Mercantile profits rose 19% in the 2nd quarter

THE BALTIMORE SUN

Mercantile Bankshares Corp. said yesterday that its profits for the second quarter rose to $26.1 million, up 19 percent over last year's period, thanks partly to a higher-than-expected price it received for a piece of foreclosed property.

The Baltimore-based bank holding company, owner of 20 community banks in Maryland, Virginia and Delaware, said its earnings in the three months that ended June 30 were equal to 55 cents a share, up from $22 million, or 46 cents a share, a year earlier.

Much of the boost in income stemmed from an unexpected $2.75 million gain on the sale of an unidentified piece of Maryland commercial real estate. Without the extraordinary gain, the banking company, with $5.9 billion in assets, would have recorded an increase in net income of 10.5 percent over the same period last year, according to Mercantile spokesman David E. Borowy.

Overall, he said, bank officials felt that Mercantile just finished "a decent quarter. We felt it was a good performance in the basics of banking."

The bank's annualized return on assets rose a quarter of a percentage point to a strong 1.78 percent.

For the first six months of 1995, Mercantile said it earned $50.3 million, up 15 percent from last year's first quarter.

Analysts said they were pleasantly surprised by the strong showing, but were split over whether the bank could keep up such strong earnings growth.

Kate Belcher, a bank analyst for Gruntal & Co. in New York, said she was "more than pleased" with the higher-than-expected profits.

She especially liked Mercantile's expansion of its net interest margin -- a key measure of the difference between what it pays for deposits and what it earns on the money it loans -- to 5.24 percent from last spring's 4.84 percent.

"A lot of [banks] were showing flat to down margins," she said.

"They are unlike any other company I follow. They have an old-fashioned conservative mentality" that pays off in consistent profits, she said, predicting that the bank would be able to keep up its double-digit profit increases.

But Joel K. Gomberg, a bank analyst for Duff & Phelps Investment Research in Chicago, wasn't so sure.

Like most banks, he said, Mercantile is having a difficult time increasing the income it receives from fees because of increasing competition for fee-generating business, such as the management of trusts.

The recent drop in interest rates would also likely hurt Mercantile's profit margin, Mr. Gomberg said.

Although he considers Mercantile "a solid organization with strong management," Mr. Gomberg said he doubted the current rate of profit increases would continue.

Mercantile, parent of Mercantile-Safe Deposit and Trust Co., closed up 25 cents at $23.375 a share.

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