Sometimes things do not go as expected. Especially in the world of banking. As in the present “Nostalgia” feature.

Introduction

For a number of years your editor (QDB) and David Sundman have been building the database for the New Hampshire Currency Project. The goal is to capture information about the state government, state-chartered banks, and National Banks that issued paper money from the colonial era to 1935. I have estimated that if issued in printed form, as it stands now, the database would occupy 3,000 pages or more! The solution will be to make it available on the Internet, probably one bank at a time. If you have information to share, particularly regarding rare varieties of colonial notes, National Bank notes not listed in the Don C. Kelly Census, or unusual notes from the 1790s to 1865 issued by the state-chartered banks, you are invited to contact us at www.nhcurrency.com.

The recent finding of a $3 note from the Commercial Bank of Portsmouth prompted me to make a high-resolution scan of it, to show some interesting details. Today in 2011 this technology permits detailed images to be made for virtually no cost, and with clarity not possible with film photography.

The present posting tells the story of the Commercial Bank—the first part of our database that continues to list varieties of notes, biographies of each of the directors and officers, and more:

The Commercial Bank Founded with Large Capital

On July 2, 1825, the Commercial Bank, Portsmouth, was chartered with a capital immense for the time, $100,000 to a record $300,000, to be divided into 2,000 shares.1 Incorporators included Thomas G. Berry, Daniel Brown, Sylvester Melcher, and Meschech B. Trendy. The 20-year charter was set to begin on September 1, 1825.

Currency circulation was permitted up to the actual value of the paid-in stock. Notes were required to be signed by the president and countersigned by the cashier. Other terms were normal for bank charters of the era.

The directors, a record nine (instead of the usual seven) in number, were required to be citizens and residents of the state. Restrictions in former bank charters, limiting stockholders to a maximum of 15, 20, or some other number of votes, were dropped. Now, “The number of votes to which each stockholder shall be entitled shall be according to the number of shares he shall hold in the capital of said bank.”

Annual meetings were to be held on the second Monday of July. Other meetings could be called “by advertisement in either of the newspapers printed in Portsmouth.”

Serving as president of the Commercial Bank was Isaac Waldron, a member of one of Portsmouth’s best known and respected families and earlier a director of the Portsmouth Bank. He was owner of Waldron’s buildings on Bow Street, a commercial center that housed various offices.

Economic Travails

An economic shiver that reverberated through the state in 1828 was not devastating, but it did take its toll on bank profits. In Portsmouth the Commercial Bank reported an astounding capital loss of $40,000 in that year, and sought reduction in its authorized capital. The Dover Enquirer reported on May 6, 1828, that “the solvency of the Commercial Bank at Portsmouth and the Dover Bank were for a day or two suspected [of insolvency] and their bills refused in Boston, but were received again as soon as the situation of things was understood.”2

By act of the Legislature, June 23, 1831, modifications were made to the bank’s charter.3 The capital was changed to be not less than $60,000, with the maximum of $300,000 retained, divided into shares to be valued at a minimum of $50 each. The number of directors was changed to “not less than seven nor more than nine.”

Obviously, the great expectations, aiming at a $300,000 capital at the incorporation, had sunk to an embarrassingly low level. By summer 1833 the bank’s capital stood at $67,000. About the same time there was a movement of federal funds from the Bank of the United States, which was out of favor with the Jackson administration, to state-chartered banks. To receive such funds the banks had to submit petitions and give their qualifications. Eventually, many different “pet banks,” as they were popularly called, were selected in various states.

Isaac Waldron, continuing as president of the bank, was well connected politically and was a good friend of Levi Woodbury (Jackson’s secretary of the Navy, soon to become Secretary of the Treasury). In October 1833 he secured designation for the Commercial Bank as a federal depository. The Navy Yard in Portsmouth harbor henceforth conducted its financial affairs through the bank.4 The institution soon reversed its fortunes, and the paid-in capital reached $150,000.

Paying the Crew of the U.S.S. Lexington

The naval connection was the subject of this item in Niles Register, August 16, 1834:

Portsmouth, August 4, 1834.

