<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 June 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 July 31, 2000, registrant
had outstanding 70,335,686 shares of Common Stock.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MERCANTILE BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
(Dollars in thousands, except per share data) 2000 1999
---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks................................ $ 272,610 $ 219,420
Interest-bearing deposits in other banks............... 153 152
Federal funds sold..................................... 68,023 7,784
---------- ----------
Total cash and cash equivalents..................... 340,786 227,356
---------- ----------
Investment securities:
U.S. Treasury and government agencies
Available-for-sale at fair value..................... 1,551,457 1,727,841
States and political subdivisions
Held-to-maturity -- market value of $17,692 (2000)
and $10,156 (1999).................................. 17,689 10,216
Available-for-sale at fair value..................... 1,331 1,332
Other investments
Held-to-maturity -- market value of $10,859 (2000)
and $15,376 (1999).................................. 10,859 15,376
Available-for-sale at fair value..................... 17,350 14,769
---------- ----------
Total investment securities......................... 1,598,686 1,769,534
---------- ----------
Loans.................................................. 6,120,111 5,718,942
Less: allowance for loan losses........................ (126,508) (117,997)
---------- ----------
Loans, net.......................................... 5,993,603 5,600,945
---------- ----------
Bank premises and equipment, less accumulated deprecia-
tion of $97,832 (2000) and $96,927 (1999)............. 96,459 94,917
Other real estate owned, net........................... 1,321 1,663
Excess cost over equity in affiliated banks, net....... 44,566 46,482
Other assets........................................... 163,535 154,127
---------- ----------
Total assets........................................ $8,238,956 $7,895,024
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing deposits.......................... $1,499,743 $1,400,172
Interest-bearing deposits............................. 4,624,696 4,524,911
---------- ----------
Total deposits...................................... 6,124,439 5,925,083
Short-term borrowings.................................. 929,988 839,497
Accrued expenses and other liabilities................. 91,628 73,721
Long-term debt......................................... 82,547 82,683
---------- ----------
Total liabilities................................... 7,228,602 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 68,053,093 shares in 2000 and
68,645,759 shares in 1999............................. 136,106 137,292
Capital surplus........................................ 132,309 47,798
Retained earnings...................................... 746,341 796,192
Accumulated other comprehensive income (loss).......... (4,402) (7,242)
---------- ----------
Total shareholders' equity.......................... 1,010,354 974,040
---------- ----------
Total liabilities and shareholders' equity......... $8,238,956 $7,895,024
========== ==========
</TABLE>
See notes to consolidated financial statements
Page 2
<PAGE>
MERCANTILE BANKSHARES CORPORATION
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
For the 6 Months Ended For the 3 Months Ended
June 30, June 30,
(Dollars in thousands, except per share data) 2000 1999 2000 1999
----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans........ $ 256,907 $ 219,716 $ 132,735 $ 110,651
----------- ----------- ----------- -----------
Interest and dividends on
investment securities:
Taxable interest income.......... 46,470 51,496 22,628 25,590
Tax-exempt interest income....... 349 305 202 144
Dividends........................ 682 996 284 387
Other investment income.......... 68 115 35 60
----------- ----------- ----------- -----------
47,569 52,912 23,149 26,181
----------- ----------- ----------- -----------
Other interest income............. 607 516 379 302
----------- ----------- ----------- -----------
Total interest income.......... 305,083 273,144 156,263 137,134
----------- ----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits.............. 82,331 79,746 42,326 39,359
Interest on short-term
borrowings....................... 22,831 11,696 12,063 5,472
Interest on long-term debt........ 2,807 1,960 1,403 1,266
----------- ----------- ----------- -----------
Total interest expense......... 107,969 93,402 55,792 46,097
----------- ----------- ----------- -----------
NET INTEREST INCOME............... 197,114 179,742 100,471 91,037
Provision for loan losses......... 8,429 3,043 5,414 1,648
