Mercantile posts 13% increase in profit

Higher rates `on horizon' leave CEO very upbeat

Bank has `strong quarter'

July 21, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

Mercantile Bankshares Corp. said yesterday that second-quarter profit rose 13 percent, propelled by gains in interest income, deposit account fees and its wealth management business.

The state's largest independently owned banking company made $56.3 million in the quarter that ended June 30, compared with $50 million in the second quarter last year.

Earnings per share were 71 cents, down from 72 cents in 2003 - a result of the 10.4 million shares issued to buy F&M Bancorp of Frederick. The previous year's quarter included 6 cents in gains from the sale of investment securities.

The results were a penny shy of estimates of 14 Wall Street analysts surveyed by Nelson Information/Thomson Financial. Mercantile's shares fell 44 cents yesterday to close at $45.32 on the Nasdaq.

"It was a strong quarter for the company," said Gerard S. Cassidy, a banking analyst with RBC Capital Markets in Portland, Maine. "Overall, the basic banking business is as good as it has always been. There are no bumps in the road on the banking business."

Edward J. Kelly III, chairman and chief executive of the Baltimore banking company, told analysts in a teleconference that he was pleased with the results.

He also was optimistic about Mercantile's future performance because interest rates are expected to rise.

The company has $3.6 billion in loans tied to the prime rate, and the interest the bank charges borrowers rises and falls as short-term interest rates move up and down. Even a quarter of a percentage point increase means millions of dollars for Mercantile, Kelly said.

"Higher rates do seem to be on the horizon, we are very optimistic about our prospects," Kelly said.

For the first six months of the year, Mercantile made $112 million, up 13 percent from the first half of 2003. Diluted net income per share was $1.40, down 2 percent, because of the increase in shares due to the acquisition of F&M.

Profit from loans

Mercantile's earnings in the quarter were driven by strong gains in net interest income, or profit mainly from loans, which rose 18 percent to $133.1 million, up from $112.7 million in the second quarter last year.

Revenue from investment and wealth management business increased 17.6 percent to $22.9 million. Service charges on deposit accounts rose 24.5 percent to $10.4 million.

Mercantile's assets were up 23 percent to $14.1 billion at the end of June. Loans rose 29 percent to $9.8 billion, and deposits were up 23 percent to $10.6 billion. The gains were primarily due to the company's acquisition of F&M Bancorp a year ago.

In the conference call, Kelly said the company plans to continue to focus on expanding in Northern Virginia.

He also said Mercantile, which reportedly was interested in acquiring troubled Riggs National Corp., the parent of Washington's leading bank, will remain a disciplined acquirer. Riggs was bought last week by PNC Financial Services Group Inc. of Pittsburgh.

`Discipline' to persist

"We have passed on many deals," Kelly said. "We have done only one. I can assure you that that discipline will persist."

Kelly said the company plans to remain independent.

"We ... have no plans to sell," he said. "We are optimistic about the future."

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