11 Merc banks turning into 4

Mercantile Bankshares says reorganization will ease rules compliance

Some layoffs expected

May 01, 2004|By Paul Adams | Paul Adams,SUN STAFF

Mercantile Bankshares Corp., Maryland's largest independent bank, said yesterday that it will combine 11 of its affiliate banks into four new organizations as part of a move to cut costs and make it easier to comply with increasingly complex federal regulations.

The reorganization will strip most of the 11 banks of their former identities and likely result in a small number of layoffs in what the bank called "nominal staff displacements." But other than the names, little will change for customers, bank officials said.

"In terms of the feel and look and the people they see, there will be no changes at all," said Edward J. Kelly III, Mercantile's president, chairman and chief executive officer.

Mercantile has prided itself on allowing the banks it has acquired over the years to operate with a large degree of independence. But analysts said that model has become unwieldy now that Mercantile has grown into a regional bank with $14 billion in assets.

"When you get over $10 billion in assets, you're sort of forced to re-evaluate your community banking approach," said Collyn Bement Gilbert, an analyst with Ryan Beck & Co. "They just get too big, so you lose efficiencies."

However, Kelly said, the bank remains committed to its affiliate model. The move, he said, was driven in part by an effort to "make our lives easier" from a regulatory and compliance standpoint.

Currently, each of the bank's 19 affiliates must undergo individual regulatory exams and take steps to comply with the Sarbanes-Oxley Act of 2002 and the USA Patriot Act, which requires banks to know their customers better and take greater steps to thwart money laundering, among other things. Trimming 11 banks down to four will lessen duplication of those efforts.

Creating four larger banks also will help in retaining and attracting top managers, Kelly said.

"We want to give them the scale necessary to be able to perpetuate themselves," he said.

The four banks will be:

Mercantile Peninsula Bank, which will be formed by combining Baltimore Trust Co., headquartered in Selbyville, Del.; Farmers & Merchants Bank-Eastern Shore in Onley, Va.; and Peninsula Bank in Princess Anne. The new bank's headquarters will be in Selbyville. It will have 39 branches and assets of $1.5 billion.

Mercantile Southern Maryland Bank, formed by combining Bank of Southern Maryland, based in La Plata; Calvert Bank and Trust Co., based in Prince Frederick; and the First National Bank of St. Mary's, based in Leonardtown. The new bank, with headquarters in Leonardtown, will have 17 branches and assets of $930 million.

Mercantile County Bank, formed by combining County Banking & Trust Co., based in Elkton; and Forest Hill State Bank, based in Bel Air. The new bank will have 17 branches, $790 million in assets and headquarters in Elkton.

Mercantile Eastern Shore Bank, formed by combining Chestertown Bank of Maryland, of Chestertown; Peoples Bank of Maryland, based in Denton; and St. Michaels Bank, headquartered in St. Michaels. The new bank, which will have 19 branches, will be headquartered in Chestertown and have assets of $580 million.

The reorganization is to be completed in July pending regulatory approval, the bank said.

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