<PAGE>
FORM 10-QSB
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934.
For the quarterly period ended March 31, 2000
Commission File Number: 0-24715
--------
MERRILL MERCHANTS BANCSHARES, INC.
MAINE 01-0471507
(State or other jurisdiction of (IRS Employer ID No.)
incorporation or organization)
201 Main Street
Bangor, Maine 04401
(Address of Principal Executive Office)
Issuer's telephone number, including area code: 207-942-4800.
Check whether the issuer (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: [ ]
The number of shares outstanding for the issuer's classes of common stock as of
April 30, 2000 are:
(Class) (Outstanding)
COMMON STOCK, $1.00 Par Value 2,586,867
Transitional Small Business Disclosure Format: Yes: [ ] No: [X]
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC.
INDEX TO FORM 10-QSB
<TABLE>
<CAPTION>
PAGE NO.
<S> <C>
PART I FINANCIAL INFORMATION
Item 1 Financial Statements
Independent Accountants' Report 3
Consolidated Statements of Financial Condition at
March 31, 2000 and December 31, 1999 4
Consolidated Statements of Income for the Three Months Ended
March 31, 2000 and 1999 5
Consolidated Statements of Shareholders' Equity for the
Three Months Ended March 31, 2000 and 1999 6
Consolidated Statements of Cash Flows for the Three
Months Ended March 31, 2000 and 1999 7
Notes to Financial Statements 8-10
Item 2 Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-13
PART II OTHER INFORMATION 14
Item 1 Legal Proceedings 14
Item 2 Changes in Securities and Use of Proceeds 14
Item 3 Defaults upon Senior Securities 14
Item 4 Submission of Matters to a Vote of Security Holders 14
Item 5 Other Information 14
Item 6 Exhibits and Reports on Form 8-K 14
Signature Page 14
</TABLE>
Page 2
<PAGE>
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors and Shareholders
Merrill Merchants Bancshares, Inc.
We have reviewed the accompanying interim consolidated financial information of
Merrill Merchants Bancshares, Inc. and Subsidiaries as of March 31, 2000, and
for the three-month period then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit in accordance with
generally accepted auditing standards, the objective of which is to express an
opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial statements for them to be in conformity
with generally accepted accounting principles.
/s/ BERRY, DUNN, McNEIL & PARKER, LLC
Portland, Maine
May 9, 2000
Page 3
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------- ---------
(in thousands, except number of shares and per share data) (Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 7,936 $ 9,081
Interest-bearing deposits with banks 34 41
--------- ---------
Total cash and cash equivalents 7,970 9,122
Investment securities
Available for sale 58,768 61,213
To be held to maturity 160 262
Loans held for sale 383 381
Loans receivable 144,542 136,222
Less allowance for loan losses 2,385 2,274
--------- ---------
Net loans receivable 142,157 133,948
Other real estate owned 50 50
Properties and equipment, net 3,811 3,074
Deferred income tax benefit 683 570
Accrued income and other assets 5,643 5,127
--------- ---------
Total assets $ 219,625 $ 213,747
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Demand deposits $ 28,970 $ 27,639
Savings and NOW deposits 77,650 77,759
Certificates of deposit 70,087 63,180
--------- ---------
Total deposits 176,707 168,578
Securities sold under agreements to
repurchase (term and demand) 13,406 13,791
Other borrowed funds 6,319 5,278
Accrued expenses and other liabilities 1,558 4,542
Mandatory convertible debentures 300 300
--------- ---------
Total liabilities 198,290 192,489
--------- ---------
Shareholders' equity
Convertible cumulative preferred stock, par value $1; authorized 50,000
shares, issued and outstanding 19,566 shares 20 20
Common stock, $1 par value; 4,000,000 shares authorized, shares issued 2,661,450
and outstanding 2,586,867 in 2000 and shares issued 2,583,986 and outstanding
2,517,739 in 1999 2,661 2,584
Capital surplus 17,917 17,220
Retained earnings 2,107 2,618
Unrealized loss on securities available for sale, net of tax of $(293) and
$(224) in 2000 and 1999, respectively (567) (435)
Treasury stock, at cost (74,583 shares in 2000 and 66,247 shares in 1999) (803) (749)
--------- ---------
Total shareholders' equity 21,335 21,258
--------- ---------
Total liabilities and shareholders' equity $ 219,625 $ 213,747
========= =========
</TABLE>
Page 4
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
(in thousands, except number of shares and per share data) 2000 1999
---- ----
<S> <C> <C>
