Mercantile profit rises by 8.1 percent

4th-quarter earnings fueled by loan growth, revenue on products


January 21, 2000|By Bill Atkinson | Bill Atkinson,SUN STAFF

Mercantile Bankshares Corp. reported yesterday that its fourth-quarter profit, fueled by strong growth in loans and revenue on banking products, rose 8.1 percent to $40.8 million.

Net income per diluted share for the three months that ended Dec. 31 rose 11.3 percent to 59 cents, compared with 53 cents per diluted share in the fourth period a year earlier.

The quarter's earnings met Wall Street expectations, according to Zacks Investment Research, which surveyed 11 analysts.

"They really ended the year with a bang," said Christopher M. Mutascio, a bank analyst at Legg Mason Wood Walker Inc. in Baltimore. "I thought it was a very high-quality quarter, the type of quality that you expect from Mercantile."

Mercantile's shares closed at $29.1875, down 93.75 cents, yesterday on the Nasdaq.

For the full year, Mercantile's profit rose 7.2 percent to $157.7 million, compared with $147.1 million in 1998. Net income per diluted share increased 10.3 percent to $2.25 for the 12 month-period, compared with $2.04 a year earlier.

Mercantile had 68.6 million shares outstanding as of Dec. 31 vs. 71 million a year earlier.

To gauge a bank's overall profitability, analysts use several measures, including the return on average assets ratio. Mercantile returned 2.07 percent on average assets in the year, up from 2.03 percent in the corresponding period a year earlier.

In other words, it made $2.07 for every $100 in assets, beating the industry's average of about $1.42 for all banks.

Unlike some banks that have been pinched by rising interest rates, Mercantile has thrived. As a large commercial lender, many of its loans are tied to the prime rate, and thus borrowers pay more as interest rates rise.

"We are positioned so that performance is enhanced during a period of rising interest rates," said David E. Borowy, head of investor relations at Mercantile.

As a result, Mercantile's net interest margin remained steady in the year at 5.17 percent, compared with 5.20 percent in 1998. The net interest margin is a ratio that measures how much a bank earns on loans and investments after interest payments to depositors and creditors.

Increasing income from loans, a robust trust business and service charges on deposits also boosted profit during the year.

Net interest income, or money generated largely from loans, rose 4.4 percent in the year to $369.1 million, compared with $353.4 million in 1998.

The trust division made $65 million in the year, an increase of 12.1 percent, compared with $58 million a year earlier.

Mercantile's assets grew 3.8 percent to $7.9 billion in the year, loans rose 9.6 percent to $5.6 billion, and deposits were flat at $5.9 billion.

Mercantile's loan portfolio had few blemishes for a bank of its size. Nonperforming loans -- loans that are past due on principal or interest 90 days -- declined 10.2 percent in the year to $19.1 million from $21.3 million in 1998.

Nonperforming loans represented just 0.33 percent of total loans.

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