----------- ----------- ----------- -----------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES........ 188,685 176,699 95,057 89,389
----------- ----------- ----------- -----------
NONINTEREST INCOME
Trust division services........... 34,254 31,644 17,364 16,496
Service charges on deposit
accounts......................... 11,696 11,076 5,937 5,720
Other fees........................ 13,326 13,298 7,298 6,983
Investment securities gains and
(losses)......................... 69 8 -- 8
Other income...................... 1,813 1,648 879 873
----------- ----------- ----------- -----------
Total noninterest income....... 61,158 57,674 31,478 30,080
----------- ----------- ----------- -----------
NONINTEREST EXPENSES
Salaries.......................... 56,663 54,851 28,718 28,162
Employee benefits................. 13,483 13,871 6,325 6,446
Net occupancy expense of bank
premises......................... 5,459 5,383 2,773 2,671
Furniture and equipment expenses.. 11,219 10,300 5,451 5,086
Communications and supplies....... 6,073 6,309 2,961 3,150
Amortization of excess cost over
equity in affiliates............. 1,916 1,916 958 958
Other expenses.................... 23,464 21,417 12,521 11,262
----------- ----------- ----------- -----------
Total noninterest expenses..... 118,277 114,047 59,707 57,735
----------- ----------- ----------- -----------
Income before income taxes........ 131,566 120,326 66,828 61,734
Applicable income taxes........... 47,444 44,236 24,291 22,834
----------- ----------- ----------- -----------
NET INCOME........................ $ 84,122 $ 76,090 $ 42,537 $ 38,900
=========== =========== =========== ===========
NET INCOME PER SHARE OF COMMON
STOCK (Note 2):
Basic............................ $ 1.23 $ 1.09 $ .63 $ .56
=========== =========== =========== ===========
Diluted.......................... $ 1.22 $ 1.08 $ .62 $ .55
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements
Page 3
<PAGE>
MERCANTILE BANKSHARES CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
For the 6 Months Ended
Increase (decrease) in cash and cash equivalents June 30,
(Dollars in thousands) 2000 1999
----------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fees on loans............................. $ 253,603 $ 218,418
Interest and dividends on investment securities........ 50,114 52,711
Other interest income.................................. 710 602
Noninterest income..................................... 60,747 57,733
Interest paid.......................................... (103,818) (93,148)
Noninterest expenses paid.............................. (113,400) (126,014)
Income taxes paid...................................... (41,321) (40,417)
----------- -----------
Net cash provided by operating activities........... 106,635 69,885
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held-
to-maturity........................................... 6,530 2,278
Proceeds from maturities of investment securities
available-for-sale.................................... 284,169 284,883
Proceeds from sales of investment securities available-
for-sale.............................................. 700 8
Purchases of investment securities held-to-maturity.... (9,486) (1,047)
Purchases of investment securities available-for-sale.. (106,545) (242,691)
Net (increase) decrease in customer loans.............. (401,951) (144,383)
Proceeds from sales of other real estate owned......... 1,359 728
Capital expenditures................................... (6,711) (6,669)
----------- -----------
Net cash used in investing activities............... (231,935) (106,893)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in noninterest-bearing
deposits.............................................. 99,571 (44,811)
Net increase (decrease) in checking plus interest and
savings accounts...................................... (58,789) 24,931
Net increase (decrease) in certificates of deposit..... 158,574 (58,737)
Net increase (decrease) in short-term borrowings....... 90,491 94,369
Proceeds from issuance of long-term debt............... -- 50,000
Repayment of long-term debt............................ (136) (49)
Proceeds from issuance of shares....................... 3,387 3,738
Repurchase of common shares............................ (20,395) (68,244)
Dividends paid......................................... (33,973) (32,041)
----------- -----------
Net cash provided by (used in) financing
activities......................................... 238,730 (30,844)
----------- -----------
Net increase (decrease) in cash and cash equivalents... 113,430 (67,852)
Cash and cash equivalents at beginning of period....... 227,356 312,710
----------- -----------
Cash and cash equivalents at end of period............. $ 340,786 $ 244,858
=========== ===========
<CAPTION>
Reconciliation of net income to net cash provided by For the 6 Months Ended
