Mercantile profit slips 3.3 percent

Low interest rates pare money made on loans in 4th quarter, bank says

January 24, 2002|By Bill Atkinson | Bill Atkinson,SUN STAFF

Mercantile Bankshares Corp.'s profit slipped 3.3 percent in the fourth quarter because of sharply falling interest rates that reduced the amount of money it made on its loans, the company said yesterday.

The state's largest independently owned banking company made $44.2 million, or 63 cents per diluted share, in the quarter that ended Dec. 31, compared with $45.7 million, or 64 cents per diluted share, a year earlier.

Still, the results met estimates of Wall Street analysts surveyed by Zacks Investment Research, and Mercantile's shares rose 14 cents to $44.75 yesterday.

For the full year, Mercantile's profit rose 3.5 percent to $181.3 million, or $2.55 per diluted share, compared with $175.2 million, or $2.51 per diluted share, in 2000.

"They kind of suffered through this year," said David M. West, a banking analyst at Richmond, Va.-based Davenport & Co.

But West and other analysts said Mercantile performed well in the face of a string of interest-rate cuts by the Federal Reserve Board.

"Mercantile's numbers were solid numbers considering the environment in which they operated in 2001," said Gerard S. Cassidy, a banking analyst at RBC Capital Markets in Portland, Maine.

Along with many other banks, Mercantile's profit was hurt by the Fed's decision to cut short-term interest rates 11 times last year. The moves have slashed the federal funds rate to 1.75 percent, a 40-year low.

As a result, Mercantile's net interest margin fell to 4.64 percent in the fourth quarter, from 5.24 percent a year earlier. The net interest margin shows how much a bank makes on loans and investments after interest payments to depositors and creditors.

Edward J. Kelly III, Mercantile's president and chief executive, said he was pleased with the results. "Notwithstanding the environment, loan growth was still there, and deposit growth was there," Kelly said.

Net interest income, or profit mainly from loans, fell 2.4 percent to $104.8 million in the quarter. During the year, net interest income rose 2.2 percent to $418.2 million.

Noninterest income, or revenue from fee-generating businesses, rose 18.4 percent to $38.3 million in the quarter. During the year, noninterest income was up 15.9 percent to $145.5 million.

Mercantile's loans grew 3.2 percent last year to $6.9 billion. Assets were up 11.1 percent to $9.9 billion, and deposits rose 9.6 percent to $7.4 billion.

While many larger banks have seen bad loans mount, Mercantile's nonperforming loans - loans that are 90 days past due on principal or interest - fell by $1.1 million since Sept. 30 to $32.9 million at year end, and represent 0.48 percent of loans.

"As always, this company is the creme de la creme of credit quality," Cassidy said.

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