<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 March 31, 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 offices) (Zip code)
(410) 237-5900
----------------------------------------------------
(Registrant's telephone number, including area code)
---------------------------------------------------------------
(Former name, former address and former fiscal year, if changed
since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date. As of April 28, 2000, registrant
had outstanding 68,044,904 shares of Common Stock.
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MERCANTILE BANKSHARES CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
(Dollars in thousands, except per share data) 2000 1999
- ---------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks................................ $ 254,048 $ 219,420
Interest-bearing deposits in other banks............... 152 152
Federal funds sold..................................... 72,646 7,784
---------- ----------
Total cash and cash equivalents..................... 326,846 227,356
---------- ----------
Investment securities:
U.S. Treasury and government agencies
Available-for-sale at fair value..................... 1,609,996 1,727,841
States and political subdivisions
Held-to-maturity -- market value of $14,260 (2000)
and $10,156 (1999).................................. 14,321 10,216
Available-for-sale at fair value..................... 1,332 1,332
Other investments
Held-to-maturity -- market value of $9,688 (2000) and
$15,376 (1999)...................................... 9,688 15,376
Available-for-sale at fair value..................... 17,934 14,769
---------- ----------
Total investment securities......................... 1,653,271 1,769,534
---------- ----------
Loans.................................................. 5,907,037 5,718,942
Less: allowance for loan losses........................ (121,189) (117,997)
---------- ----------
Loans, net.......................................... 5,785,848 5,600,945
---------- ----------
Bank premises and equipment, less accumulated deprecia-
tion of $96,761 (2000) and $96,927 (1999)............. 95,691 94,917
Other real estate owned, net........................... 1,460 1,663
Excess cost over equity in affiliated banks, net....... 45,524 46,482
Other assets........................................... 162,392 154,127
---------- ----------
Total assets........................................ $8,071,032 $7,895,024
========== ==========
LIABILITIES
Deposits:
Noninterest-bearing deposits.......................... $1,446,890 $1,400,172
Interest-bearing deposits............................. 4,663,724 4,524,911
---------- ----------
Total deposits...................................... 6,110,614 5,925,083
Short-term borrowings.................................. 788,214 839,497
Accrued expenses and other liabilities................. 104,113 73,721
Long-term debt......................................... 82,682 82,683
---------- ----------
Total liabilities................................... 7,085,623 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 68,118,281 shares in 2000 and 68,645,759 shares
in 1999............................................... 136,236 137,292
Capital surplus........................................ 134,258 47,798
Retained earnings...................................... 721,488 796,192
Accumulated other comprehensive income (loss).......... (6,573) (7,242)
---------- ----------
Total shareholders' equity.......................... 985,409 974,040
---------- ----------
Total liabilities and shareholders' equity......... $8,071,032 $7,895,024
========== ==========
</TABLE>
See notes to consolidated financial statements
Page 2
<PAGE>
MERCANTILE BANKSHARES CORPORATION
STATEMENT OF CONSOLIDATED INCOME
<TABLE>
<CAPTION>
For the 3 Months Ended
March 31,
(Dollars in thousands, except per share data) 2000 1999
- ----------------------------------------------------------------------------------
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans................................ $ 124,172 $ 109,065
----------- -----------
Interest and dividends on investment securities:
Taxable interest income.................................. 23,842 25,906
Tax-exempt interest income............................... 147 161
Dividends................................................ 398 609
Other investment income.................................. 33 55
----------- -----------
24,420 26,731
----------- -----------
Other interest income..................................... 228 214
----------- -----------
Total interest income.................................. 148,820 136,010