Interest and dividend income
Interest and fees on loans $3,251 $2,884
Interest on investment securities 824 698
Dividends on investment securities 37 77
Interest on federal funds sold and interest-
bearing deposits 4 12
------ ------
Total interest and dividend income 4,116 3,671
------ ------
Interest expense
Interest on deposits 1,548 1,386
Interest on borrowed funds 272 148
------ ------
Total interest expense 1,820 1,534
------ ------
Net interest income 2,296 2,137
Provision for loan losses 110 75
------ ------
Net interest income after provision for
loan losses 2,186 2,062
------ ------
Non-interest income
Service charges on deposit accounts 162 123
Other service charges and fees 202 170
Trust fees 237 196
Other 305 100
Net gain on sale of mortgage loans 34 115
------ ------
Total non-interest income 940 704
------ ------
Non-interest expense
Salaries and employee benefits 1,300 946
Occupancy expense 175 159
Equipment expense 148 132
Data processing 145 177
Other 532 544
------ ------
Total non-interest expense 2,300 1,958
------ ------
Income before income taxes 826 808
Income tax expense 282 368
------ ------
Net income $ 544 $ 440
====== ======
Per share data
Basic earnings per common share $ .20 $ .16
====== ======
Diluted earnings per common share $ .18 $ .14
====== ======
</TABLE>
Page 5
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
(IN THOUSANDS, EXCEPT NUMBER OF SHARES AND PER SHARE DATA)
<TABLE>
<CAPTION>
Unrealized
Convertible Gain (Loss)
Cumulative on Securities Total
Preferred Common Capital Retained Available Treasury Shareholders'
Stock Stock Surplus Earnings for Sale Stock Equity
--------- ------ ------- -------- -------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1998 $20 $2,388 $15,527 $2,638 $ 82 $ -- $20,655
Net income -- -- -- 440 -- -- 440
Change in unrealized gain (loss) on
securities available for sale, net
of deferred income taxes of $(47) -- -- -- -- (92) -- (92)
--- ------ ------- ------ ------ ----- -------
Total comprehensive income -- -- -- 440 (92) -- 348
Treasury stock purchased (10,258
shares at an average price of
$11.46) -- -- -- -- -- (118) (118)
Common stock options exercised,
91,369 shares -- 73 172 (27) -- 58 276
5% common stock dividend declared -- 122 1,424 (1,546) -- -- --
Common stock cash dividend declared,
$0.03 per share -- -- -- (129) -- -- (129)
Convertible cumulative preferred
stock dividends declared, $.88
per share -- -- -- (17) -- -- (17)
--- ------ ------- ------ ------ ----- -------
Balance at March 31, 1999 $20 $2,583 $17,123 $1,359 $ (10) $ (60) $21,015
=== ====== ======= ====== ====== ===== =======
Balance at December 31, 1999 $20 $2,584 $17,220 $2,618 $ (435) $(749) $21,258
Net income -- -- -- 544 -- 544
Change in unrealized loss on
securities available for sale, net
of deferred income taxes of $(69) -- -- -- -- (132) -- (132)
--- ------ ------- ------ ------ ----- -------
Total comprehensive income -- -- -- 544 (132) -- 412
Treasury stock purchased (24,515 shares
at an average price of $10.14) -- -- -- -- -- (248) (248)
Common stock options exercised,
17,643 shares -- -- -- (106) -- 194 88
3% common stock dividend declared -- 77 697 (775) -- -- (1)
Common stock cash dividend
declared, $0.06 per share -- -- -- (155) -- -- (155)
Convertible cumulative preferred
stock dividends declared, $0.99
per share -- -- -- (19) -- -- (19)
--- ------ ------- ------ ------ ----- -------
Balance at March 31, 2000 $20 $2,661 $17,917 $2,107 $ (567) $(803) $21,335
=== ====== ======= ====== ====== ===== =======
</TABLE>
Page 6
<PAGE>
MERRILL MERCHANTS BANCSHARES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
(UNAUDITED)
<TABLE>
<CAPTION>
(in thousands) 2000 1999
-------- --------
<S> <C> <C>
Cash flows from operating activities
Net income $ 544 $ 440
Adjustments to reconcile net income to net cash provided by operating activities
Depreciation 87 73
Amortization 50 57
Net amortization (accretion) on investment securities (20) 49
Deferred income taxes (113) (59)
Provision for loan losses 110 75
Provision for losses on other real estate owned -- --
Unrealized gain on equity securities received from demutualization of insurance company (255) --
Net gain on sale of mortgage loans and property and equipment (34) (144)
Net change in:
Loans held for sale (2) 2,283
Deferred loan fees, net (4) --
Accrued income and other assets 8 135
Accrued expenses and other liabilities (3) 131
-------- --------
Net cash provided by operating activities 368 3,040
-------- --------
Cash flows from investing activities
Net (increase) decrease in loans made to customers (6,513) 4,501
