Higher rates, fee gains fueled profit rise of 20.4% in third quarter at Mercantile

Earnings increased to $56.8 million from $47.2 million a year ago

October 20, 2004|By Bill Atkinson | Bill Atkinson,SUN STAFF

Higher short-term interest rates and gains in fees for services boosted Mercantile Bankshares Corp.'s profit 20.4 percent in the third quarter, the company said yesterday.

The Baltimore-based banking company, the largest independently owned bank in the state, made $56.8 million in the quarter that ended Sept. 30, compared with $47.2 million in the quarter a year ago.

Diluted net income per share rose 13 percent to 71 cents in the quarter, up from 63 cents a year earlier. The number of shares outstanding rose to 79.6 million in the quarter, up from 74.8 million a year earlier in connection with the acquisition of F&M Bancorp of Frederick last year.

"I thought the quarter was fairly good," said Christopher W. Marinac, a banking analyst at FIG Partners in Atlanta. "I think Mercantile should see ... stronger earnings. It remains to be seen how much loan growth will occur; that is as much an industry problem as anything."

Shares of Mercantile lost 57 cents yesterday to close at $48.52.

In the first nine months of the year, Mercantile made $168.8 million, up 15.5 percent from $146.2 million a year earlier. Diluted net income per share rose 3 percent to $2.11, compared with $2.05 last year.

Low interest rates have slowed Mercantile's profits in recent years, but its income has strengthened as rates have inched higher.

"I think we have been positioned for some time for a strong economy and rising rates," Edward J. Kelly III, chairman and chief executive of Mercantile, said during a conference call with analysts. "I don't want to overstate optimism because I think there is still some uncertainty in the market about what might happen on the rate front and in fact how robust the economy is, but certainly from where we sit there are better signs than we have seen for some time."

Mercantile's earnings in the quarter were propelled by gains in net interest income, profit mainly from loans, which rose 13.5 percent to $138.7 million, up from $122.2 million in the second quarter last year.

Income from business that generates fees rose 16 percent in the quarter to $53.4 million, compared with $45.9 million in the year-earlier quarter. Revenue from investment and wealth management increased 8.8 percent to $22.4 million. Service charges on deposit accounts were up 9.6 percent to $10.6 million, and other income rose 37.4 percent to $17.3 million.

Mercantile's assets rose 3 percent to $14.3 billion at the end of last month. Loans increased 11 percent to $10 billion, and deposits were up 4 percent to $10.7 billion.

Kelly said during the conference call that the company will work to reduce expenses, which were up 9 percent in the quarter, to $99.2 million. The bank spent $2.7 million consolidating 11 bank affiliates into four, which included $2.2 million in severance costs. Professional fees rose 33 percent in the quarter to $7.2 million, up from $5.4 million a year earlier.

Mercantile spent $900,000 in its failed attempt to acquire Washington-based Riggs National Corp., $500,000 to comply with Sarbanes-Oxley legislation and $800,000 largely related to litigation involving John J. Pileggi, a senior Mercantile executive who was fired last spring amid allegations that he breached his fiduciary duty.

Mercantile sued Pileggi for more than $8 million in Baltimore Circuit Court last month, after Pileggi sued the bank for $240 million over his dismissal in the spring.

Kelly reaffirmed his desire to expand the company, which had 229 branches at the end of the quarter and 3,419 employees.

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