----------- -----------
INTEREST EXPENSE
Interest on deposits...................................... 40,005 40,387
Interest on short-term borrowings......................... 10,768 6,224
Interest on long-term debt................................ 1,404 694
----------- -----------
Total interest expense................................. 52,177 47,305
----------- -----------
NET INTEREST INCOME....................................... 96,643 88,705
Provision for loan losses................................. 3,015 1,395
----------- -----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES....... 93,628 87,310
----------- -----------
NONINTEREST INCOME
Trust division services................................... 16,890 15,148
Service charges on deposit accounts....................... 5,759 5,356
Other fees................................................ 6,028 6,315
Investment securities gains and (losses).................. 69 --
Other income.............................................. 934 775
----------- -----------
Total noninterest income............................... 29,680 27,594
----------- -----------
NONINTEREST EXPENSES
Salaries.................................................. 27,945 26,689
Employee benefits......................................... 7,158 7,425
Net occupancy expense of bank premises.................... 2,686 2,712
Furniture and equipment expenses.......................... 5,768 5,214
Communications and supplies............................... 3,112 3,159
Amortization of excess cost over equity in affiliates..... 958 958
Other expenses............................................ 10,943 10,155
----------- -----------
Total noninterest expenses............................. 58,570 56,312
----------- -----------
Income before income taxes................................ 64,738 58,592
Applicable income taxes................................... 23,153 21,402
----------- -----------
NET INCOME................................................ $ 41,585 $ 37,190
=========== ===========
NET INCOME PER SHARE OF COMMON STOCK (Note 2):
Basic.................................................... $ .61 $ .53
=========== ===========
Diluted.................................................. $ .60 $ .53
=========== ===========
</TABLE>
See notes to consolidated financial statements
Page 3
<PAGE>
MERCANTILE BANKSHARES CORPORATION
STATEMENT OF CONSOLIDATED CASH FLOWS
<TABLE>
<CAPTION>
For the 3 Months Ended
Increase (decrease) in cash and cash equivalents March 31,
(Dollars in thousands) 2000 1999
- ----------------------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Interest and fees on loans............................. $ 122,379 $ 108,077
Interest and dividends on investment securities........ 24,062 23,620
Other interest income.................................. 234 317
Noninterest income..................................... 29,161 27,460
Interest paid.......................................... (49,030) (48,361)
Noninterest expenses paid.............................. (55,663) (46,505)
Income taxes paid...................................... (1,093) (444)
----------- -----------
Net cash provided by operating activities........... 70,050 64,164
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held-
to-maturity........................................... 6,277 717
Proceeds from maturities of investment securities
available-for-sale.................................... 163,252 124,800
Proceeds from sales of investment securities available-
for-sale.............................................. 476 --
Purchases of investment securities held-to-maturity.... (4,695) (938)
Purchases of investment securities available-for-sale.. (48,150) (118,100)
Net increase in customer loans......................... (188,258) (87,567)
Proceeds from sales of other real estate owned......... 626 628
Capital expenditures................................... (3,117) (3,398)
----------- -----------
Net cash used in investing activities............... (73,589) (83,858)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in noninterest-bearing
deposits.............................................. 46,718 (58,064)
Net increase in checking plus interest and savings
accounts.............................................. 18,702 34,894
Net increase in certificates of deposit................ 120,111 2,263
Net increase (decrease) in short-term borrowings....... (51,283) 19,389
Repayment of long-term debt............................ (1) --
Proceeds from issuance of shares....................... 2,064 1,708
