668 90,586
----------- ----------- ----------- -----------
NONINTEREST INCOME
Trust division services........... 51,556 48,274 17,302 16,630
Service charges on deposit
accounts......................... 17,890 17,003 6,194 5,927
Other fees........................ 21,136 21,573 7,810 8,275
Investment securities gains and
(losses)......................... 69 8 -- --
Other income...................... 2,572 2,386 759 738
----------- ----------- ----------- -----------
Total noninterest income....... 93,223 89,244 32,065 31,570
----------- ----------- ----------- -----------
NONINTEREST EXPENSES
Salaries.......................... 86,182 82,848 29,519 27,997
Employee benefits................. 19,575 20,052 6,092 6,181
Net occupancy expense of bank
premises......................... 8,473 8,797 3,014 3,414
Furniture and equipment expenses.. 16,797 15,126 5,578 4,826
Communications and supplies....... 9,171 9,359 3,098 3,050
Amortization of excess cost over
equity in affiliates............. 3,444 2,917 1,528 1,001
Other expenses.................... 36,020 32,489 12,556 11,072
----------- ----------- ----------- -----------
Total noninterest expenses..... 179,662 171,588 61,385 57,541
----------- ----------- ----------- -----------
Income before income taxes........ 202,914 184,941 71,348 64,615
Applicable income taxes........... 73,412 68,032 25,968 23,796
----------- ----------- ----------- -----------
NET INCOME........................ $ 129,502 $ 116,909 $ 45,380 $ 40,819
=========== =========== =========== ===========
NET INCOME PER SHARE OF COMMON
STOCK (Note 2):
Basic............................ $ 1.88 $ 1.68 $ .65 $ .59
=========== =========== =========== ===========
Diluted.......................... $ 1.87 $ 1.66 $ .64 $ .59
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
Page 3
<PAGE>
MERCANTILE BANKSHARES CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
For the 9 Months Ended
Increase (decrease) in cash and cash equivalents September 30,
(Dollars in thousands) 2000 1999
----------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fees on loans............................. $ 393,053 $ 331,180
Interest and dividends on investment securities........ 72,485 76,347
Other interest income.................................. 1,402 782
Noninterest income..................................... 93,624 88,755
Interest paid.......................................... (162,729) (139,613)
Noninterest expenses paid.............................. (159,577) (175,110)
Income taxes paid...................................... (68,624) (59,314)
----------- -----------
Net cash provided by operating activities........... 169,634 123,027
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held-
to-maturity........................................... 7,367 4,100
Proceeds from maturities of investment securities
available-for-sale.................................... 410,968 391,588
Proceeds from sales of investment securities available-
for-sale.............................................. 700 8
Purchases of investment securities held-to-maturity.... (11,295) (2,795)
Purchases of investment securities available-for-sale.. (232,361) (343,995)
Net (increase) decrease in customer loans.............. (550,979) (284,776)
Proceeds from sales of other real estate owned......... 1,903 1,223
Capital expenditures................................... (10,403) (11,420)
----------- -----------
Net cash used in investing activities............... (384,100) (246,067)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in noninterest-bearing
deposits.............................................. 118,598 21,218
Net increase (decrease) in checking plus interest and
savings accounts...................................... (141,211) 3,525
Net increase (decrease) in certificates of deposit..... 309,442 (72,533)
Net increase (decrease) in short-term borrowings....... 53,144 191,994
Proceeds from issuance of long-term debt............... -- 50,000
Repayment of long-term debt............................ (15,136) (8,250)
Proceeds from issuance of shares....................... 5,327 5,571
Repurchase of common shares............................ (36,086) (84,631)
Dividends paid......................................... (52,167) (48,581)
----------- -----------
Net cash provided by financing activities........... 241,911 58,313
----------- -----------
Net increase (decrease) in cash and cash equivalents... 27,445 (64,727)
Cash and cash equivalents at beginning of period....... 227,356 312,710
Adjustment for acquired bank........................... 13,104 --
----------- -----------
Cash and cash equivalents at end of period............. $ 267,905 $ 247,983
=========== ===========
<CAPTION>
Reconciliation of net income to net cash provided by For the 9 Months Ended
operating activities September 30,
(Dollars in thousands) 2000 1999