operating activities June 30,
(Dollars in thousands) 2000 1999
----------------------------------------------------------------------------------
<S> <C> <C>
Net income............................................. $ 84,122 $ 76,090
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses............................. 8,429 3,043
Depreciation and amortization......................... 5,169 4,345
Amortization of excess cost over equity in
affiliates........................................... 1,916 1,916
Investment securities (gains) and losses.............. (69) (8)
Write-downs of other real estate owned................ 9 21
Gains on sales of other real estate owned............. (162) (62)
(Increase) decrease in interest receivable............ (656) (1,413)
(Increase) decrease in other receivables.............. (180) 129
(Increase) decrease in other assets................... 649 (10,656)
Increase (decrease) in interest payable............... 4,151 254
Increase (decrease) in accrued expenses............... (2,866) (7,593)
Increase (decrease) in taxes payable.................. 6,123 3,819
----------- -----------
Total adjustments................................... 22,513 (6,205)
----------- -----------
Net cash provided by operating activities.............. $ 106,635 $ 69,885
=========== ===========
</TABLE>
See notes to consolidated financial statements
Page 4
<PAGE>
MERCANTILE BANKSHARES CORPORATION
STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 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.............. 76,090 76,090
Unrealized gains
(losses) on securities
available-for-sale, net
of reclassification
adjustment, net of
taxes.................. (21,997) (21,997)
----------
Comprehensive income.... 54,093
----------
Cash dividends paid:
Common stock ($.46 per
share)................ (32,041) (32,041)
Issuance of 58,891
shares for dividend
reinvestment and stock
purchase plan.......... 2,033 118 1,915
Issuance of 12,401
shares for employee
stock purchase dividend
reinvestment plan...... 510 25 485
Issuance of 96,132
shares for employee
stock option plan...... 1,195 192 1,003
Purchase of 1,850,000
shares under stock
repurchase plan........ (68,244) (3,700) (64,544)
Vested stock options.... 1,048 1,048
Transfer to capital
surplus................ -- 100,000 (100,000)
---------- -------- -------- --------- --------
BALANCE, JUNE 30, 1999.. $ 957,953 $138,689 $ 71,264 $ 747,617 $ 383
========== ======== ======== ========= ========
BALANCE, DECEMBER 31,
1999................... $ 974,040 $137,292 $ 47,798 $ 796,192 $ (7,242)
Net income.............. 84,122 84,122
Unrealized gains
(losses) on securities
available-for-sale, net
of reclassification
adjustment, net of
taxes (Note 5)......... 2,840 2,840
----------
Comprehensive income.... 86,962
----------
Cash dividends paid:
Common stock ($.50 per
share)................ (33,973) (33,973)
Issuance of 68,454
shares for dividend
reinvestment and stock
purchase plan.......... 1,906 137 1,769
Issuance of 17,240
shares for employee
stock purchase dividend
reinvestment plan...... 508 34 474
Issuance of 62,640
shares for employee
stock option plan...... 973 125 848
Purchase of 741,000
shares under stock
repurchase plan........ (20,395) (1,482) (18,913)
Vested stock options.... 333 333
Transfer to capital
surplus................ -- 100,000 (100,000)
---------- -------- -------- --------- --------
BALANCE, JUNE 30, 2000.. $1,010,354 $136,106 $132,309 $ 746,341 $ (4,402)
========== ======== ======== ========= ========
</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 68,263,855
shares for 2000 and 69,880,196 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 six months ended June 30, 2000
and 1999 were 68,732,600 and 70,472,248, 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>
June 30, December 31,
(Dollars in thousands) 2000 1999
-----------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with a valuation allowance............. $ 3,492 $ 2,983
Impaired loans with no valuation allowance............ 20,169 12,185
-------- --------
Total impaired loans................................. $ 23,661 $ 15,168
======== ========
Allowance for loan losses applicable to impaired
loans................................................ $ 1,849 $ 1,186
Allowance for loan losses applicable to other than
impaired loans....................................... 124,659 116,811
-------- --------
Total allowance for loan losses...................... $126,508 $117,997
======== ========
Year-to-date interest income on impaired loans
recorded on the cash basis........................... $ 101 $ 241
======== ========
Year-to-date average recorded investment in impaired
loans during the period.............................. $ 19,128 $ 17,482
======== ========