Acquisition of premises and equipment (259) (21)
Proceeds from the sale of premises and equipment -- 160
Purchase of investment securities available for sale (8,012) (14,135)
Proceeds from sales and maturities of investment securities
Sales and maturities of available for sale securities 7,713 13,543
Maturities of held to maturity securities 102 99
Proceeds from sale of other real estate owned -- 92
-------- --------
Net cash (used) provided by investing activities (6,969) 4,239
-------- --------
Cash flows from financing activities
Net decrease in demand, savings and NOW deposits (2,384) (3,396)
Net increase (decrease) in certificates of deposit 4,244 (1,737)
Net decrease in securities sold under agreements to repurchase (651) (56)
Net increase in other borrowed funds 1,041 1,589
Cash received in branch acquisition 3,534 --
Dividends paid on convertible cumulative preferred stock and common stock (175) (146)
Purchase of treasury stock (248) (118)
Proceeds from stock issuance 88 276
-------- --------
Net cash provided (used) by financing activities 5,449 (3,588)
-------- --------
Net (decrease) increase in cash and cash equivalents (1,152) 3,691
Cash and cash equivalents, beginning of period 9,122 7,627
-------- --------
Cash and cash equivalents, end of period $ 7,970 $ 11,318
======== ========
Supplemental disclosures of cash flow information
Cash paid for interest $ 1,744 $ 1,520
Transfers to other real estate owned -- 80
Income tax paid 1 72
</TABLE>
Page 7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. All significant intercompany transactions and balances are
eliminated in consolidation. The income reported for the three month period
ended March 31, 2000 is not necessarily indicative of the results that may be
expected for the year ending December 31, 2000. For further information, refer
to the consolidated financial statements and footnotes thereto included in the
Company's annual report on Form 10-KSB for the year ended December 31, 1999.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Material estimates that are particularly susceptible to significant change in
the near term relate to the determination of the allowance for loan losses and
the valuation of real estate acquired in connection with foreclosures or in
satisfaction of loans. In connection with the determination of the allowance for
loan losses and the carrying value of real estate owned, management obtains
independent appraisals for significant properties.
The allowance for credit losses is maintained at a level adequate to absorb
probable losses. Management determines the adequacy of the allowance based upon
reviews of individual credits, recent loss experience, current economic
conditions, the risk characteristics of the various categories of loans and
other pertinent factors. Credits deemed uncollectible are charged to the
allowance. Provisions for credit losses and recoveries on loans previously
charged off are added to the allowance.
NOTE 2 - EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted earnings per
share for the three months ended March 31:
<TABLE>
<CAPTION>
(in thousands, except number of shares and per share data) 2000 1999
----- -----
<S> <C> <C>
Basic earnings per share
Net income, as reported $ 544 $ 440
Preferred stock dividends declared (19) (17)
----- -----
Income available to common shareholders $ 525 $ 423
===== =====
</TABLE>
Page 8
<PAGE>
<TABLE>
<CAPTION>
(in thousands, except number of shares and per share data) 2000 1999
---------- ----------
<S> <C> <C>
Weighted-average shares outstanding 2,596,610 2,622,280
========== ==========
Basic earnings per share $ 0.20 $ 0.16
========== ==========
Diluted earnings per share
Net income, as reported $ 544 $ 440
Interest on mandatory convertible debentures, net of tax 5 4
---------- ----------
Income available to common shareholders $ 549 $ 444
========== ==========
Weighted-average shares outstanding 2,596,610 2,622,280
Effect of stock options, net of assumed treasury stock purchases 188,625 239,797
Effect of convertible preferred stock 216,352 216,352
Effect of mandatory convertible debentures 72,114 72,114
---------- ----------
Adjusted weighted-average shares outstanding 3,073,701 3,150,543
========== ==========
Diluted earnings per share $ 0.18 $ 0.14
========== ==========
</TABLE>
The basic earnings per share computation is based upon the weighted-average
number of shares of stock outstanding during the period. Potential common stock
is considered in the calculation of weighted-average shares outstanding for
diluted earnings per share.