----------------------------------------------------------------------------------
<S> <C> <C>
Net income............................................. $ 129,502 $ 116,909
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses............................. 12,745 5,937
Depreciation and amortization......................... 8,079 6,553
Amortization of excess cost over equity in
affiliates........................................... 3,444 2,917
Investment securities (gains) and losses.............. (69) (8)
Write-downs of other real estate owned................ 20 104
Gains on sales of other real estate owned............. (494) (152)
(Increase) decrease in interest receivable............ (5,716) (5,137)
(Increase) decrease in other receivables.............. 964 (329)
(Increase) decrease in other assets................... (7,093) (10,849)
Increase (decrease) in interest payable............... 7,829 611
Increase (decrease) in accrued expenses............... 15,635 (2,247)
Increase (decrease) in taxes payable.................. 4,788 8,718
----------- -----------
Total adjustments................................... 40,132 6,118
----------- -----------
Net cash provided by operating activities.............. $ 169,634 $ 123,027
=========== ===========
</TABLE>
See notes to consolidated financial statements
Page 4
<PAGE>
MERCANTILE BANKSHARES CORPORATION
STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
<TABLE>
<CAPTION>
Accumulated
Other
(Dollars in thousands, Common Capital Retained Comprehensive
except per share data) Total Stock Surplus Earnings Income (Loss)
---------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31,
1998................... $ 999,359 $142,054 $ 31,357 $ 803,568 $ 22,380
Net income.............. 116,909 116,909
Unrealized gains
(losses) on securities
available-for-sale, net
of reclassification
adjustment, net of
taxes.................. (20,304) (20,304)
----------
Comprehensive income.... 96,605
----------
Cash dividends paid:
Common stock ($.70 per
share)................ (48,581) (48,581)
Issuance of 94,924
shares for dividend
reinvestment and stock
purchase plan.......... 3,097 190 2,907
Issuance of 19,904
shares for employee
stock purchase dividend
reinvestment plan...... 760 40 720
Issuance of 146,625
shares for employee
stock option plan...... 1,714 293 1,421
Purchase of 2,347,000
shares under stock
repurchase plan........ (84,631) (4,694) (79,937)
Vested stock options.... 1,048 1,048
Transfer to capital
surplus................ -- 100,000 (100,000)
---------- -------- -------- --------- --------
BALANCE, SEPTEMBER 30,
1999................... $ 969,371 $137,883 $ 57,516 $ 771,896 $ 2,076
========== ======== ======== ========= ========
BALANCE, DECEMBER 31,
1999................... $ 974,040 $137,292 $ 47,798 $ 796,192 $ (7,242)
Net income.............. 129,502 129,502
Unrealized gains
(losses) on securities
available-for-sale, net
of reclassification
adjustment, net of
taxes (Note 5)......... 10,234 10,234
----------
Comprehensive income.... 139,736
----------
Cash dividends paid:
Common stock ($.76 per
share)................ (52,167) (52,167)
Issuance of 95,939
shares for dividend
reinvestment and stock
purchase plan.......... 2,855 192 2,663
Issuance of 23,662
shares for employee
stock purchase dividend
reinvestment plan...... 724 47 677
Issuance of 117,214
shares for employee
stock option plan...... 1,748 234 1,514
Purchase of 1,193,000
shares under stock
repurchase plan........ (36,086) (2,386) (33,700)
Issuance of 2,261,162
shares for bank
acquisition............ 64,076 4,522 59,554
Vested stock options.... 333 333
Transfer to capital
surplus................ -- 100,000 (100,000)
---------- -------- -------- --------- --------
BALANCE, SEPTEMBER 30,
2000................... $1,095,259 $139,901 $178,839 $ 773,527 $ 2,992
========== ======== ======== ========= ========
</TABLE>
See notes to consolidated financial statements
Page 5
<PAGE>
MERCANTILE BANKSHARES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1) The consolidated financial statements, which include the accounts of the
Corporation and all of its affiliates, are prepared in conformity with
accounting principles generally accepted in the United States and follow
general practice within the banking industry. In the opinion of management,
the consolidated financial statements include all adjustments necessary for
a fair presentation of the results for the interim period. These adjustments
are of a normal recurring nature and include adjustments to eliminate all
significant intercompany transactions. 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.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and liabilities at the date
of the financial statements, and revenues and expenses during the reporting
period. These estimates and assumptions are based on information available as
of the date of the financial statements and could differ from actual results.
