Mercantile Bankshares Corp.

1953–1993

Mercantile Bankshares, Inc. is a bank holding company that oversees 17 affiliate banks in Maryland, three in Virginia, and one in Delaware, as well as one Maryland-based mortgage company. Each affiliate is a traditional, community-orientated bank and keeps its own name, local management team, and historic ties to the community it serves. Mercantile's lead bank, Mercantile-Safe Deposit and Trust Company of Baltimore, is the largest trust company in Maryland with 66 percent of that state's personal trust business. Its community banks are primarily in the lending business, focusing on mortgages as well as installment, construction, and commercial loans. The company's holdings have grown profitable over the years through conservative lending practices and what Mercantile Bankshares chairperson and CEO Henry F. Baldwin called relationship banking, that is, developing strong relationships with customers, knowing their needs well, and providing for these needs. Mercantile has no credit card business and has avoided buying and selling market loans. Moreover, it is a very well capitalized company, with almost twice the amount of capital behind every dollar of assets than that of other U.S. banks. In 1993, American Banker ranked its Tier 1 capital ratio of 18.41 (tier 1 capital as a percentage of weighted risk assets) the highest of the top 100 bank holding companies in the United States. The company's total risk and leveraged capital ratio were ranked second and third, respectively.

Organized in 1969, Mercantile Bankshares Corp. was the first bank holding company in the state of Maryland. The corporation organized itself around the multi-bank structure, allowing member banks "to continue as separately chartered corporate entities." In addition to keeping its traditional role in the community, each affiliate was individually responsible to government regulatory agencies, elected its own officers, and maintained its own board of directors.

Three banks were acquired by the new corporation in 1969: Mercantile Safe Deposit and Trust, Annapolis Banking and Trust Co., and Bellair National Bank. Intended as the lead bank, Mercantile Safe Deposit and Trust was Maryland's largest trust institution, created in 1953 through the merger of two Baltimore banks, Mercantile Trust Company and Safe Deposit and Trust Company.

In its first year, the corporation had aggregate deposits of $22.6 million.

1863–1970

These two banks shared similar origins. Safe Deposit and Trust Co. was organized in Baltimore in 1864, one year before the end of the Civil War and one year after the National Bank Act of 1863, which created a uniform national currency to replace currencies issued by various state banks. Quartered in the basement of the National Farmers and Planters Bank in Baltimore, the bank was founded by Farmers and Planters' president Enoch Pratt, an entrepreneur with holdings in shipping, railroad, and insurance companies. As the South began rebuilding after the Civil War, deposits grew steadily. By 1876, Safe Deposit was able to move into new quarters, a fire- and burglar-proof building in Baltimore. Also that year, Safe Deposit established the first corporate trust service in Maryland and one of the first in the United States.

Pratt also happened to be one of the founders of Mercantile Trust and Deposit, established in 1884. Mercantile Trust was organized under an innovative concept borrowed from the department stores in major cities, offering fiduciary services, checking accounts, loans, savings, foreign banking, and safe-keeping facilities all under one roof. After the Civil War, Mercantile took on an important role in financing the reconstruction of the South, serving as underwriters of bonds issued by southern cities and raising capital to finance such infrastructures as the South Bond Railway Co., Charleston City Railway, and the Atlantic Gas and Light Company. Nearly three quarters of a century later, the two companies merged, creating Mercantile Safe Deposit and Trust, Maryland's largest trust institution.

When Mercantile Bankshares was organized in 1969, Mercantile Safe Deposit and Trust's director, Henry F. Baldwin, became president of the new company. In its first year, the corporation had aggregate deposits of $22.6 million. At the time, Maryland's second bank holding company, Maryland National Corp., a one-bank holding company for Maryland National Bank, had deposits of $931.3 million. Under Baldwin's direction, Mercantile Bankshares immediately began acquiring local banks. In 1970, it acquired Bank of Southern Maryland through a stock swap valued at about $4 million. The following year, it acquired the Chestertown Bank of Maryland, a bank with four branches and $15.9 million in deposits.

1973–1982

In 1973, Mercantile Bankshares formed MBC Financial Corp., a commercial financing subsidiary which specialized in inventory and receivables lending. 1973 net income totaled $9.1 million. By late 1974, with the acquisition of Fidelity Bank, Frostburg, Mercantile Bankshares' holdings comprised eight banks with total deposits of $463.1 million, plus MBC Financial and Mercantile Mortgage Corp. Net income dropped in 1974, to $8.5 million, primarily due to poor results of its MBC Financial subsidiary. In 1975, Mercantile phased out MBC, and other subsidiaries absorbed its customers. 1975 net income dropped again, by 4.3 percent to $8.1 million.

Nevertheless, Baldwin's conservative leadership soon brought the banks back to profitability. Mercantile's strategy was to retain tight control of its lead bank and require that affiliate banks produce a minimum one percent return on assets. Further management consisted of offering affiliates guidelines on investments, as well as sharing expertise in trust services, corporate banking, loan pricing, and other areas where small banks would be less knowledgeable. According to the Wall Street Transcript, this management style was quite successful: "Provided with sophisticated techniques yet free from day-to-day control, these smaller banks [were] extremely competitive and responsive to local conditions."

Return on assets grew an average of 1.2 percent from 1977 to 1982. 1981 return on equity was 14 percent, "well above the profitability of the average regional bank," according to the Wall Street Transcript. Net income nearly doubled in that time to more than $100 million. Total assets among the 11 banking affiliates and one mortgage operation totaled $1.5 billion.

1981–1994

In 1987, Mercantile purchased Eastville Bank in Virginia for around $7.1 million. Assets had almost doubled over 1981 totals to $2.8 billion, and Mercantile's bad debt ratio was quite low. While other banks suffered from the housing and office glut of the early 1990s, which left them with a large number of bad loans, Mercantile remained profitable, with a 1.7 percent return on assets of $4 billion in 1990. Moreover, earnings totaled $68.8 million, a four percent rise over 1989. However, the region's continued economic downslide affected 1991's net income, which rose only two percent to $70.5 million.

Although the real estate slump continued through 1992, Mercantile posted an eight percent rise in earnings to $76.2 million. The company substantially increased its provision for loan losses, thereby offsetting a growing number of nonperforming loans. In 1992, a number of large national and multinational banks opened branches in Mercantile's traditional market areas, providing a potential threat to the bank's profitability. In response, management made a decision to focus even more strongly on community banking, announcing in its 1992 Annual Report: "As this kind of ... banking becomes more rare, we see an unprecedented window of opportunity for building our customer base."

As it approached the turn of the century, Mercantile faced enormous changes in the banking industry. Its strategy remained to acknowledge--but not participate in--industry-wide trends, while it continued its emphasis on community banking. "While some banks are gearing up to perform international currency swaps, we continue to focus on the people who are building a house, starting or expanding a business, or raising capital to finance public improvements," management remarked in the company's 1993 Annual Report. This strategy has proven successful in Mercantile Bankshares' relatively short history. Consolidated net income rose for the 18th consecutive year in 1994, to $82.4 million. Moreover, expansion continued as the company purchased Fredericksburg National Bancorp, parent company of National Bank of Fredericksburg, Virginia.