Repurchase of common shares............................ (16,993) (54,418)
Dividends paid......................................... (16,289) (15,311)
----------- -----------
Net cash provided by (used in) financing
activities......................................... 103,029 (69,539)
----------- -----------
Net increase (decrease) in cash and cash equivalents... 99,490 (89,233)
Cash and cash equivalents at beginning of period....... 227,356 312,710
----------- -----------
Cash and cash equivalents at end of period............. $ 326,846 $ 223,477
=========== ===========
<CAPTION>
Reconciliation of net income to net cash provided by For the 3 Months Ended
operating activities March 31,
(Dollars in thousands) 2000 1999
- ----------------------------------------------------------------------------------
<S> <C> <C>
Net income............................................. $ 41,585 $ 37,190
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for loan losses............................. 3,015 1,395
Depreciation and amortization......................... 2,343 2,125
Amortization of excess cost over equity in
affiliates........................................... 958 958
Investment securities (gains) and losses.............. (69) --
Write-downs of other real estate owned................ 6 9
Gains on sales of other real estate owned............. (89) (56)
Increase in interest receivable....................... (2,145) (3,996)
Increase in other receivables......................... (361) (78)
Decrease in other assets.............................. 462 3,354
Increase (decrease) in interest payable............... 3,147 (1,056)
Increase (decrease) in accrued expenses............... (862) 3,361
Increase in taxes payable............................. 22,060 20,958
----------- -----------
Total adjustments................................... 28,465 26,974
----------- -----------
Net cash provided by operating activities.............. $ 70,050 $ 64,164
=========== ===========
</TABLE>
See notes to consolidated financial statements
Page 4
<PAGE>
MERCANTILE BANKSHARES CORPORATION
STATEMENT OF CHANGES IN CONSOLIDATED SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 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 $22,380
Net income.............. 37,190 37,190
Unrealized gains
(losses) on securities
available-for-sale, net
of reclassification
adjustment, net of
taxes.................. (9,138) (9,138)
--------
Comprehensive income.... 28,052
--------
Cash dividends paid:
Common stock ($.22 per
share)................ (15,311) (15,311)
Issuance of 28,891
shares for dividend
reinvestment and stock
purchase plan.......... 1,020 57 963
Issuance of 6,487 shares
for employee stock
purchase dividend
reinvestment plan...... 296 13 283
Issuance of 40,444
shares for employee
stock option plan...... 392 81 311
Purchase of 1,455,000
shares under stock
repurchase plan........ (54,418) (2,910) (51,508)
Vested stock options.... 1,048 1,048
Transfer to capital
surplus................ -- 100,000 (100,000)
-------- -------- -------- --------- -------
BALANCE, MARCH 31,
1999................... $960,438 $139,295 $ 82,454 $ 725,447 $13,242
======== ======== ======== ========= =======
BALANCE, DECEMBER 31,
1999................... $974,040 $137,292 $ 47,798 $ 796,192 $(7,242)
Net income.............. 41,585 41,585
Unrealized gains
(losses) on securities
available-for-sale, net
of reclassification
adjustment, net of
taxes (Note 5)......... 669 669
--------
Comprehensive income.... 42,254
--------
Cash dividends paid:
Common stock ($.24 per
share)................ (16,289) (16,289)
Issuance of 34,353
shares for dividend
reinvestment and stock
purchase plan.......... 938 68 870
Issuance of 8,864 shares
for employee stock
purchase dividend
reinvestment plan...... 253 18 235
Issuance of 55,805
shares for employee
stock option plan...... 873 111 762
Purchase of 626,500
shares under stock
repurchase plan........ (16,993) (1,253) (15,740)
Vested stock options.... 333 333
Transfer to capital
surplus................ -- 100,000 (100,000)
-------- -------- -------- --------- -------
BALANCE, MARCH 31,
2000................... $985,409 $136,236 $134,258 $ 721,488 $(6,573)
======== ======== ======== ========= =======
</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) Basic earnings per share amounts are based on the weighted average number of
common shares outstanding during the period of 68,491,371 shares for 2000
and 70,093,283 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 three months ended March 31, 2000 and 1999 were
68,912,338 and 70,690,081, 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>
March 31, December 31,
