Across Maryland in recent years, small banks have been buying up smaller banks and pieces of failed institutions.
Hamilton Bancorp announced plans last week to buy Fraternity Community Bancorp, a three-branch savings and loan bank based in Pigtown, for $27 million. Just a month earlier, Towson-based Hamilton closed on its purchase of Rosedale-based Fairmount Bank and its lone branch.
Those deals follow on the heel of other acquisitions by the parents of Old Line Bank, Howard Bank and 1880 Bank on the Eastern Shore.
The result is a rapidly shrinking landscape of banking institutions in a region that remains home to a relatively large number of community banks. Though many small banks survived the recession — and, in some cases, the Great Depression — they now navigate a difficult market of extremely low interest rates, increasing regulatory requirements and evolving technology that is making it harder to remain relevant to customers and investors.
"When I take a look at a bank in an urban area that has less than $100 million in assets, I really wonder whether it has a future," said Bert Ely, a banking consultant based in Alexandria, Va. "The really tiny bank is an especially endangered species."
Nationwide, the number of banks is contracting. The number of commercial banks in the United States held relatively steady around 14,000 from 1934 until 1988, when it began dwindling, according to the Federal Deposit Insurance Corp., which insures bank deposits. At the end of 2014, the number of banks nationwide was down to about 5,600.
Meanwhile, it's become difficult to obtain a new bank charter — federal regulators only issued six between 2010 and 2014, down from more than 100 a year before the recession.
Experts expect the consolidation to continue, and regulators are encouraging it. In April, the Federal Reserve finalized a rule allowing more small banks to take on more debt when financing mergers.
Both regulators and the banks themselves want the banks to achieve the scale needed to accommodate the added regulatory demands and remain viable.
The pending acquisition of Fraternity will push Hamilton Bank over $500 million in assets and to about $400 million in deposits. That would push it into the top 20 in deposit market share in the Baltimore region, still well behind such giants as Bank of America, M&T, PNC and Wells Fargo.
"It's just tough in the banking community now," said Robert DeAlmeida, Hamilton's CEO, citing low interest rates, increased regulatory demands after the recession and pressure from shareholders.
"This period of eight years with extremely low interest rates, I think it's taken a toll on a lot of community banks that are wondering how to make it through and provide a return to their investors," DeAlmeida said.
Banks make most of their money on the spread between what they charge on loans and what they pay on deposits. When interest rates are as low as they are, that spread is very thin.
Small banks must comply with similar regulations, audits and paperwork as much larger banks, DeAlmeida said.
"Every time we turn around it's new changes going into effect," he said. "You've got to make sure you've always got money in your budget to handle all this additional training."
DeAlmeida said Hamilton planned to "take a little pause" on its buying spree in the near future.
"Banks have to be careful about growing too rapidly," he said. "You don't want to build a house of cards and have it fall apart. We're trying to do a slow and methodical march with our growth."
Other recent bank deals include the parent of Bowie-based Old Line Bank, which announced in August it would expand into the Baltimore region by buying the parent of Regal Bank and Trust, a three-branch, Owings Mills-based bank with assets of $133.7 million. Old Line, one of the state's larger community banks, has $1.3 billion in assets and 19 branches in Prince George's, Charles, Calvert, St. Mary's and southern Anne Arundel counties.
In July, two Eastern Shore bank holding companies merged to create the sixth-largest bank on the Delmarva peninsula as Cambridge-based 1880 Bank absorbed Easton Bank & Trust Company. It now has about $330 million in assets.
Though most of the mergers have been between Maryland-based banks, some out-of-state banks have been expanding here. Pennsylvania-based F.N.B. Corp., which owns First National Bank, opened a regional headquarters in downtown Baltimore in 2013 as it gobbled up the parent of Baltimore County Savings Bank and Annapolis Bancorp. It ranks ninth in the deposits in the Baltimore metro area with about $950 million as of June 30.
And North Carolina-based BB&T Corp. in July closed on a $2.5 billion deal to buy the Pennsylvania-based parent of Susquehanna Bank, solidifying its hold on fifth place in Baltimore-area deposits.
For community banks looking to grow and remain competitive, acquisitions are a key strategy.
The parent of Columbia-based Bay Bank, which grew out of Bay National Bank's failure, tripled in size after it acquired Carrollton Bank in 2013 and absorbed some assets of Slavie Bank after that bank's failure.
"The acquisitions you're seeing today are principally a function of the fact that there are increasing scale attributes required to be successful in community banking," said Joseph J. Thomas, president and CEO of Bay Bank.
Yet, he said, mergers can be challenging. Bay Bank had to work to reduce about $20 million to $45 million in soured loans it took on from its acquisitions.
The parent of Ellicott City-based Howard Bank has grown to nearly $1 billion in assets in the last few years. In 2013, it bought the Aberdeen branch of troubled Cecil Bank. Last fall, it acquired all $183 million in deposits and $188 million in assets from Rising Sun-based NBRS Financial Bank after that bank failed. And in August, it completed a $10 million acquisition of Patapsco Bancorp. With nearly $700 million in deposits now, it still won't crack the region's top 10 in deposit market share.
"We believe that the banking industry at the community-banking level certainly is going through another level of consolidation," said Mary Ann Scully, Howard's chairman and CEO. "We happen to think it's about being relevant to shareholders. It's difficult for institutions below a certain level to acquire that capital. The market's changed."
Scully said the bank saw an opportunity and plans to continue growing organically and through acquisitions.
"We think there's a void of regionally sized banks in Baltimore that are headquarted in this area," she said. "I think the idea of a community bank helping local customers and communities never goes out of style. It's a question of how big do you need to be to attract customers and employees and attract investors."
Joe Sullivan, CEO of Market Insights in Chicago, said many small community banks are "still trying to play catch-up" with their technology to compete with larger banks offering mobile banking and other features.
New offerings like Apple Pay and Google Wallet will further disrupt the industry, he said.
"I don't think the small community bank thinks that's the competitor," he said. "They think it's the big bank up the street."
Sullivan predicted that the consolidation would continue.
"There a lot of banks out there that survived the recession, the senior team is kind of tired and they're looking for someone to come in and buy them out," he said.