Mercantile net income up 8% in 2nd quarter

July 26, 2006|By LAURA SMITHERMAN | LAURA SMITHERMAN,SUN REPORTER

Mercantile Bankshares Corp. reported yesterday that its net income rose nearly 8 percent, while management at Maryland's largest independent bank warned that rising interest rates would continue to put pressure on their ability to increase profits.

The bank posted a second-quarter profit of $73.1 million, or 59 cents per share, compared with $67.9 million, or 56 cents per share, a year ago. The latest earnings were in line with analysts' estimates, according to those polled by Thomson Financial.

Nevertheless, Mercantile's shares fell 7 cents, or less than 1 percent, to close at $35.44 yesterday on the Nasdaq stock market.

"As I have said in the past, we are not immune from the difficult interest rate and competitive environment facing banks generally," said Edward J. "Ned" Kelly III, the bank's chairman and chief executive officer. "On balance, I think we had a solid quarter."

Mercantile reported a slight decline to 4.3 percent in its net interest margin, a key financial measure in the industry that represents the spread between what a bank earns from loans and other investments and the interest it pays out. The spread narrowed partly because customers flocked to money market accounts and certificates of deposit that carry higher rates.

Over the past year, the bank's total assets increased 6 percent, to $17 billion at the end of June. Deposits grew 5 percent to $12.4 billion, and loans rose 6 percent to $12.1 billion. Interest income increased 6 percent year over year to $163 million as commercial real estate, construction and consumer loans posted the biggest gains, followed by residential mortgages.

Noninterest income, which includes fees from the investment and wealth management division, increased 7 percent to $64.5 million, partly because the bank restructured a relationship with an institutional investor and increased its fees. The division has about $20 billion in assets under management.

laura.smitherman@baltsun.com

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