SIR: In your Register of the 19th ult. I observe the following:

“We see it mentioned in the Providence Journal that the crew of a public vessel of war were lately paid off at Portsmouth, N.H. in bills of banks in the extreme parts of New York and of the bank of Michigan, which they were compelled to make sale of at 2 or 3 percent discount.…”

The statement has no foundation in fact, I must ask you to correct it in your next paper. The ship Lexington having been the only public ship whose crew have been paid off at Portsmouth, N.H. since the removal of the public deposits, it must, I presume, be in allusion to the payment of the crew of that ship that the above false and scandalous report was fabricated.

The crew of the Lexington were paid off here in May last by the purser, Mr. Andrew J. Watson, who gave his check to each one of the crew for the amount due, on the Commercial Bank in this town—these checks were presented at the bank by the persons to whom they were made payable, and they received in payment the bills of the Commercial bank, or specie, as best suited the convenience or wishes of the persons presenting them, and no payment to the amount of a dollar was made, or offered to be made, in any bills not equal to specie, or payable at a greater distance than Boston, and then only at the request of the receiver.

And as to Detroit or Michigan bills, or the bills of any extreme part of New York, no such bills were ever offered to the crew of a public ship at Portsmouth, or to any other person for them, nor did the Commercial Bank own or have in possession any such bills at the time the crew of the Lexington were paid off, or at any other time, nor do I believe that there ever could have been collected in Portsmouth, at any time, twenty dollars of such bills.…

All the banks in Portsmouth, N.H., six in number, some of which have been in operation from 30 to 40 years, deal in no other bills than those which are equal to specie, and have never suspended specie payments a single moment, during the whole term of their existence, and I trust they never will.

I am, sir, with respect, your obedient servant,

ISAAC WALDRON, president of the Commercial Bank.

P.S. As I consider the Commercial Bank, being the deposit Bank, to have been much injured by the publications in your Register of the 19th and 26th ult. I can but hope you will be willing to give the above letter an insertion in your next Register. I.W.

A directive from the Treasury Department, April 20, 1835, mandated that federal deposit banks could not issue notes of a face value less than $5. In a letter to Levi Woodbury, April 28, Waldron addressed the impact this would have on the bank’s notes, giving a view of the denominations then in circulation. If no notes under $5 could be issued, the circulation would drop by 25%. If no notes under $10 could be issued, the circulation would drop 75%. This would seem to indicate that about half of the bank’s notes were of the $5 value.5

This depository franchise for the Commercial Bank was renewed by the Treasury Department on September 10, 1836.

Cashier Melcher Destroys the Bank

It seems that by late 1843 some irregularities were perceived in the accounts of the cashier, George Melcher, Jr. On January 10, 1844, James F. Shores became the new cashier, and immediately proceeded to investigate. In time it was determined that Melcher had stolen at least $21,953.6

Sometime prior to its quarterly return dated December 2, 1844, the bank became aware that it had circulated more currency than was allowed by its net unencumbered capital. Its redemption agent, the Merchants’ Bank in Boston, had taken in an unknown amount of notes, so that the precise figure of the overage could not be determined at the time. Further, although Isaac Waldron was not implicated in the theft, it seems that he conducted his banking affairs in a very casual manner, providing the opportunity for Melcher’s illegal actions. A bank examiner noted: “While Mr. Waldron was president, it does not appear that he kept any record of bills signed by him and delivered to the cashier.”

This situation prompted an overview by Bank Commissioner James M. Rix in his 1844 report:

The account with the circulation [of currency] is kept alike in all banks, by charging the whole amount of notes signed by the president and cashier for circulation, and crediting the amount which has been burnt by the directors.

Deducting from the balance the amount of bills on hand and redeemed in Boston, the “circulation” is the result. A dishonest cashier, associated with a negligent president, might undoubtedly put a greater amount of bills into circulation than would appear to be in circulation from his accounts.

A vigilant course of action on the part of the president is the only guarantee we can have under our present laws, against such an event.7 In many of the banks, the only evidence which can be furnished, in relation to the important item of circulation, consists of the statement of the cashier and his accounts.

