Mercantile's 3rd-quarter earnings up 6.2%

Solid credit quality, fewer bad-loan write-offs noted

October 18, 2002|By Dan Thanh Dang | Dan Thanh Dang,SUN STAFF

Despite a weakened economy, low interest rates and a sagging stock market, Mercantile Bankshares Corp. has posted a 6.2 percent increase in earnings, a solid gain that resulted from strong credit quality and fewer bad-loan write-offs.

The state's largest independently owned banking company said yesterday that it earned $48.6 million, or 69 cents per diluted share, in the quarter that ended Sept. 30, compared with $46 million, or 65 cents per diluted share, in last year's quarter.

Analysts applauded the company's meeting Wall Street expectations and posting gains despite an unfavorable banking environment.

"In an environment that has been very challenging for banks, particularly for banks like Mercantile that are asset-sensitive, they've put up very strong results," Gerard S. Cassidy, managing director of bank equity research at RBC Capital Markets, said yesterday. "They are in a low-rate environment. ... Your assets re-price more quickly than your liabilities. It's difficult to maintain your margins and spreads.

"The company was able to garner increased deposits throughout its franchise that were used to build their balance sheet to help drive revenue growth. All in all, when we look at Mercantile's numbers, this company has demonstrated over decades that it can grow its earnings and revenue in all types of environments. As a result, it has been awarded a higher stock valuation than other banks."

Shares of Mercantile gained $1.78 yesterday on the Nasdaq stock market to close at $38.03.

Net interest income, or profit mainly from loans, jumped 7 percent in the quarter, to $111.9 million from $104.6 million in the corresponding period last year.

Loans rose 4.4 percent, to $7.2 billion, and assets climbed 11.8 percent, to $10.6 billion. Total deposits grew 11.7 percent, to $8.04 billion from $7.2 million.

Net charge-offs, or bad loans the company has to write off, plunged 64 percent in the third quarter, to $2.1 million, from $5.7 million last year.

In the nine months that ended Sept. 30, Mercantile made $141.7 million, or $2.02 per diluted share, compared with $137.1 million, or $1.92 per diluted share, a year ago.

"If they keep up loan demand and keep their credit quality in check, achieving earnings growth shouldn't be a problem in the fourth quarter," said Collyn Bement Gilbert, senior bank analyst with Ryan Beck & Co. "Mercantile has had slower growth in the past year and a half, due in part because they are heavy in the commercial loan segment."

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