Quarter-to-date interest income on impaired loans
recorded on the cash basis........................... $ 66 $ 44
======== ========
Quarter-to-date average recorded investment in
impaired loans during the period..................... $ 20,639 $ 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
normal course of banking business. At June 30, 2000, total unused lines of
credit approximated $2,853,100,000. In addition, letters of credit are
issued for the benefit of customers by affiliated banks. Outstanding letters
of credit were $164,200,000 at June 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 6 Months Ended June 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............. $4,520 $(1,638) $2,882 $(35,166) $13,174 $(21,992)
Reclassification
adjustment for (gains)
losses included in net
income................. (69) 27 (42) (8) 3 (5)
------ ------- ------ -------- ------- --------
Total................... $4,451 $(1,611) $2,840 $(35,174) $13,177 $(21,997)
====== ======= ====== ======== ======= ========
</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 six months
ended June 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 6 Months Ended June 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..... $ 68,010 $ -- $ 68,010 $ 129,362 $ (258) $ 197,114
Provision for loan
losses................. (3,873) -- (3,873) (4,556) -- (8,429)
Noninterest income...... 12,288 34,248 46,536 20,044 (5,422) 61,158
Noninterest expenses.... (35,910) (19,567) (55,477) (65,491) 2,691 (118,277)
Adjustments............. 6,941 (1,199) 5,742 (5,802) 60 --
-------- -------- ---------- ---------- --------- ----------
Income (loss) before
income taxes........... 47,456 13,482 60,938 73,557 (2,929) 131,566
Income tax (expense)
benefit................ (17,115) (5,393) (22,508) (26,659) 1,723 (47,444)
-------- -------- ---------- ---------- --------- ----------
Net income (loss)....... $ 30,341 $ 8,089 $ 38,430 $ 46,898 $ (1,206) $ 84,122
======== ======== ========== ========== ========= ==========
Average assets.......... $3,063,937 $5,067,882 $(130,412) $8,001,407
Average equity.......... 353,262 620,492 29,995 1,003,749
<CAPTION>
For the 6 Months Ended June 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..... $ 60,657 $ -- $ 60,657 $ 119,714 $ (629) $ 179,742
Provision for loan
losses................. (977) -- (977) (2,066) -- (3,043)
Noninterest income...... 12,449 31,451 43,900 18,769 (4,995) 57,674
Noninterest expenses.... (37,136) (16,953) (54,089) (62,555) 2,597 (114,047)
Adjustments............. 8,554 (1,486) 7,068 (6,218) (850) --
-------- -------- ---------- ---------- --------- ----------
Income (loss) before
income taxes........... 43,547 13,012 56,559 67,644 (3,877) 120,326
Income tax (expense)
benefit................ (15,674) (5,205) (20,879) (24,610) 1,253 (44,236)
-------- -------- ---------- ---------- --------- ----------
Net income (loss)....... $ 27,873 $ 7,807 $ 35,680 $ 43,034 $ (2,624) $ 76,090
======== ======== ========== ========== ========= ==========
Average assets.......... $2,787,457 $4,852,183 $(108,809) $7,530,831
Average equity.......... 331,064 588,199 46,930 966,193
</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 six months ended June 30, 2000 was $1.23,
an increase of 12.8% over the $1.09 for the comparable period last year.
Diluted net income per share was $1.22 for the first half of 2000 and $1.08
for the same period in 1999, representing a 13.0% increase. Net income was
$84,122,000 for the first six months of 2000, an increase of 10.6% over the
$76,090,000 for the comparable period in 1999.
For the second quarter of 2000, basic net income per share was $.63, an
increase of 12.5% over the $.56 for the comparable period in 1999. Diluted net
income per share was $.62 for the second quarter of 2000 and $.55 for the same
period in 1999, which represented a 12.7% increase. Net income was $42,537,000
for the three months ended June 30, 2000, an increase of 9.3% over the
$38,900,000 for the comparable period last year.
Return on average assets was 2.11% for the first half of 2000 and 2.04% for
the first half of 1999. Return on average equity increased to 16.85% for the
first six months of 2000 compared to 15.88% for the same period in 1999.
Return on average tangible equity, which excludes amortization expense and
balances related to goodwill in the calculation, was 18.06% for the first half
of 2000 and 17.16% for the comparable period in 1999.
Return on average assets was 2.12% for the second quarter of 2000 and 2.06%
for the second quarter of 1999. For the three months ended June 30, 2000,
return on average equity increased to 16.94%, compared to 16.13% for the same
period in 1999. Return on average tangible equity was 18.13% for the second
quarter of 2000 and 17.41% for the comparable period last year.