2) Year-to-date basic earnings per share amounts are based on the weighted
average number of common shares outstanding during the period of 68,791,551
shares for 2000 and 69,641,812 shares for 1999. 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 nine months ended September 30,
2000 and 1999 were 69,308,001 and 70,218,542, respectively.
3) Under the provisions of Statements of Financial Accounting Standards 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>
<CAPTION>
September 30, December 31,
(Dollars in thousands) 2000 1999
------------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with a valuation allowance........ $ 2,103 $ 2,983
Impaired loans with no valuation allowance....... 17,679 12,185
-------- --------
Total impaired loans............................ $ 19,782 $ 15,168
======== ========
Allowance for loan losses applicable to impaired
loans........................................... $ 1,083 $ 1,186
Allowance for loan losses applicable to other
than impaired loans............................. 132,126 116,811
-------- --------
Total allowance for loan losses................. $133,209 $117,997
======== ========
Year-to-date interest income on impaired loans
recorded on the cash basis...................... $ 194 $ 241
======== ========
Year-to-date average recorded investment in
impaired loans during the period................ $ 19,536 $ 17,482
======== ========
Quarter-to-date interest income on impaired loans
recorded on the cash basis...................... $ 93 $ 44
======== ========
Quarter-to-date average recorded investment in
impaired loans during the period................ $ 20,353 $ 17,471
======== ========
</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 nor-
mal course of banking business. At September 30, 2000, total unused lines of
credit approximated $2,845,000,000. In addition, letters of credit are is-
sued for the benefit of customers by affiliated banks. Outstanding letters
of credit were $174,620,000 at September 30, 2000.
Page 6
<PAGE>
5) The provisions of Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income, established standards for disclosing
comprehensive income in financial statements. The following table
summarizes the related tax effect of unrealized gains (losses) on
securities available-for-sale, with the net amount included in accumulated
other comprehensive income (loss), as shown in the Statement of Changes in
Consolidated Shareholders' Equity on Page 5.
<TABLE>
<CAPTION>
For the 9 Months Ended September 30,
--------------------------------------------------------
2000 1999
-------------------------- ----------------------------
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 securities
available-for-sale:
Unrealized holding gains
(losses) arising during
the period............. $16,488 $(6,212) $10,276 $(32,594) $12,295 $(20,299)
Reclassification
adjustment for (gains)
losses included in net
income................. (69) 27 (42) (8) 3 (5)
------- ------- ------- -------- ------- --------
Total................... $16,419 $(6,185) $10,234 $(32,602) $12,298 $(20,304)
======= ======= ======= ======== ======= ========
</TABLE>
6) Under the provisions of Statement of Financial Accounting Standards No.
131, Disclosures about Segments of an Enterprise and Related Information,
Mercantile Bankshares Corporation has two reportable segments -- its twenty
Community Banks and Mercantile - Safe Deposit & Trust Company (MSD&T) which
consists of the Banking Division and the Trust Division.
The following tables present selected segment information for the nine months
ended September 30, 2000 and 1999. The components in the "Other" column
consist of amounts for the nonbank affiliates and intercompany eliminations.
Certain expense amounts have been reclassified from internal financial
reporting in order to provide for full cost absorption. These
reclassifications are shown in the "Adjustments" line.