(Dollars in thousands) 2000 1999
-----------------------------------------------------------------------------
<S> <C> <C>
Impaired loans with a valuation allowance............ $ 3,349 $ 2,983
Impaired loans with no valuation allowance........... 14,268 12,185
-------- --------
Total impaired loans................................ $ 17,617 $ 15,168
======== ========
Allowance for loan losses applicable to impaired
loans............................................... $ 1,286 $ 1,186
Allowance for loan losses applicable to other than
impaired loans...................................... 119,903 116,811
-------- --------
Total allowance for loan losses..................... $121,189 $117,997
======== ========
Year-to-date interest income on impaired loans
recorded on the cash basis.......................... $ 35 $ 241
======== ========
Year-to-date average recorded investment in impaired
loans during the period............................. $ 17,617 $ 17,482
======== ========
Quarter-to-date interest income on impaired loans
recorded on the cash basis.......................... $ 35 $ 44
======== ========
Quarter-to-date average recorded investment in
impaired loans during the period.................... $ 17,617 $ 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 March 31, 2000, total unused lines of
credit approximated $2,908,477,000. In addition, letters of credit are
issued for the benefit of customers by affiliated banks. Outstanding letters
of credit were $161,051,000 at March 31, 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 3 Months Ended March 31,
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............... $897 $(186) $711 $(14,670) $5,532 $(9,138)
Reclassification
adjustment for (gains)
losses included in net
income................... (69) 27 (42) -- -- --
---- ----- ---- -------- ------ -------
Total..................... $828 $(159) $669 $(14,670) $5,532 $(9,138)
==== ===== ==== ======== ====== =======
</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 three
months ended March 31, 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>
2000 MSD&T MSD&T Total Community
(Dollars in thousands) Banking Trust MSD&T Banks Other Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income..... $33,648 $ -- $ 33,648 $ 63,621 $ (626) $ 96,643
Provision for loan
losses................. (1,636) -- (1,636) (1,379) -- (3,015)
Noninterest income...... 5,798 17,048 22,846 9,508 (2,674) 29,680
Noninterest expenses.... (18,155) (9,710) (27,865) (32,359) 1,654 (58,570)
Adjustments............. 2,761 (586) 2,175 (3,295) 1,120 --
------- ------ ---------- ---------- --------- ----------
Income (loss) before
income taxes........... 22,416 6,752 29,168 36,096 (526) 64,738
Income tax (expense)
benefit................ (8,052) (2,690) (10,742) (13,078) 667 (23,153)
------- ------ ---------- ---------- --------- ----------
Net income (loss)....... $14,364 $4,062 $ 18,426 $ 23,018 $ 141 $ 41,585
======= ====== ========== ========== ========= ==========
Average assets.......... $3,020,000 $5,026,724 $(130,190) $7,916,534
Average equity.......... 351,380 616,034 29,950 997,364
<CAPTION>
1999 MSD&T MSD&T Total Community
(Dollars in thousands) Banking Trust MSD&T Banks Other Total
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income..... $30,205 $ -- $ 30,205 $ 58,789 $ (289) $ 88,705
Provision for loan
losses................. (489) -- (489) (906) -- (1,395)
Noninterest income...... 6,019 15,095 21,114 8,912 (2,432) 27,594
Noninterest expenses.... (18,524) (8,182) (26,706) (31,051) 1,445 (56,312)
Adjustments............. 4,064 (790) 3,274 (3,137) (137) --
------- ------ ---------- ---------- --------- ----------
Income (loss) before
income taxes........... 21,275 6,123 27,398 32,607 (1,413) 58,592
Income tax (expense)
benefit................ (7,649) (2,449) (10,098) (11,887) 583 (21,402)
------- ------ ---------- ---------- --------- ----------
Net income (loss)....... $13,626 $3,674 $ 17,300 $ 20,720 $ (830) $ 37,190
======= ====== ========== ========== ========= ==========
Average assets.......... $2,787,853 $4,816,404 $(106,234) $7,498,023
Average equity.......... 329,039 584,930 51,031 965,000
</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 first quarter of 2000 was $.61, an increase
of 15.1% over the $.53 for the comparable period last year. Diluted net income
per share was $.60 for the first three months of 2000 and $.53 for the same
period in 1999, representing a 13.2% increase. Net income was $41,585,000 for
the first quarter of 2000, an increase of 11.8% over the $37,190,000 for the
comparable period in 1999.
