Sale costs cause Mercantile earnings to drop 2.7%

Mercantile Bankshares Corp., in probably its last quarterly earnings report, said yesterday that fourth-quarter profit fell 2.7 percent because of costs related to its planned sale to PNC Financial Services Group.

The Baltimore-based bank reported net income of $72.9 million, or 57 cents per share, compared with $74.9 million, or 60 cents per share, for the year-earlier period. The average forecast of analysts was for earnings of 59 cents per share. The company's shares fell 37 cents to close at $46.80 in trading yesterday.


Mercantile, Baltimore's largest independent bank, said it spent $13.1 million during the quarter on legal and other costs related to its pending acquisition by Pittsburgh-based PNC. The $6 billion deal is expected to close in March.

Edward J. Kelly III, Mercantile's chairman and chief executive, said the bank had a solid quarter when merger-related costs are excluded, particularly considering how the difference in interest rates on loans and deposits has narrowed. "Net interest income was up, noninterest income was up and credit quality remained strong," he said in a statement. " ... I believe we performed well in what continues to be a challenging environment for banks."


For the quarter that ended Dec. 31, the bank reported net interest income of $170 million, up 4 percent over the year-earlier quarter. Average loans increased $1.2 billion, or 10.1 percent, with $414.3 million of the growth coming from the bank's purchase of James Monroe Bancorp last year.

Net interest margin was 4.3 percent for the quarter, compared with 4.43 percent in fourth-quarter of 2005. Net interest margin is a key financial measure representing the spread between what a bank earns from loans and the interest it pays out.

Total assets increased 7.9 percent to $17.7 billion during the year, and deposits averaged $12.8 billion for the fourth quarter, an increase of 7.3 percent from the year-earlier period. The bank said deposit growth was driven by increases in money market and large time deposits.

Noninterest income, which includes fees from the bank's wealth management and investment arm, increased 12.5 percent to $69.9 million.