The ax is beginning to fall at regional banks.

Mercantile Bancorp said Thursday that it would eliminate 1,300 jobs, or 11% of its work force, as part of a larger drive to cut costs. One day earlier Provident Financial Group of Cincinnati said it would drop 500 positions, or 18% of its personnel.

Coming on the heels of job cut announcements by Huntington Bancshares and Community First Bankshares, the moves signal a new wave of restructurings at small to midsize banks. Anticipating a downturn in the economy, these banks are beginning to buckle down and cut costs.

"Margins are getting squeezed and revenue gains are slowing," said Diana Yates, an analyst with A.G. Edwards & Sons Inc., St. Louis. "When revenues start to stall, you see restructurings."

"Mid-cap banks will have to tighten expense growth," added William R. Katz, an analyst with Merrill Lynch & Co.

Mercantile, the nation's 25th-largest bank, said it lopped 550 jobs in the fourth quarter and has plans to ax an additional 770 positions within the year, mostly in back-office jobs. It expects to sell or close 50 of its 550 branches during the next few months.

The St. Louis company is "always looking for opportunities to improve profitability," chief financial officer John W. McClure said. "This was an opportunity."

With the completion of six bank deals in less than two years, Mercantile is now "focusing on the integration of these acquired companies and is looking for opportunities to streamline," Mr. McClure said.

The $35.8 billion-asset company hopes to generate up to $25 million in additional earnings in 1999 as a result. Mr. McClure said Mercantile's restructuring will focus on revenue growth as well as expense saving. The aim is to bolster commercial and consumer lending, he said.

Mercantile's retooling was announced along with its fourth-quarter earnings. The bank took a $45 million charge to account for the restructuring. Fourth-quarter earnings of $90 million were down 14.5% from the year-ago quarter. Excluding merger charges, earnings increased 7%.

The company has asked Wall Street not to increase predictions for 1999. Analysts estimate that Mercantile will garner $3.04 per share for the year, compared with the $2.41 posted in 1998.

Mercantile's cost-cutting plans are not unique, but the restructuring is one of the industry's most dramatic thus far.

Provident, which took a fourth-quarter charge of $22 million related to its program, promised it would relocate employees to other positions and said it would hope to lay off no more than 100 workers. Huntington Bancshares, meanwhile, pledged in October to chop 1,000 jobs, or 10% of its workers.

One month later, Fargo, N.D.-based Community First Bankshares said it would slice 7% of its staff and lay off 200 employees.

At Mercantile acquisitions have taken a toll, analysts said.

"They're trying to get this ship back on course," said Joseph Stieven, an analyst with Stifel, Nicolaus & Co., St. Louis. He said other companies that have done a many acquisitions may find themselves in the same boat.

Mercantile said it began closing and selling branches in September. It is to shed the final 12 of slated for elimination in the next few months. It also wants to consolidate 19 loan processing centers into three. By March, it plans to have reduced the number of its bank charters from 20 to seven

Mercantile has long been considered a takeover target because of its size, lagging earnings, and relatively attractive Midwest market position. It is the biggest independent bank based in Missouri with branches in Arkansas, Illinois, Iowa, Kansas, and Kentucky.

Analysts said they believe the company will eventually sell. "Longer term, I think they'll be part of a larger organization. I think that's the end game," Ms. Yates said. "But the question is how many years do they want to wait?"

Mr. McClure would not comment on Mercantile's plans. "We are managing the company, so it is in the best interest of the shareholders," he said. +++

Mercantile Bancorp. St. Louis, Mo. Dollar amounts in millions (except per share) Fourth Quarter 4Q98 4Q97 Net income $90.2 $105.4 Per share 0.57 0.70 ROA 1.36% 1.27% ROE 15.46% 15.39% Net interest margin 3.56% 3.67% Net interest income 283.2 275.2 Noninterest income 128.4 109.1 Noninterest expense 270.3 218.1 Loss provision 11.4 7.6 Net chargeoffs 11.4 10.5 Year to Date 1998 1997 Net income $375.3 $246.8 Per share 2.41 1.73 ROA 1.31% 1.30% ROE 15.29% 15.32% Net interest margin 3.56% 4.00% Net interest income 1,104.2 1,047.7 Noninterest income 541.9 414.2 Noninterest expense 1,026.8 986.4 Loss provision 51.2 86.4 Net chargeoffs 42.1 81.1 Balance Sheet 12/31/98 12/31/97 Assets $35,800.2 $33,332.2 Deposits 25,461.4 24,809.5 Loans 22,311.3 21,362.0 Reserve/nonp. loans 222.76% 241.91% Nonperf. loans/loans 0.62% 0.55% Nonperf. assets/assets 0.60% 0.67% Nonperf. assets/loans + OREO 0.68% 0.65% Leverage cap. ratio 7.16% 6.52% Tier 1 cap. ratio 9.84% 9.40% Tier 1+2 cap. ratio 12.55% 12.42% ===

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