Return on average assets was 2.11% for the first quarter of 2000 and 2.01% for
the first quarter of 1999. Return on average equity increased to 16.77% for
the first three months of 2000, compared to 15.63% for the same period in
1999. Return on average tangible equity, which excludes amortization expense
and balances related to goodwill in the calculation, was 17.99% for the first
quarter of 2000 and 16.91% for the comparable period in 1999.
Net Interest Income and Net Interest Margin
Net interest income on a fully taxable equivalent basis was $97,843,000 for
the three months ended March 31, 2000. This was 8.9% higher than the amount
for the comparable period in 1999 due to an increase of 5.9% in average
earning assets and a 10 basis point increase in net interest margin on average
earning assets. Average loans, which were 76.7% of average earning assets,
increased by 10.6% to $5,783,962,000 for the first quarter of 2000. Average
securities were $1,737,848,000 or 23.1% of average earning assets for the
quarter ended March 31, 2000, a 7.0% decrease from the $1,869,616,000 for the
comparable period in 1999. Average loans and average securities were 73.5% and
26.3% of average earning assets, respectively, for the first quarter last
year. See the Analysis of Interest Rates and Interest Differentials on page 11
for further details.
Noninterest Income
Total noninterest income for the first quarter of 2000 increased 7.6% to
$29,680,000 from $27,594,000 for the first quarter of 1999. Factors
contributing to this increase included an increase in trust division revenues
of $1,742,000 or 11.5% and an increase in service charges on deposit accounts
of $403,000 or 7.5% over the same amounts for the first quarter of last year.
These were partially offset by a decline in mortgage banking revenue primarily
in servicing and loan origination fees.
Noninterest Expenses
Total noninterest expenses for the first three months of 2000 increased 4.0%
to $58,570,000 from $56,312,000 for the comparable period in 1999. The
increase in noninterest expenses included an increase in salaries of
$1,256,000 or 4.7% over the amount for the first quarter of 1999, and an
increase in furniture and equipment expenses of $554,000 or 10.6%. These
increases were partially offset by lower expenses related to employee benefits
which decreased $267,000 or 3.6%.
Analysis of Financial Condition
Total earning assets increased 1.8% to $7,633,106,000 at March 31, 2000 from
$7,496,412,000 at December 31, 1999. Investment securities decreased 6.6% to
$1,653,271,000 at March 31, 2000 from $1,769,534,000 at December 31, 1999.
Total loans at March 31, 2000 were $5,907,037,000, an increase of 3.3% from
the $5,718,942,000 at December 31, 1999.
Total deposits increased 3.1% to $6,110,614,000 as of March 31, 2000 from
$5,925,083,000 at December 31, 1999. Interest-bearing deposits were
$4,663,724,000 as of March 31, 2000, also reflecting a 3.1% increase from the
$4,524,911,000 at December 31, 1999. Interest-bearing deposits represented
76.3% of total deposits at March 31, 2000, relatively unchanged from December
31, 1999. Noninterest-bearing deposits increased 3.3% to $1,446,890,000 as of
March 31, 2000, compared to $1,400,172,000 at December 31, 1999.
Short-term borrowings decreased 6.1% to $788,214,000 at March 31, 2000 from
$839,497,000 at December 31, 1999. Long-term debt decreased slightly to
$82,682,000 at March 31, 2000.
Page 8
<PAGE>
Total shareholders' equity increased 1.2% to $985,409,000 at March 31, 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 12.21% at March 31, 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 three months
ended March 31, 2000, non-performing assets increased $2,430,000 to
$23,222,000. Non-performing loans, one of the components of non-performing
assets, increased $2,633,000 while other real estate owned, the other
component, decreased $203,000.
