Profits rise at 3 banks with Md. ties

M&T up 37%

Mercantile and 1st Mariner, 13%

April 21, 2004|By Paul Adams | Paul Adams,SUN STAFF

Three banks with a strong Maryland presence reported moderately to sharply higher first-quarter profits yesterday as the effects of major acquisitions and continued loan growth lifted revenue despite a drop-off in mortgage lending.

Net income grew 37 percent to $159 million at M&T Bank Corp., which attributed much of the increase to its April 1, 2003, acquisition of Allfirst Financial Inc.

Mercantile Bankshares Corp.'s profit increased 13.7 percent to $55.7 million, mostly a result of growth achieved through its purchase of F&M Bancorp of Frederick in August.

First Mariner Bancorp reported a 13 percent increase in net income to $1.3 million despite lower fee income from its mortgage loan business.

A growing economy fueled by low interest rates and strong consumer spending has lifted corporate profits and helped banks increase loans, analyst said.

"For the banks that have reported earnings thus far ... most have reported very strong to solid results," said Gerard S. Cassidy, an analyst with RBC Capital Markets in Portland, Maine. "The companies that have come up with weaker results tended to be community banks that were very reliant on mortgage lending."

The results for M&T, which held its annual meeting yesterday in Buffalo, N.Y., amounted to earnings of $1.30 per share for the quarter that ended March 31, compared with $1.23 for the first quarter of last year, when the bank reported net income of $117 million.

"The recent quarter reflected mixed results for M&T," said Michael P. Pinto, the bank's chief financial officer.

In a conference call with analysts, Pinto said he was encouraged by a late-quarter rise in loan volume, but the bank's mortgage income suffered. The bank took a $7 million after-tax charge for possible impairment of residential mortgage servicing rights resulting from a decline in mortgage interest rates late in the quarter.

Robert G. Wilmers, the bank's chief executive and chairman, said in a speech to shareholders yesterday that commercial and industrial loans remain lower than might be expected considering rising corporate profits. Wilmers said research suggests that many companies have chosen to retain earnings rather than risk investing in a fragile economic recovery.

"As a result, they are flush with cash and can self-finance new investments, thus meeting their capital needs without help from financial institutions," Wilmers said.

The Allfirst acquisition raised the Buffalo-based bank's total assets by 52 percent to $50.8 billion. Deposits climbed to $33.3 billion from $21.9 billion in last year's first quarter.

The company's shares are down from a 52-week high of $98.55 Dec. 30 and have lagged behind those of M&T's industry peers. The bank's shares fell $2.43, or 2.8 percent, to $83.86 yesterday.

In an April 15 research report, Legg Mason analyst Adam C. Barkstrom suggested that Wall Street had been too hard on the bank's shares. He raised his rating on the company's shares to "buy" from "hold," setting a target price of $98.

"At current pricing, we believe the shares offer a compelling buying opportunity as we think the current negative sentiment in the stock going into the first quarter is more than priced into the shares," Barkstrom wrote.

Though Mercantile Bankshares reported an increase in net income, earnings per share fell 2 cents to 69 cents because of the 10.4 million new shares the bank issued as part of its acquisition of F&M. The earnings were in line with analysts' estimates.

The F&M purchase lifted total loans by 27 percent to $9.4 billion compared with those in the first quarter last year, and deposits climbed 24 percent to $10.5 billion, the bank said. The bank said it had merger costs of $248,000 in the quarter but doesn't expect further merger expenses.

The bank's shares closed down 77 cents, or 1.8 percent, to $40.86 yesterday.

"My view is, while we've made substantial progress, it's not good enough," said Edward J. "Ned" Kelly III, the bank's chairman, president and chief executive.

Gary B. Townsend, an analyst with Friedman, Billings, Ramsey Co. Inc., described it as an average quarter. The bank has met its projections for eliminating costs with the F&M merger but has not exceeded expectations.

"It has not been a stunning success from what I can see," he said of the merger.

Cassidy, the RBC analyst, said Mercantile has the potential to increase profits if interest rates rise this year. Mercantile has suffered disproportionately as interest rates have remained low, resulting in a smaller difference between what it charges borrowers and what it pays depositors in interest.

"They have long suffered the falling rate environment from January of 2001, and their day in the sun is coming upon us quickly," he said.

First Mariner's net income of $1.3 million was up from $1.2 million in the first quarter last year. Earnings per share grew a penny to 21 cents. First Mariner shares closed down 9 cents to $18.71 per share in trading yesterday.

The company reported record assets of $1.1 billion, 20 percent more than in the first quarter of last year.

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