Lending, trust income lift Mercantile net 15% $27.7 million -- earned in first quarter

Banking

April 18, 1996|By Bill Atkinson | Bill Atkinson,SUN STAFF

Fueled by gains in its lending and trust operations, Mercantile Bankshares Corp.'s net income rose 15 percent in the first quarter, the company said yesterday.

Baltimore's largest independently owned banking company earned $27.7 million in the quarter, or 58 cents a share, compared with earnings of $24.2 million, or 50 cents a share, a year earlier.

"If there is one thing you can count on from Mercantile, it is consistent quality earnings," said Vernon Plack, an analyst with Scott & Stringfellow Inc. in Richmond, Va. "Once again they have delivered. Their performance, the consistency, the quality of their earnings are one of the reasons why their stock trades at a premium to the group."

Mercantile's shares closed yesterday at $25.375, down 37.5 cents.

The company's strong first-quarter showing surprised Alex C. Hart, an analyst with Ferris, Baker Watts Inc. He expected that the banking company, with average assets of $6.3 billion, would earn 55 cents a share instead of 58 cents.

"I'm in the process of revising my estimates [for the year] up a bit," he said. "I know my estimates are going up, I just don't know how much yet. You cannot argue with their track record."

Mr. Hart said he is advising clients to buy Mercantile stock afew shares at a time instead of loading up all at once.

"It is attractive for long-term investors," Mr. Hart said.

Mercantile profits were driven by an increase in net interest income -- income from loans and investments -- which jumped to $75 million, up 8 percent from a year earlier. Loans grew 8 percent to $4.3 billion in a market where competition between lenders has intensified.

Income also was buoyed by a $66,000 gain on investments, compared with $993,000 in losses on securities in the 1995 quarter, and by a 6 percent increase in trust division revenues.

Mercantile maintained a tight grip on expenses, which rose just 1 percent to $50.2 million. The company boasts an efficiency ratio of 50.6 percent, which means it costs the bank 50 cents to generate $1 in net interest income and other fee income. Banks of similar size across the country spend about 60 cents to generate $1 of income.

Mr. Plack said the challenge that faces Mercantile is to continue finding good loans at a time when competition is especially keen. Banks are "hitting the revenue wall," he said. "Now comes the hard part, which is finding new customers and being able to grow profitably."

Pub Date: 4/18/96

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