<TABLE>
<CAPTION>
Non-Performing Assets March 31, December 31,
(Dollars in thousands) 2000 1999
- ------------------------------------------------------------------------------
<S> <C> <C>
Non-accrual loans (1).................................. $21,762 $19,129
Renegotiated loans (1)................................. -- --
Loans contractually past due 90 days or more and still
accruing interest..................................... -- --
------- -------
Total non-performing loans.......................... 21,762 19,129
Other real estate owned................................ 1,460 1,663
------- -------
Total non-performing assets......................... $23,222 $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
$560,000 and $1,853,000 for the first quarter 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 $32,000 and $564,000 for the first three months
of 2000 and the year 1999, respectively.
Note: The Corporation was monitoring loans estimated to aggregate $2,811,000
at March 31, 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, maintain 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
quarter of 2000 was $3,015,000 as compared to $1,395,000 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 $177,000 for the first three months of
2000 compared to net charge-offs of $256,000 for the same period in 1999. The
allowance for loan losses to average loans was 2.10% for the quarter ended
March 31, 2000 and 2.17% for the first quarter last year.
Page 9
<PAGE>
The following table presents a summary of the activity in the Allowance for
Loan Losses:
<TABLE>
<CAPTION>
For the 3 Months Ended
Allowance for Loan Losses March 31,
(Dollars in thousands) 2000 1999
- -------------------------------------------------------------------------------
<S> <C> <C>
Allowance balance -- beginning...................... $ 117,997 $ 112,423
Charge-offs:
Commercial, financial and agricultural............. (56) (273)
Real estate -- construction........................ (11) --
Real estate -- mortgage............................ (254) (95)
Consumer........................................... (773) (791)
----------- -----------
Total............................................. (1,094) (1,159)
----------- -----------
Recoveries:
Commercial, financial and agricultural............. 516 547
Real estate -- construction........................ 174 3
Real estate -- mortgage............................ 94 80
Consumer........................................... 487 273
----------- -----------
Total............................................. 1,271 903
----------- -----------
Net (charge-offs)/recoveries........................ 177 (256)
Provision for loan losses........................... 3,015 1,395
----------- -----------
Allowance balance -- ending......................... $ 121,189 $ 113,562
=========== ===========
Average loans....................................... $ 5,783,962 $ 5,228,473
=========== ===========
Net (charge-offs)/recoveries -- annualized as a
percentage of average loans........................ .01% (.02)%
=========== ===========
Allowance for loan losses at period end as a
percentage of average loans........................ 2.10% 2.17%
=========== ===========
</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 three 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............ $2,094,958 $46,796 8.98% $1,889,376 $39,616 8.50%
Real estate........... 2,992,315 63,636 8.55 2,672,686 56,384 8.56
Consumer.............. 696,689 14,798 8.54 666,411 14,088 8.57
---------- ------- ---------- -------
Total loans......... 5,783,962 125,230 8.71 5,228,473 110,088 8.54
---------- ------- ---------- -------
Federal funds sold...... 16,497 226 5.51 19,372 213 4.46
Securities**:
Taxable securities
U.S. Treasury
securities.......... 1,656,290 23,104 5.61 1,816,971 25,668 5.73
U.S. Agency
securities.......... 46,678 738 6.36 15,985 238 6.04
Other stocks and
bonds............... 22,834 477 8.40 23,253 710 12.38
Tax-exempt securities
States and political
subdivisions........ 12,046 243 8.11 13,407 266 8.05
---------- ------- ---------- -------
