Mercantile expands

Maryland bank agrees to acquire Virginia's James Monroe Bancorp


Mercantile Bankshares Corp., Maryland's largest independent bank, is continuing its march into the lucrative Northern Virginia market by agreeing to acquire James Monroe Bancorp Inc. for about $143 million in cash and stock.

The deal announced yesterday fits with a strategy long articulated by Edward J. "Ned" Kelly III, Mercantile chief executive, to expand the bank's footprint in Northern Virginia, which includes some of the nation's fastest-growing and wealthiest suburbs. The deal comes less than a year after Baltimore-based Mercantile completed its acquisition of Community Bank of Northern Virginia, valued at $212 million.

"We've been looking in Northern Virginia for some time, and we've been aware of James Monroe for some time," Kelly said in an interview. "It was a compelling opportunity. They have a culture that's very similar to ours, and they have very good people."

The acquisition, announced before the close of trading yesterday, is expected to be completed in the third quarter, pending regulatory and shareholder approval.

Under the terms, shareholders in Arlington, Va.-based James Monroe can receive $23.50 per share for each share they hold - a 27 percent premium over Friday's closing price - or 0.6 Mercantile shares.

At least half, but no more than two-thirds, of the consideration, must be paid in stock.

Through the deal, Mercantile adds $530 million in assets to its $16 billion. The bank also picks up a commercial loan office in Gaithersburg and six branches in Fairfax, Prince William and Loudoun counties in Virginia, bringing its total network in the state to 40 branches. Mercantile's footprint spreads as well into Washington, Pennsylvania and Delaware.

Mercantile secured three-year employment agreements from John R. Maxwell, who has been president and chief executive officer of James Monroe since it started less than a decade ago, and from three key commercial lending officers.

Jared Shaw, an analyst at Keefe, Bruyette & Woods Inc., said Mercantile has a competitive advantage in Northern Virginia. It's one of the few regional banks operating there since national banks, attracted by the strong area economy and above-average incomes, bought many of the smaller community banks during a wave of consolidation in the 1990s.

"A lot of customers just don't want to deal with large national banks but want more of a local feel," said Shaw, who doesn't own Mercantile shares but whose firm has provided investment banking services to the bank. "It's a good deal for them."

The deal's announcement pushed James Monroe stock up $4.36, or 24 percent, to $22.90 on the Nasdaq stock market yesterday. Mercantile shares dropped 24 cents, or less than 1 percent, to $38.76 on the Nasdaq.

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