The Company declared a 3% stock dividend in 2000 and a 5% stock dividend in
1999. Earnings and cash dividends per share and weighted-average shares
outstanding have been retroactively restated to reflect the stock dividends.
NOTE 3 - IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In 1998, the American Institute of Certified Public Accountants issued Statement
of Position (SOP) No. 98-5, "Reporting on the Costs of Start-Up Activities." The
SOP requires costs of start-up activities to be expensed as incurred. The SOP is
effective for years beginning after December 15, 1998. The Company adopted the
SOP in 1999 resulting in a write-off of $44,000 included in other expenses in
the consolidated statement of income for the period ended March 31, 1999. This
item represents a cumulative effect of accounting change, net of tax of $28,000.
This write-off reduced both basic and diluted earnings per share by $.01.
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities," as amended by SFAS No. 137, is
effective for years beginning June 15, 2000. This statement sets accounting and
reporting standards for derivative instruments and hedging activities. It
requires that an entity recognize all derivatives as either assets or
liabilities in the balance sheet and measure those instruments at fair value.
This statement is expected to have no impact on the Company as it has not
engaged in any derivative transactions.
Page 9
<PAGE>
NOTE 4 - STOCK OPTIONS
A summary of the status of the Employee and Director Stock Option Plan as of
March 31, 2000, and changes during the three months then ended, is presented
below.
<TABLE>
<CAPTION>
Number Weighted
of Shares Exercise Price
--------- --------------
<S> <C> <C>
Outstanding at beginning of period 433,120 $ 5.28
Exercised during the period (17,643) 5.14
Forfeited during the period (769) 6.36
Additional shares for which options are exercisable
due to stock dividends 12,450 --
-------- --------
Outstanding at end of period 427,158 $ 5.06
======== ========
</TABLE>
NOTE 5 - BRANCH ACQUISITION
On February 25, 2000, the Bank completed its acquisition of a branch located in
Holden, Maine. The Holden Branch had $2.1 million of loans and investments and
$6.5 million of deposits and borrowings. Goodwill of $340,000 is being amortized
using the straight-line method over seven years.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Certain matters discussed in this Report on Form 10-QSB are forward-looking
statements that are subject to risks and uncertainties that could cause actual
results to differ materially from those projected. Such risks and uncertainties
include, but are not limited to, those described in Management's Discussion and
Analysis of Financial Condition and Results of Operations. Changes to such risks
and uncertainties, which could impact future financial performance, include,
among other things, (1) competitive pressures in the banking industry; (2)
changes in the interest rate environment; (3) general economic conditions,
either nationally or regionally; (4) changes in the regulatory environment; (5)
changes in business conditions and inflation; and (6) changes in security
markets. Therefore, the information set forth therein should be carefully
considered when evaluating the business prospects of the Company and the Bank.
I. COMPARISON OF FINANCIAL CONDITION AT MARCH 31, 2000 AND DECEMBER 31, 1999
Total assets increased $5.9 million or 3% to $219.6 million during the first
three months of 2000. The increase was the result of growth in the loan
portfolio of $8.3 million or 6% (including $1.8 million of loans purchased by
branch acquisition) which was offset by a decline in the investment portfolio of
$2.5 million and cash and due from banks of $1.2 million. Commercial and
commercial real estate loan activity accounted for $6.5 million of the net new
loan growth. Consumer
Page 10
<PAGE>
loans increased $732,000 or 7% since year-end due to loans generated by Maine
Acceptance Corporation, a finance company established in March of 1999. Both
cash and investment securities declined in balances since year-end due to the
excess liquidity maintained by the Bank at December 31, 1999 for Year 2000
contingency purposes.