<TABLE>
<CAPTION>
For the 9 Months Ended September 30,
----------------------------------------------------------------
2000 (Dollars in MSD&T MSD&T Total Community
thousands) Banking Trust MSD&T Banks Other Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income..... $103,640 $ -- $ 103,640 $ 198,533 $ (75) $ 302,098
Provision for loan
losses................. (6,208) -- (6,208) (6,537) -- (12,745)
Noninterest income...... 18,414 51,461 69,875 31,546 (8,198) 93,223
Noninterest expenses.... (53,207) (29,023) (82,230) (101,185) 3,753 (179,662)
Adjustments............. 10,139 (1,811) 8,328 (9,812) 1,484 --
-------- ------- ---------- ---------- --------- ----------
Income (loss) before
income taxes........... 72,778 20,627 93,405 112,545 (3,036) 202,914
Income tax (expense)
benefit................ (26,258) (8,251) (34,509) (40,920) 2,017 (73,412)
-------- ------- ---------- ---------- --------- ----------
Net income (loss)....... $ 46,520 $12,376 $ 58,896 $ 71,625 $ (1,019) $ 129,502
======== ======= ========== ========== ========= ==========
Average assets.......... $3,102,932 $5,192,978 $(133,474) $8,162,436
Average equity.......... 355,830 630,758 42,942 1,029,530
<CAPTION>
For the 9 Months Ended September 30,
----------------------------------------------------------------
1999 (Dollars in MSD&T MSD&T Total Community
thousands) Banking Trust MSD&T Banks Other Total
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income..... $ 92,109 $ -- $ 92,109 $ 182,180 $ (1,067) $ 273,222
Provision for loan
losses................. (2,371) -- (2,371) (3,566) -- (5,937)
Noninterest income...... 19,777 47,733 67,510 29,736 (8,002) 89,244
Noninterest expenses.... (54,703) (25,567) (80,270) (95,486) 4,168 (171,588)
Adjustments............. 11,697 (2,243) 9,454 (8,493) (961) --
-------- ------- ---------- ---------- --------- ----------
Income (loss) before
income taxes........... 66,509 19,923 86,432 104,371 (5,862) 184,941
Income tax (expense)
benefit................ (23,952) (7,969) (31,921) (37,949) 1,838 (68,032)
-------- ------- ---------- ---------- --------- ----------
Net income (loss)....... $ 42,557 $11,954 $ 54,511 $ 66,422 $ (4,024) $ 116,909
======== ======= ========== ========== ========= ==========
Average assets.......... $2,782,797 $4,900,687 $(123,005) $7,560,479
Average equity.......... 333,488 592,190 42,423 968,101
</TABLE>
Page 7
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
MERCANTILE BANKSHARES CORPORATION
Earnings Summary
Basic net income per share for the nine months ended September 30, 2000 was
$1.88, an increase of 11.9% over the $1.68 for the comparable period last
year. Diluted net income per share was $1.87 for the first three quarters of
2000 and $1.66 for the same period in 1999, representing a 12.7% increase. Net
income was $129,502,000 for the first nine months of 2000, an increase of
10.8% over the $116,909,000 for the comparable period in 1999.
For the third quarter of 2000, basic net income per share was $.65, an
increase of 10.2% over the $.59 for the third quarter of 1999. Diluted net
income per share was $.64 for the third quarter of 2000 and $.59 for the same
period in 1999, which represented an 8.5% increase. Net income was $45,380,000
for the three months ended September 30, 2000, an increase of 11.2% over the
$40,819,000 for the comparable period last year.
Return on average assets was 2.12% for the first three quarters of 2000 and
2.07% for the first three quarters of 1999. Also for the first nine months of
2000, return on average equity increased to 16.80% compared to 16.15% for the
same period in 1999. Return on average tangible equity, which excludes
amortization expense and balances related to goodwill in the calculation, was
18.22% for the first three quarters of 2000 and 17.43% for the comparable
period in 1999.
For the three months ended September 30, 2000, return on average assets
remained at 2.13% when compared to the same period last year. Return on
average equity was 16.71% for the third quarter of 2000 and 16.66% for the
same period in 1999. Return on average tangible equity increased to 18.52% for
the third quarter of 2000 compared to 17.96% for the same period last year.