Net Interest Income and Net Interest Margin
Net interest income on a fully taxable equivalent basis was $199,553,000 for
the six months ended June 30, 2000. This was 9.6% higher than the amount for
the comparable period in 1999 due to an increase of 6.5% in average earning
assets and a 13 basis point increase in net interest margin on average earning
assets. Average loans, which were 77.5% of average earning assets, increased
12.2% to $5,901,988,000 for the first half of 2000 from $5,262,341,000 for the
same period last year. Average securities were $1,691,902,000 or 22.2% of
average earning assets for the six months ended June 30, 2000, a 9.1% decrease
from the $1,861,293,000 for the comparable period in 1999. Average loans and
average securities were 73.6% and 26.0% of average earning assets,
respectively, for the first half of last year. See the Analysis of Interest
Rates and Interest Differentials on page 11 for further details.
For the three months ended June 30, 2000, net interest income on a fully
taxable equivalent basis was $101,710,000. This was 10.3% higher than the
amount for the same period in 1999 due to an increase of 7.2% in average
earning assets and a 17 basis point increase in net interest margin on average
earning assets. Average loans were $6,020,014,000 or 78.3% of average earning
assets for the second quarter of 2000, a 13.7% increase from the
$5,295,838,000 for the second quarter of 1999. Average securities, which were
21.4% of average earning assets, decreased 11.2% to $1,645,955,000 for the
quarter ended June 30, 2000, from $1,853,059,000 for the second quarter last
year. Average loans and average securities were 73.8% and 25.8% of average
earning assets, respectively, for the second quarter of 1999.
Noninterest Income
For the first six months of 2000, total noninterest income increased 6.0% to
$61,158,000 from $57,674,000 for the first half of 1999. Factors contributing
to this increase included an increase in trust division revenues of $2,610,000
or 8.2% and an increase in service charges on deposit accounts of $620,000 or
5.6% over the comparable amounts for the same period last year.
Total noninterest income for the three months ended June 30, 2000, increased
4.6% to $31,478,000 from $30,080,000 for the second quarter of 1999. Factors
contributing to this increase included an increase in trust division revenues
of $868,000 or 5.3%, an increase in fee income of $315,000 or 4.5% and an
increase in service charges on deposit accounts of $217,000 or 3.8% over the
comparable amounts for the second quarter of 1999.
Noninterest Expenses
For the first half of 2000, total noninterest expenses increased 3.7% to
$118,277,000 from $114,047,000 for the comparable period in 1999. The increase
in noninterest expenses included an increase in salaries of $1,812,000 or 3.3%
over the amounts for the first six months of 1999, an increase in furniture
and equipment expenses of $919,000 or 8.9% and an increase in other expenses
of $2,047,000 or 9.6%. These increases were partially offset by lower expenses
related to employee benefits which decreased $388,000 or 2.8% and
communications and supplies which decreased $236,000 or 3.7%.
Page 8
<PAGE>
Total noninterest expenses for the second quarter of 2000 increased 3.4% to
$59,707,000 from $57,735,000 for the same period last year. The increase in
noninterest expenses included an increase in salaries of $556,000 or 2.0% over
the amounts for the second quarter of 1999, an increase in furniture and
equipment expenses of $365,000 or 7.2% and an increase in other expenses of
$1,259,000 or 11.2%. Partially offsetting these increases were lower expenses
related to communications and supplies which decreased $189,000 or 6.0% and
employee benefits which decreased $121,000 or 1.9%.
Analysis of Financial Condition
Total assets increased 4.4% to $8,238,956,000 at June 30, 2000 from
$7,895,024,000 at December 31, 1999. At June 30, 2000, investment securities
decreased 9.7% to $1,598,686,000 from $1,769,534,000 at the end of last year.
Total loans at June 30, 2000 were $6,120,111,000, an increase of 7.0% from the
$5,718,942,000 at December 31, 1999.
Total deposits increased 3.4% to $6,124,439,000 as of June 30, 2000 from
$5,925,083,000 at December 31, 1999. Interest-bearing deposits were
$4,624,696,000 as of June 30, 2000, reflecting a 2.2% increase from the
$4,524,911,000 at year-end 1999. Interest-bearing deposits represented 75.5%
of total deposits at June 30, 2000 and 76.4% at December 31, 1999.