Total securities.... 1,737,848 24,562 5.68 1,869,616 26,882 5.83
---------- ------- ---------- -------
Interest-bearing
deposits in other
banks................. 152 2 4.49 100 1 4.86
---------- ------- ---------- -------
Total earning
assets............. 7,538,459 150,020 8.00 7,117,561 137,184 7.82
------- -------
Cash and due from
banks.................. 214,136 217,115
Bank premises and
equipment, net......... 95,506 92,459
Other assets............ 187,374 184,103
Less: allowance for loan
losses................. (118,941) (113,215)
---------- ----------
Total assets........ $7,916,534 $7,498,023
========== ==========
Interest-bearing
liabilities
Deposits:
Savings deposits...... $2,352,664 11,821 2.02 $2,341,927 12,216 2.12
Time deposits......... 2,208,890 28,184 5.13 2,221,821 28,171 5.14
---------- ------- ---------- -------
Total interest-
bearing deposits... 4,561,554 40,005 3.53 4,563,748 40,387 3.59
Short-term
borrowings........... 828,419 10,768 5.23 567,375 6,224 4.45
Long-term debt........ 82,682 1,404 6.83 40,933 694 6.88
---------- ------- ---------- -------
Total interest-
bearing funds...... 5,472,655 52,177 3.83 5,172,056 47,305 3.71
------- -------
Noninterest-bearing
deposits............... 1,356,820 1,262,194
Other liabilities and
accrued expenses....... 89,695 98,773
---------- ----------
Total liabilities... 6,919,170 6,533,023
Shareholders' equity.... 997,364 965,000
---------- ----------
Total liabilities
and shareholders'
equity............. $7,916,534 $7,498,023
========== ==========
Net interest income..... $97,843 $89,879
======= =======
Net interest rate
spread................. 4.17% 4.11%
Effect of noninterest-
bearing funds.......... 1.05 1.01
---- -----
Net interest margin on
earning assets......... 5.22% 5.12%
==== =====
Taxable-equivalent
adjustment included in:
Loan income........... $ 1,058 $ 1,023
Investment securities
income............... 142 151
------- -------
Total............... $ 1,200 $ 1,174
======= =======
</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 March 31, 2000.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits --
Exhibit 27 -- Financial Data Schedule
(b) No Forms 8-K filed.
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
May 10, 2000 Principal Executive Officer
/s/ H. Furlong Baldwin
_________________________________________
By: H. Furlong Baldwin
Chairman of the Board and
Chief Executive Officer
May 10, 2000 Principal Financial Officer
/s/ Terry L. Troupe
_________________________________________
By: Terry L. Troupe
Chief Financial Officer
May 10, 2000 Chief Accounting Officer
/s/ Diana E. Nelson
_________________________________________
By: Diana E. Nelson
Controller and Chief Accounting Officer
Page 13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET AS OF MARCH 31, 2000, FROM THE INCOME STATEMENT FOR THE 3 MONTHS ENDED
MARCH 31, 2000 AND FROM MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE PERIOD ENDED MARCH 31, 2000, AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> MAR-31-2000
<CASH> 254,048
<INT-BEARING-DEPOSITS> 152
<FED-FUNDS-SOLD> 72,646
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 1,629,262
<INVESTMENTS-CARRYING> 24,009
<INVESTMENTS-MARKET> 23,948
<LOANS> 5,907,037
<ALLOWANCE> 121,189
<TOTAL-ASSETS> 8,071,032
<DEPOSITS> 6,110,614
<SHORT-TERM> 788,214
<LIABILITIES-OTHER> 104,113
<LONG-TERM> 82,682
0
0
<COMMON> 136,236
<OTHER-SE> 849,173
<TOTAL-LIABILITIES-AND-EQUITY> 8,071,032
<INTEREST-LOAN> 124,172
<INTEREST-INVEST> 24,420
<INTEREST-OTHER> 228
<INTEREST-TOTAL> 148,820
<INTEREST-DEPOSIT> 40,005
<INTEREST-EXPENSE> 52,177
<INTEREST-INCOME-NET> 96,643
<LOAN-LOSSES> 3,015
<SECURITIES-GAINS> 69
<EXPENSE-OTHER> 58,570
<INCOME-PRETAX> 64,738
<INCOME-PRE-EXTRAORDINARY> 64,738
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 41,585
<EPS-BASIC> .61
<EPS-DILUTED> .60
<YIELD-ACTUAL> 5.22
<LOANS-NON> 21,762
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,811
<ALLOWANCE-OPEN> 117,997
<CHARGE-OFFS> 1,094
<RECOVERIES> 1,271
<ALLOWANCE-CLOSE> 121,189
<ALLOWANCE-DOMESTIC> 121,189
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>