Union National Bank (UNB) merged with Westminster Bank and Trust Company, a
Mercantile affiliate, during the third quarter of 2000. At the affiliation
date, UNB had loans of approximately $175 million and deposits of $227
million. There were 2,261,162 shares issued for the acquisition, which was
accounted for as a purchase, and resulted in $44 million of intangible assets.
The impact of the transaction on earnings was immaterial.
Net Interest Income and Net Interest Margin
Net interest income on a fully taxable equivalent basis was $305,995,000 for
the nine months ended September 30, 2000. This was 10.6% higher than the
amount for the comparable period in 1999 due to an increase of 8.2% in average
earning assets and an 11 basis point increase in net interest margin on
average earning assets. Average loans, which were 77.8% of average earning
assets, increased 14.0% to $6,042,438,000 for the first three quarters of 2000
from $5,301,433,000 for the same period last year. Average securities were
$1,692,235,000 or 21.8% of average earning assets for the nine months ended
September 30, 2000, an 8.7% decrease from $1,854,041,000 for the comparable
period in 1999. Average loans and average securities were 73.9% and 25.8% of
average earning assets, respectively, for the first three quarters of last
year. See the Analysis of Interest Rates and Interest Differentials on page 12
for further details.
For the three months ended September 30, 2000, net interest income on a fully
taxable equivalent basis was $106,442,000. This was 12.5% higher than the
amount for the same period in 1999 due to an increase of 11.5% in average
earning assets and a slight improvement in net interest margin on average
earning assets. Average loans were $6,320,282,000 or 78.4% of average earning
assets for the third quarter of 2000, a 17.5% increase from $5,378,343,000 for
the third quarter of 1999. Average securities, which were 21.0% of average
earning assets, decreased 8.0% to $1,692,897,000 for the quarter ended
September 30, 2000, from $1,839,771,000 for the third quarter last year.
Average loans and average securities were 74.4% and 25.5% of average earning
assets, respectively, for the third quarter of 1999.
Noninterest Income
For the first nine months of 2000, total noninterest income increased 4.5% to
$93,223,000 from $89,244,000 for the first three quarters of 1999. Factors
contributing to this increase included an increase in trust division revenues
of 6.8% to $51,556,000 and an increase in service charges on deposit accounts
of 5.2% to $17,890,000. These were partially offset by lower fee income, which
decreased 2.0% to $21,136,000, primarily relating to a decline in servicing
and loan origination fees.
Page 8
<PAGE>
Total noninterest income for the three months ended September 30, 2000,
increased 1.6% to $32,065,000 from $31,570,000 for the third quarter of 1999.
Factors contributing to this increase included an increase in trust division
revenues of 4.0% to $17,302,000 and an increase in service charges on deposit
accounts of 4.5% to $6,194,000. The increase in noninterest income for the
third quarter of 2000 was partially offset by a decline in fee income, which
decreased 5.6% to $7,810,000, primarily relating to lower cancellation fees
from leasing contracts.
Noninterest Expenses
For the first three quarters of 2000, total noninterest expenses increased
4.7% to $179,662,000 from $171,588,000 for the comparable period in 1999. The
increase in noninterest expenses included an increase in salaries of 4.0% to
$86,182,000, an increase in furniture and equipment expenses of 11.0% to
$16,797,000 and an increase in other expenses of 10.9% to $36,020,000. These
increases were partially offset by lower expenses related to employee benefits
which decreased 2.4% to $19,575,000 and net occupancy expense of bank premises
which decreased 3.7% to $8,473,000. The increase in salaries was partially
attributable to the new employees associated with the Union National Bank
acquisition and the increase in furniture and equipment expenses was largely
attributable to software related expenses. Included in the increase in other
expenses were approximately $800,000 in nonrecurring restructuring expenses
related to the Union National Bank acquisition.
