Mercantile posts 15.5% earnings gain; 'They do banking the old-fashioned way'; Banking


Mercantile Bankshares Corp.'s net income jumped 15.5 percent in the fourth quarter, fueled by revenue gains in its trust business and by fees it charges customers for other banking services.

The Baltimore-based banking company made $37.8 million in the fourth quarter that ended Dec. 31, compared with $32.7 million in the corresponding period a year earlier. Earnings per share rose 15.2 percent to 53 cents a share in the quarter, compared with 46 cents a year earlier.

"They put up good numbers," said Gerard S. Cassidy, a bank analyst at Tucker Anthony, a Boston brokerage firm. "This is not your whiz, bang Internet bank. They do banking the old-fashioned way."

While profits at money center banks in New York and California are down this year because of losses on loans to risky investment vehicles known as hedge funds, and from lending to overseas companies, Mercantile has churned out steady income by lending in Maryland.

For the 12 months, Mercantile's net income was up 11.4 percent to $147.1 million, compared with $132 million for the previous 12 months. Earnings per share rose 10.8 percent to $2.05 during the year, compared with $1.85 a year earlier.

Mercantile's return on average assets -- a ratio that gauges how profitably assets are used -- was 2.03 percent during the year, which means that the bank returned more than $2 for every $100 in assets. The average return in the industry is around 1.20 percent. Bankers are "envious of a 2 percent ROA," Cassidy said.

Mercantile also kept expenses down during the year, and had an "efficiency ratio" of 46.85 percent, which measures the amount of money needed to generate $1 in revenue. That means it costs Mercantile 46.85 cents to generate $1 in revenue. Banks of similar size are typically in the upper-50s range.

Net loans rose 4.8 percent to $5.1 billion in 1998.

Cassidy said the slow growth reflects Baltimore's competitive lending market, and Mercantile's conservative philosophy.

"Mercantile will not underwrite loans with aggressive lending standards, and it is willing to sacrifice loan growth to protect the quality of the company," he said.

Mercantile's total assets were up 6.1 percent at year's end to $7.6 billion. Deposits rose 6 percent to $6.6 billion.

The quality of Mercantile's loan portfolio continued to improve with delinquent loans dropping 25 percent to $21.3 million at the end of the year. Delinquent loans make up just 0.41 percent of Mercantile's portfolio.

Pub Date: 1/21/99

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