Noninterest-bearing deposits increased 7.1% to $1,499,743,000 as of June 30,
2000, compared to $1,400,172,000 at the end of last year.
Total shareholders' equity increased 3.7% to $1,010,354,000 at June 30, 2000
from $974,040,000 at December 31, 1999. The increase from net income was
partially offset by dividends paid and by share repurchases. The Corporation
continued to maintain a strong capital position, evidenced by the ratio of
shareholders' equity to total assets of 12.26% at June 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 six months ended
June 30, 2000, non-performing assets increased $6,999,000 to $27,791,000. Non-
performing loans, one of the components of non-performing assets, increased
$7,341,000 while other real estate owned, the other component, decreased
$342,000.
<TABLE>
<CAPTION>
Non-Performing Assets June 30, December 31,
(Dollars in thousands) 2000 1999
------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual loans (1).................................... $26,470 $19,129
Renegotiated loans (1)................................... -- --
Loans contractually past due 90 days or more and still
accruing interest....................................... -- --
------- -------
Total non-performing loans............................ 26,470 19,129
Other real estate owned.................................. 1,321 1,663
------- -------
Total non-performing assets........................... $27,791 $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
$1,436,000 and $1,853,000 for the first half 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 $296,000 and $564,000 for the first six months
of 2000 and the year 1999, respectively.
Note: The Corporation was monitoring loans estimated to aggregate $1,566,000
at June 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.
Page 9
<PAGE>
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
half of 2000 was $8,429,000 as compared to $3,043,000 for the same period last
year. 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 recoveries were $82,000 for the first six months of 2000
compared to net charge-offs of $1,133,000 for the same period in 1999. The
allowance for loan losses to average loans was 2.14% for the six months ended
June 30, 2000 and 2.17% for the first six months last year.
The following table presents a summary of the activity in the Allowance for
Loan Losses:
<TABLE>
<CAPTION>
For the 6 Months Ended For the 3 Months
June 30, Ended June 30,
Allowance for Loan Losses ------------------------ -----------------------
(Dollars in thousands) 2000 1999 2000 1999
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance balance --
beginning............... $ 117,997 $ 112,423 $ 121,189 $ 113,562
Charge-offs:
Commercial............... (137) (946) (81) (673)
Real estate --
construction........... (11) (21) -- (21)
Real estate -- mortgage.. (465) (276) (211) (181)
Consumer................. (1,273) (1,327) (500) (536)
----------- ----------- ---------- ----------
Total................... (1,886) (2,570) (792) (1,411)
----------- ----------- ---------- ----------
Recoveries:
Commercial............... 684 758 168 211
Real estate --
construction........... 175 4 1 1
Real estate -- mortgage.. 306 103 212 23
Consumer................. 803 572 316 299
----------- ----------- ---------- ----------
Total................... 1,968 1,437 697 534
----------- ----------- ---------- ----------
Net (charge-
offs)/recoveries......... 82 (1,133) (95) (877)
Provision for loan
losses................... 8,429 3,043 5,414 1,648
----------- ----------- ---------- ----------
Allowance balance --
ending................... $ 126,508 $ 114,333 $ 126,508 $ 114,333
=========== =========== ========== ==========
Average loans............. $ 5,901,988 $ 5,262,341 $6,020,014 $5,295,838
=========== =========== ========== ==========
Net (charge-
offs)/recoveries--
annualized as a
percentage of average
loans.................... --% (.04)% (.01)% (.07)%
=========== =========== ========== ==========
Allowance for loan losses
at period end as a
percentage of average
loans.................... 2.14% 2.17% 2.10% 2.16%
=========== =========== ========== ==========
</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 10
<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 six 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............ $2,144,884 $ 98,110 9.20% $1,926,944 $ 81,134 8.49%