Total noninterest expenses for the third quarter of 2000 increased 6.7% to
$61,385,000 from $57,541,000 for the same period last year. The increase in
noninterest expenses included an increase in salaries of 5.4% to $29,519,000,
an increase in furniture and equipment expenses of 15.6% to $5,578,000 and an
increase in other expenses of 13.4% to $12,556,000. Partially offsetting these
increases were lower expenses related to net occupancy expense of bank
premises which decreased 11.7% to $3,014,000. As with the year-to-date
results, the increase in salaries for the third quarter of 2000 was partially
attributable to new employees from Union National Bank and the increase in
furniture and equipment expenses was largely attributable to software related
expenses. Included in other expenses, as noted in the year-to-date results,
were approximately $800,000 in nonrecurring restructuring expenses related to
the Union National Bank acquisition.
Analysis of Financial Condition
Total assets increased 9.5% to $8,647,898,000 at September 30, 2000 from
$7,895,024,000 as of December 31, 1999. At September 30, 2000, investment
securities decreased 3.3% to $1,710,648,000 from $1,769,534,000 at the end of
last year. Total loans at September 30, 2000 were $6,442,356,000, an increase
of 12.6% from $5,718,942,000 at December 31, 1999.
Total deposits increased 8.7% to $6,438,983,000 as of September 30, 2000 from
$5,925,083,000 at December 31, 1999. Interest-bearing deposits were
$4,892,100,000 at September 30, 2000, reflecting an 8.1% increase from
$4,524,911,000 as of year-end 1999. Interest-bearing deposits represented
76.0% of total deposits at September 30, 2000 and 76.4% at December 31, 1999.
Noninterest-bearing deposits increased 10.5% to $1,546,883,000 as of September
30, 2000, compared to $1,400,172,000 at the end of last year.
As of September 30, 2000, total shareholders' equity was $1,095,259,000, an
increase of 12.4% from $974,040,000 at December 31, 1999. The year-to-date
increase from net income was partially offset by dividends paid of $52,167,000
and by share repurchases of $36,086,000 or 1,193,000 shares. The Corporation
continued to maintain a strong capital position, evidenced by the ratio of
shareholders' equity to total assets of 12.67% at September 30, 2000 and
12.34% at December 31, 1999. For more details see the Statement of Changes in
Consolidated Shareholders' 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 nine months ended
September 30, 2000, non-performing assets increased $4,317,000 to $25,109,000.
Non-performing loans, one of the components of non-performing assets,
increased $4,842,000 while other real estate owned, the other component,
decreased
Page 9
<PAGE>
$525,000. Non-performing assets as a percentage of period end loans and other
real estate owned was .39% at September 30, 2000 compared to .36% at the end
of last year.
<TABLE>
<CAPTION>
Non-Performing Assets September 30, December 31,
(Dollars in thousands) 2000 1999
------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual loans (1).............................. $23,971 $19,129
Renegotiated loans (1)............................. -- --
Loans contractually past due 90 days or more and
still accruing interest........................... -- --
------- -------
Total non-performing loans...................... 23,971 19,129
Other real estate owned............................ 1,138 1,663
------- -------
Total non-performing assets..................... $25,109 $20,792
======= =======
</TABLE>
(1) Total interest on non-performing loans is not considered to be material in
any of the periods reported herein. Aggregate gross interest income of
$2,051,000 and $1,853,000 for the first three quarters of 2000 and the
year 1999, 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 $447,000 and $564,000 for the first nine months
of 2000 and the year 1999, respectively.
Note: The Corporation was monitoring loans estimated to aggregate $2,607,000
at September 30, 2000 and $2,762,000 at December 31, 1999, not classified as
non-accrual or renegotiated loans. These loans had characteristics which
indicated they might result in such classification in the future.
Allowance and Provision for Loan Losses
Each Mercantile Bankshares Corporation (MBC) affiliate is required to maintain
an allowance for loan losses adequate to absorb inherent losses in the loan
portfolio. Management at each affiliate, along with MBC management, maintains
a regular overview to assure that adequacy. On a periodic basis, significant
credit exposures, non-performing and impaired loans, the historical loss
experience by loan type and various statistical measurements of asset quality
are examined to assure the adequacy of the allowance for loan losses.
