Howard Bancorp to acquire 1st Mariner Bank

Howard Bancorp plans to acquire 1st Mariner Bank for $163.4 million, creating the Baltimore area's largest locally based bank.

The parent of Howard Bank's acquisition of Baltimore-based 1st Mariner, announced Tuesday, will nearly double Howard's assets to $2.1 billion.


Ellicott City-based Howard Bancorp also plans to relocate its headquarters to 1st Mariner's office in Canton, making the combined institution Baltimore-based.

As the two banks combine, about six overlapping branches face closure and some employees will be laid off. But the merger positions Howard Bank to compete with regional and national banks at a time when smaller banks are struggling.


With twice the assets, Howard Bank could double its lending limit, expand offerings and more readily adopt new technology, all of which would allow the bank to better serve local customers, particularly the business community, analysts said.

Howard Bank CEO Mary Ann Scully described the deal as "transformational" for both the banks and the Baltimore market.

"Our mutual goal has been and will remain to be Baltimore's best business bank," Scully said during a call with investors Tuesday.

A larger community bank offers local businesses more options for banking locally. The increased capacity to make larger loans means Howard Bank could serve larger business clients.

"The big banks certainly play a role in the financing of businesses, but community banks are especially important for local businesses," said Bert Ely, a Virginia banking consultant. "It will be able to serve not just the smallest businesses but those that are not quite so small."

Many small businesses prefer a smaller, local bank to larger regional and national institutions, said Anita Newcomb, president and managing director of AG Newcomb & Co., a Columbia-based strategic consulting firm for the banking industry. Smaller banks offer businesses a personal relationship with their bankers and easy access to top decision makers, she said.

"They also want to feel that they have a partner who's going to be with them through the good times and the bad," Newcomb said.

Some national and regional banks reduced lending and even backed out of local markets during the most recent recession, but local banks remained, she said.


"The community banks, this is their livelihood," Newcomb said.

Still, the number of Maryland-based banks has dwindled over the past decade. At the end of 2016, there were 58 banks headquartered in Maryland, down from about 90 in 2009, according to the Maryland Bankers Association.

Smaller, community financial institutions have been under pressure since the housing bust and recession to meet increased regulatory requirements and remain competitive.

Unable to recover from soured mortgage loans after the housing bubble burst, 1st Mariner's parent company filed for bankruptcy protection in 2014. A group of investors bought the bank in an auction later that year and recapitalized it with $110 million.

Since then, 1st Mariner's new leadership has built the bank's assets to about $975 million as of the end of June. But the privately held bank reported a loss of $661,000 in the first three months of the year, according to financial documents filed with the Federal Deposit Insurance Corp.

Scully said she was "very impressed" with 1st Mariner's turnaround.


Robert Kunisch, the CEO of 1st Mariner and one of the investors who acquired the bank in 2014, said joining Howard Bank was a way for 1st Mariner to continue growing beyond what would have been possible on its own.

"As we look at the landscape in banking you quickly realize that scale is becoming more and more important," Kunisch said.

Kunisch will join Howard as president and a member of the board of directors.

Jack Steil, 1st Mariner's executive chairman and another of its investors, also will join Howard Bank's board. The bank's boards will be combined with 14 members, eight from the current Howard bard, plus six from 1st Mariner's board.

While 1st Mariner's acquisition adds to the ongoing trend of bank consolidation, Mark Johnson, an associate professor of finance at Loyola University Maryland, said he thinks the move is positive for 1st Mariner.

Being acquired by another Maryland bank keeps the bank's assets local, he said.


"I think it would have been perceived differently if it had been an outsider coming in and acquiring one of our banks," he said.

Remaining a Baltimore-based bank was important to 1st Mariner.

When Kunisch and his business partners acquired 1st Mariner, they had a vision for it as a Baltimore-based bank. He said he saw it would be possible to continue pursuing that goal while merging with Howard when Howard put moving the headquarters to Baltimore on the table.

Howard Bank sees its move to Baltimore as reinforcing its commitment to the entire region.

The bank has expanded in recent years through a series of mergers. This deal would make it nearly five times larger than it was in 2013, when it bought the Aberdeen branch of troubled Cecil Bank.

In 2014, it took over the deposits and most assets of failed NBRS Financial, further extending its reach. And in 2015, it merged with Patapsco Bancorp., giving it a stronger Baltimore County presence.


Scully declined to discuss details about branch closures or lay-offs, which will reduce the combined bank's overhead costs.

Howard Bank has 13 branches and 330 employees. First Mariner has 14 branches and employs 270 people. After the merger, Howard Bank will have 21 branches, six fewer than the two banks have now, she said.

Scully said she hopes moving the headquarters will improve retention among employees at the bank's more northern branches.

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The merger still must be approved by banking regulators.

Under the agreement, which has been approved by the boards of both banks, 1st Mariner stockholders will be entitled to about 1.66 shares of Howard common stock for each share of 1st Mariner stock.

Howard Bancorp shares ended Tuesday up 2.4 percent to $17.25 each.


While investors responded positively to the news, there are still challenges ahead for the two banks.

Even after the merger, Howard Bank will have a much smaller market share than such giants as Bank of America, M&T Bank, PNC Bank and Wells Fargo.

A bank with $2 billion in assets can be more competitive than a bank half that size, but also could be a target for regional banks looking to expand, said Stuart Greenberg, a private banking consultant in Baltimore.

"The question at the end of the day is what's the future of a $2 billion bank in Baltimore?" he said. "How much are you going to grow in this area?"