Total deposits increased $8.1 million or 5% to $176.7 million for the first
three months of 2000. The increase is primarily the result of assuming $6.3
million of deposits from the Holden branch acquisition. Non-interest bearing
checking account balances increased $1.3 million or 5% since December 31, 1999
and certificates of deposit balances increased by $6.9 million or 11% since year
end. The increase in certificates of deposit is the result of higher interest
rates on both the national and local level.
Accrued expenses and other liabilities decreased to $1.6 million at March 31,
2000 from $4.5 million at December 31, 1999. At year-end, the Company accrued
for the purchase of $3.0 million of investment securities that settled in
January 2000.
In originating loans, the Bank recognizes that loan losses will be experienced
and that the risk of loss will vary with, among other things, the type of loan
being made, the creditworthiness of the borrower over the term of the loan and,
in the case of collateralized loans, the quality of the collateral for the loan
as well as general economic conditions. It is management's policy to attempt to
maintain an adequate allowance for loan losses based on, among other things,
industry standards, management's experience, the Bank's historical loan loss
experience, evaluation of economic conditions and regular reviews of
delinquencies and loan portfolio quality.
Management continues to actively monitor the Bank's asset quality and to charge
off loans against the allowance for loan losses when appropriate or to provide
specific loan allowances when necessary. Although management believes it uses
the best information available to make determinations with respect to the
allowance for loan losses, future adjustments may be necessary if economic
conditions differ from the economic conditions in the assumptions used in making
the final determinations. The Bank's allowance for loan losses amounted to $2.4
million at March 31, 2000 (1.65% of total loans), an increase of $111,000 over
the Bank's $2.3 million allowance for loan losses at December 31, 1999.
II. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND 1999
Net income for the three months ended March 31, 2000 was $544,000, an increase
of $104,000 or 24% from the same period in 1999. Diluted earnings per share
increased 29% to $.18 per share for the first quarter of 2000 compared to $.14
per share for the first quarter of 1999.
The annualized return on average assets for the three months ended March 31,
2000 and 1999 was 1.02% and .91%, respectively. Return on average shareholders'
equity on an annualized basis for the same 2000 and 1999 three month periods was
9.97% and 8.55%, respectively.
Page 11
<PAGE>
III. NET INTEREST INCOME
Net interest income is interest earned on interest-earning assets less interest
incurred on interest-bearing liabilities. Interest-earning assets are
categorized as loans, investment securities and other earning assets, which
include Federal Funds sold and interest-bearing deposits from other financial
institutions. Interest-bearing liabilities are categorized as customer deposits,
time and savings deposits and borrowings including repurchase agreements,
short-term borrowings and long-term debt. Net interest income depends on the
volume of average interest-earning assets and average interest-bearing
liabilities and the interest rates earned or incurred on them.
Net interest income for the three months ended March 31, 2000 was $2.3 million,
a 7% increase over the net interest income for the first three months of 1999 of
$2.1 million. This increase is attributable to an increase in average earning
assets (both loans and investment securities) to $200.1 million in 2000 from
$185.0 million in 1999. This was accompanied by an increase in the average rate
earned on interest-earning assets to 8.20% from 7.98% for the three months ended
March 31, 2000 and 1999, respectively. The increase in rates is due to the
Federal Reserve increasing the federal funds rate from 5.00% starting July 1999
to 6.00% in March 2000.
The average interest rate incurred on interest-bearing liabilities for the three
month period in 2000 and 1999 was 4.46% and 4.14%, respectively on average
interest-bearing liabilities of $164.0 million in 2000 and $150.2 million in
1999. Despite the increase in general interest rates, the Company's net interest
margin decreased to 4.54% for the three months ended March 31, 2000 compared to
4.61% for the same period in 1999. The decline in the net interest margin is the
result of deposits repricing faster than loans in a higher interest rate
environment. Management currently anticipates a future decline in the net
interest margin due to industry-wide pricing pressure on loans and deposits.