The allowance for loan losses has been established through provisions for loan
losses charged against income. The provision for loan losses for the first
three quarters of 2000 was $12,745,000 as compared to $5,937,000 for the same
period last year. The provision for loan losses was $4,316,000 for the third
quarter of 2000 and $2,894,000 for the third quarter of 1999. Loans deemed to
be uncollectible are charged against the allowance for loan losses and any
subsequent recoveries are credited to the allowance. Intensive collection
efforts continue after charge-off in order to maximize recovery amounts. Net
charge-offs were $1,193,000 for the first nine months of 2000 compared to
$1,897,000 for the same period in 1999. Net charge-offs for the third quarter
of 2000 and the third quarter of 1999 were $1,275,000 and $764,000,
respectively. The allowance for loan losses to period end loans was 2.07% at
September 30, 2000 and 2.12% at the end of the third quarter last year.
Page 10
<PAGE>
The following table presents a summary of the activity in the Allowance for
Loan Losses:
<TABLE>
<CAPTION>
For the 9 Months Ended For the 3 Months Ended
September 30, September 30,
Allowance for Loan Losses ------------------------ ----------------------
(Dollars in thousands) 2000 1999 2000 1999
--------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance balance --
beginning.................. $ 117,997 $ 112,423 $ 126,508 $ 114,333
Allowance of acquired bank... 3,660 -- 3,660 --
Charge-offs:
Commercial.................. (1,635) (1,168) (1,498) (222)
Real estate --
construction.............. (11) (21) -- --
Real estate -- mortgage..... (497) (837) (32) (561)
Consumer.................... (2,012) (2,001) (739) (674)
----------- ----------- ---------- ----------
Total...................... (4,155) (4,027) (2,269) (1,457)
----------- ----------- ---------- ----------
Recoveries:
Commercial.................. 1,344 1,047 660 289
Real estate --
construction.............. 176 22 1 18
Real estate -- mortgage..... 319 182 13 79
Consumer.................... 1,123 879 320 307
----------- ----------- ---------- ----------
Total...................... 2,962 2,130 994 693
----------- ----------- ---------- ----------
Net charge-offs.............. (1,193) (1,897) (1,275) (764)
Provision for loan losses.... 12,745 5,937 4,316 2,894
----------- ----------- ---------- ----------
Allowance balance -- ending.. $ 133,209 $ 116,463 $ 133,209 $ 116,463
=========== =========== ========== ==========
Average loans................ $ 6,042,438 $ 5,301,433 $6,320,282 $5,378,343
=========== =========== ========== ==========
Net charge-offs -- annualized
as a percentage of average
loans....................... .03% .05% .08% .06%
=========== =========== ========== ==========
Period end loans............. $ 6,442,356 $ 5,502,468
=========== ===========
Allowance for loan losses as
a percentage of period end
loans....................... 2.07% 2.12%
=========== ===========
</TABLE>
Cautionary Statement
This report contains forward-looking statements within the meaning of and
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. A forward-looking statement encompasses any estimate,
prediction, opinion or statement of belief contained in this report, and the
underlying management assumptions. Such statements in this report include
identification of trends, loan growth, comments on adequacy of the allowance
for loan losses, and information concerning market risk referenced in Item 3.
Forward-looking statements are based on current expectations and assessments
of potential developments affecting market conditions, interest rates and
other economic conditions, and results may ultimately vary from the statements
made in this report.
Page 11
<PAGE>
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 nine months of the year.