In the Granite and Piscataqua banks, certificates of the president thereof are kept upon books of record, or otherwise, showing precisely how many dollars in bills they have signed and delivered to the cashier—thus combining, upon this important point, the testimony of two persons instead of one. And it would perhaps be well for the public safety, were some means provided by which all bills being registered and countersigned by some proper officer of the state, all chance for putting out a fraudulent circulation should be annihilated.8

The deposit accounts furnish another field for the prosecution of frauds, by dishonest cashiers, in a manner so secret as to defy all probability of detection by any person, however vigilant, employed to investigate the affairs of a bank. If the cashier shall appropriate to his own use the money he has received from depositors, in any case, keeping no record of such transactions on his books, it is evident that the directors only, who are about him and have constant intercourse with the customers of the bank, will be likely to detect him. It will be only by accident that such an operation could be made known to a commissioner.

President Isaac Waldron and Cashier Melcher were soon replaced by Richard Jenness and James F. Shores, after which the bank wound down its affairs, although it was active to a degree into 1845.

Bank commissioner Ira St. Clair examined the affairs of the Commercial Bank on April 28, 1845.9 By this time the alleged defalcation of cashier Melcher was believed to be $21,953. Suit was filed against the bondsmen for Melcher, the case was disputed, and a settlement of $10,000 was reached, leaving $12,294.84 in losses, this figure including certain expenses of the case. Further:

While Mr. Waldron was president, it does not appear that he kept any record of bills signed by him and delivered to the cashier; but the cashier entered them upon the books of the bank, and it appears by said books that there are now in circulation bills of Mr. Waldron’s signing, to the amount of $7,760.

Since Mr. Jenness has been president, all bills for circulation are signed by him and delivered to the cashier, who gives a receipt for them, which is kept by the president. The cashier also enters them regularly upon the books of the bank. The amount of bills signed by Mr. Jenness and delivered to the cashier is $95,486.10

New Banking Horizons

The new officers and most of the directors quickly became involved in the establishment of a new, unrelated institution, the Mechanics and Traders Bank of Portsmouth (established in December 1844), which was able to start business with a clean slate and an untarnished reputation.

Thus, the Commercial Bank entered the journals of New Hampshire bank fraud, along with the Wolfborough Bank and (second) Concord Bank earlier and an event yet to come, the discoveries made at the White Mountain Bank (Lancaster) in 1865.

Courtesy of the New Hampshire Currency Project. Q. David Bowers, chairman emeritus of Stack’s-Bowers Numismatics; David M. Sundman, president, Littleton Coin Co. www.nhcurrency.com.

Footnotes:

1. Laws of New Hampshire, Volume Nine, 1921, pp. 454-457; Original Acts, vol. 29, p. 56; Recorded Acts, vol. 23, p. 129. • Two New Hampshire banks were chartered this day: the Commercial Bank, Portsmouth, and the Pemigewasset Bank, Plymouth.
2. George Wadleigh, Notable Events in the History of Dover, New Hampshire, 1913, p. 227.
3. Laws of New Hampshire, Volume Ten, 1922, p. 203; Acts, vol. 28, p. 41.
4. After autumn 1836, when the Merrimack County Bank, Concord, became a federal depository, it shared the Navy Yard business with the Commercial Bank.
5. Letters from Deposit Banks, quoted by Norman Walker Smith, A History of Commercial Banking in New Hampshire 1792-1843, 1967, p. 167; here adapted.
6. 6 Bank Commissioner James M. Rix, who examined the bank and filed his information in June 1844. • Follow-up comments in report of Bank Commissioner Ira St. Clair, per examination of April 28, 1845.
7. For many banks this was an impractical suggestion, as the president was a figurehead who only visited the bank occasionally. In the present scenario, it is evident that Isaac Waldron, a man of good reputation, paid little or no attention to the bank’s day-to-day affairs.
8. On December 22, 1820, in connection with the charter renewal of the New Hampshire Union Bank, the Legislature decreed that its new currency had to be countersigned by the New Hampshire secretary of state. Apparently, this was found to be impractical, and the provision was later repealed.
9. Reports of the Bank Commissioners, June 1845.
10. From the total currency in circulation figure, $68,857, it is evident that many of these signed notes had not been released as of the examination date.