Real estate........... 3,041,383 130,334 8.62 2,678,710 112,802 8.49
Consumer.............. 715,721 30,583 8.59 656,687 27,823 8.54
---------- -------- ---------- --------
Total loans......... 5,901,988 259,027 8.83 5,262,341 221,759 8.50
---------- -------- ---------- --------
Federal funds sold...... 19,251 603 6.30 22,401 514 4.63
Securities:**
Taxable securities
U.S. Treasury
securities.......... 1,605,162 44,762 5.61 1,809,166 51,040 5.69
U.S. Agency
securities.......... 52,580 1,708 6.53 15,505 456 5.93
Other stocks and
bonds............... 20,049 841 8.44 23,914 1,202 10.14
Tax-exempt securities
States and political
subdivisions........ 14,111 577 8.22 12,708 505 8.01
---------- -------- ---------- --------
Total securities.... 1,691,902 47,888 5.69 1,861,293 53,203 5.76
---------- -------- ---------- --------
Interest-bearing
deposits in other
banks................. 152 4 4.77 121 2 4.13
---------- -------- ---------- --------
Total earning
assets............. 7,613,293 307,522 8.12 7,146,156 275,478 7.77
-------- --------
Cash and due from
banks.................. 223,477 222,116
Bank premises and
equipment, net......... 95,868 93,074
Other assets............ 189,606 183,262
Less: allowance for loan
losses................. (120,837) (113,777)
---------- ----------
Total assets........ $8,001,407 $7,530,831
========== ==========
Interest-bearing
liabilities
Deposits:
Savings deposits...... $2,346,077 23,694 2.03 $2,365,114 24,193 2.06
Time deposits......... 2,241,625 58,637 5.26 2,208,437 55,553 5.07
---------- -------- ---------- --------
Total interest-
bearing deposits... 4,587,702 82,331 3.61 4,573,551 79,746 3.52
Short-term
borrowings........... 840,761 22,831 5.46 536,592 11,696 4.40
Long-term debt........ 82,648 2,807 6.83 58,054 1,960 6.81
---------- -------- ---------- --------
Total interest-
bearing funds...... 5,511,111 107,969 3.94 5,168,197 93,402 3.64
-------- --------
Noninterest-bearing
deposits............... 1,390,946 1,299,553
Other liabilities and
accrued expenses....... 95,601 96,888
---------- ----------
Total liabilities... 6,997,658 6,564,638
Shareholders' equity.... 1,003,749 966,193
---------- ----------
Total liabilities
and shareholders'
equity............. $8,001,407 $7,530,831
========== ==========
Net interest income..... $199,553 $182,076
======== ========
Net interest rate
spread................. 4.18% 4.13%
Effect of noninterest-
bearing funds.......... 1.09 1.01
---- -----
Net interest margin on
earning assets......... 5.27% 5.14%
==== =====
Taxable-equivalent
adjustment included in:
Loan income........... $ 2,120 $ 2,043
Investment securities
income............... 319 291
-------- --------
Total............... $ 2,439 $ 2,334
======== ========
</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 11
<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 June 30, 2000.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
Matters voted upon and voted at the Annual Meeting of Shareholders held
April 26, 2000.
Results of voting for Election of Directors:
<TABLE>
<CAPTION>
FOR WITHHELD
--- ---------
<S> <C> <C>
George L. Bunting, Jr. 58,158,157 452,986
Darrell D. Friedman 57,908,450 702,693
Robert A. Kinsley 58,155,924 455,219
William J. McCarthy 57,360,088 1,251,055
Christian H. Poindexter 58,114,338 496,805
</TABLE>
Names of other Directors continuing in office:
Cynthia A. Archer
H. Furlong Baldwin
Richard O. Berndt
William R. Brody
Freeman A. Hrabowski, III
Mary Junck
Morton B. Plant
Donald J. Shepard
Results of voting on Ratification of Appointment of Auditors
(PricewaterhouseCoopers LLP):
<TABLE>
<CAPTION>
FOR AGAINST ABSTAINED
--- ------- ---------
<S> <C> <C>
58,093,686 152,024 365,433
</TABLE>
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) Form 8-K filed, dated June 2, 2000, Item 5. Other Events.
Page 12
<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
August 9, 2000 Principal Executive Officer
/s/ H. Furlong Baldwin
_________________________________________
By: H. Furlong Baldwin
Chairman of the Board and
Chief Executive Officer
August 9, 2000 Principal Financial Officer
/s/ Terry L. Troupe
_________________________________________
By: Terry L. Troupe
Chief Financial Officer
August 9, 2000 Chief Accounting Officer
/s/ Diana E. Nelson
_________________________________________
By: Diana E. Nelson
Controller and Chief Accounting Officer
Page 13