<TABLE>
<CAPTION>
2000 1999
--------------------------- ----------------------------
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............ $2,195,136 $152,490 9.28% $1,956,221 $124,782 8.53%
Real estate........... 3,111,515 202,398 8.69 2,694,712 170,755 8.47
Consumer.............. 735,787 47,721 8.66 650,500 41,428 8.51
---------- -------- ---------- --------
Total loans......... 6,042,438 402,609 8.90 5,301,433 336,965 8.50
---------- -------- ---------- --------
Federal funds sold...... 27,965 1,313 6.27 17,642 632 4.79
Securities:**
Taxable securities
U.S. Treasury
securities.......... 1,565,008 65,649 5.60 1,803,020 76,311 5.66
U.S. Agency
securities.......... 73,453 3,683 6.70 15,163 666 5.87
Other stocks and
bonds............... 32,882 2,003 8.14 23,585 1,624 9.21
Tax-exempt securities
States and political
subdivisions........ 20,892 1,290 8.25 12,273 733 7.99
---------- -------- ---------- --------
Total securities.... 1,692,235 72,625 5.73 1,854,041 79,334 5.72
---------- -------- ---------- --------
Interest-bearing
deposits in other
banks................. 153 6 4.94 131 4 3.97
---------- -------- ---------- --------
Total earning
assets............. 7,762,791 476,553 8.20 7,173,247 416,935 7.77
-------- --------
Cash and due from
banks.................. 223,688 223,160
Bank premises and
equipment, net......... 97,539 93,868
Other assets............ 202,813 184,561
Less: allowance for loan
losses................. (124,395) (114,357)
---------- ----------
Total assets........ $8,162,436 $7,560,479
========== ==========
Interest-bearing
liabilities
Deposits:
Savings deposits...... $2,346,591 36,090 2.05 $2,373,128 36,334 2.04
Time deposits......... 2,323,089 94,142 5.41 2,191,948 82,348 5.02
---------- -------- ---------- --------
Total interest-
bearing deposits... 4,669,680 130,232 3.73 4,565,076 118,682 3.48
Short-term
borrowings........... 859,715 36,022 5.60 545,352 18,129 4.44
Long-term debt........ 86,045 4,304 6.68 66,844 3,413 6.83
---------- -------- ---------- --------
Total interest-
bearing funds...... 5,615,440 170,558 4.06 5,177,272 140,224 3.62
-------- --------
Noninterest-bearing
deposits............... 1,419,046 1,320,379
Other liabilities and
accrued expenses....... 98,420 94,727
---------- ----------
Total liabilities... 7,132,906 6,592,378
Shareholders' equity.... 1,029,530 968,101
---------- ----------
Total liabilities
and shareholders'
equity............. $8,162,436 $7,560,479
========== ==========
Net interest income..... $305,995 $276,711
======== ========
Net interest rate
spread................. 4.14% 4.15%
Effect of noninterest-
bearing funds.......... 1.13 1.01
---- ----
Net interest margin on
earning assets......... 5.27% 5.16%
==== ====
Taxable-equivalent
adjustment included in:
Loan income........... $ 3,248 $ 3,079
Investment securities
income............... 649 410
-------- --------
Total............... $ 3,897 $ 3,489
======== ========
</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.
Page 12
<PAGE>
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Information responsive to this Item as of December 31, 1999 appears under the
captions "Interest Rate Sensitivity Analysis", "Earnings Simulation Model
Projections" and "Asset/Liability and Liquidity Management" on pages 20-22 of
the registrant's 1999 Annual Report to Shareholders, filed as Exhibit 13 to
registrant's Annual Report on Form 10-K for the year ended December 31, 1999.
There was no material change in such information as of September 30, 2000.
PART II. OTHER INFORMATION
Item 5. Other Information
The 2001 Annual Meeting of Stockholders of the registrant is expected to be
held on April 25, 2001.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits --
Exhibit 27 -- Financial Data Schedule
(b) No Forms 8-K filed.
Page 13
<PAGE>
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
November 9, 2000 Principal Executive Officer
/s/ H. Furlong Baldwin
_________________________________________
By: H. Furlong Baldwin
Chairman of the Board and
Chief Executive Officer
November 9, 2000 Principal Financial Officer
/s/ Terry L. Troupe
_________________________________________
By: Terry L. Troupe
Chief Financial Officer
November 9, 2000 Chief Accounting Officer
/s/ Diana E. Nelson
_________________________________________
By: Diana E. Nelson
Controller and Chief Accounting Officer
Page 14