IV. NON-INTEREST INCOME
Non-interest income for the three months ended March 31, 2000 and 1999 totaled
$940,000 and $704,000, respectively, an increase of $236,000 or 34%. Other
non-interest income for 2000 includes a one-time gain of $256,000 resulting from
the demutualization of an insurance company for which the Company, as a
policyholder, received common stock. The Company continues to experience growth
in fee income categories. Comparing March 31, 2000 to March 31, 1999, service
fees on deposit accounts increased 32%, trust fees grew 21% and merchant
processing fees were up 37%. The mortgage servicing portfolio increased to $66.9
million at March 31, 2000, an increase of $4.4 million since March 31, 1999.
Trust fees have increased due to growth of trust assets under management to
$207.3 million at March 31, 2000 compared with trust assets of $189.5 million at
March 31, 1999.
Gains on the sale of mortgage loans decreased to $34,000 for the first quarter
of 2000 compared to $115,000 for 1999 due to the decline in mortgage refinancing
activity resulting from higher interest rates in 2000. In 1999, a $29,000 gain
was realized from the sale of a facility formerly the Union Street branch
office.
Page 12
<PAGE>
V. NON-INTEREST EXPENSE
Non-interest expense was $2.3 million for the period ended March 31, 2000 as
compared to $2.0 million in 1999. The $342,000, or 17%, increase was due to an
increase in salaries and employee benefits of $354,000. Personnel costs in 2000
increased 12% when excluding a non-recurring charge of $238,000 resulting from
restructuring and amending the Company's supplemental executive retirement plan.
Salaries and employee benefits have also increased for the first quarter of 2000
compared to 1999 due to normal annual salary increases, new staffing needs for
the finance company, two new convenience store branches, the newly acquired
Holden branch and additional staffing required for the data processing system
conversion.
VI. YEAR 2000
Based on a review of the Bank's and the Company's business since January 1,
2000, the Company has not experienced any material effects of the year 2000
problem. Although the Company has not been informed of any material risks
associated with the year 2000 problem from third parties, there can be no
assurance that the Company will not be impacted in the future. The Company will
continuously monitor its business applications and maintain contact with its
third party vendors and key business partners to resolve any year 2000 problems
that may arise in the future.
Direct costs of $18,000 (excluding employee hours) are included in non-interest
expense for the three months ended March 31, 1999. The Company does not
anticipate any year 2000 expenditures during 2000.
VII. CAPITAL
A 3% common stock dividend was distributed on February 28, 2000. Cash dividends
per share declared on common stock were $.06 for the first quarter of 2000.
Under Federal Reserve Board guidelines, bank holding companies such as the
Company are required to maintain capital based on "risk-adjusted" assets. These
guidelines apply to the Company on a consolidated basis. Under the current
guidelines, banking organizations must maintain a risk-based capital ratio of
eight percent. The Company's risk based capital ratios for Tier 1 and Tier 2
capital at March 31, 2000, of 14.91% and 16.38%, respectively, exceed regulatory
guidelines for a "well capitalized" financial institution. The Company's ratios
at December 31, 1999 were 15.96% and 17.44%.
On April 28, 2000, the Board of Directors approved its second stock repurchase
program authorizing the Company to repurchase up to 129,416 shares of the
Company's common stock. The second repurchase program will commence upon
completion of the Company's existing stock repurchase program, under which the
Company has repurchased 104,758 shares of the 126,000 shares authorized under
such program. The shares will be repurchased into treasury for the purpose of
funding the expected exercise of stock options pursuant to the Company's stock
option plan.
Page 13
<PAGE>
PART II. OTHER INFORMATION
<TABLE>
<S> <C>
Item 1 Legal Proceedings None
Item 2 Changes in Securities None
Item 3 Defaults upon Senior Securities None
Item 4 Submission of Matters to a Vote of Security Holders None
Item 5 Other Information None
Item 6 Exhibits and Reports on Form 8-K See Exh. 27-Financial Data Schedule *
</TABLE>
*Filed in electronic format only.
Page 14
<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.
MERRILL MERCHANTS BANCSHARES, INC.
Date: 5/12/00 By: /s/ Edwin N. Clift
----------------- -------------------------------------
Edwin N. Clift
President and Chief Executive Officer
(Principal Executive Officer)
Date: 5/12/00 By: /s/ Deborah A. Jordan
----------------- -------------------------------------
Deborah A. Jordan
Senior Vice President and
Treasurer (Principal Financial
and Accounting Officer)
Page 15
<TABLE> <S> <C>
<PAGE>
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<S> <C>
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0
20
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</TABLE>
