Mercantile's earnings up 5.2% in 2nd quarter

Rise occurs despite costly loan charge-offs

July 19, 2002|By William Patalon III | William Patalon III,SUN STAFF

Mercantile Bankshares Corp. yesterday reported a 5.2 percent increase in second-quarter net income, even though it used the quarter to clean up credit problems in its lending portfolio.

For the quarter that ended June 30, net income was $46.9 million, a 5.2 percent increase over the $44.6 million reported for the second quarter last year. Earnings per share were 67 cents on a fully diluted basis, up 8.1 percent from the 62 cents reported for the 2001 quarter.

"I think the quarter was better than we expected," said Gerard S. Cassidy, a banking analyst and managing director for RBC Capital Markets in Portland, Maine. "We expected a much higher level of charge-offs [on problem loans]. ... They were able to aggressively attack their credit problems without damaging the long-term earnings potential of the bank."

From the end of the first quarter to the end of the second quarter, nonperforming assets declined $6.2 million, or 12 percent, to $45.3 million. Mercantile's management decided to tackle credit problems in its loan and leasing portfolios, writing off loans that warranted it.

The bank's biggest credit problem remained its leasing business, where it reduced nonperforming assets from $19.4 million at the end of the first quarter to $10.1 million at the end of the second. Mercantile also partially wrote off an $11.3 million loan to a company that did business with the now-troubled telecommunications industry.

Overall, net charge-offs increased to $13.2 million in the second quarter from $370,000 in the first. The provision for loan losses grew from $3.1 million in the first quarter to $5.1 million in the second. Loan-loss provisions were $3.2 million in second-quarter 2001, the bank said.

"We decided to use the second quarter to clean up our credit portfolio and take the [needed] charge-offs," said Terry L. Troupe, Mercantile's treasurer and chief financial officer. "That would return us to a more normal situation" allowing the bank to move forward.

Analysts approved of the moves, said RBC's Cassidy. Mercantile took strong actions to maintain its conservative reputation, which is especially crucial in the current environment, where it's hard to find sound companies to invest in.

"Mercantile is a safe haven for investors" who wish to own bank stocks, but are wary of most, Cassidy said. "There are never going to be any corporate-governance problems [within Mercantile]."

Mercantile's shares lost 7 cents yesterday to $37.44 on the Nasdaq stock market.

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