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Howard Bank on U.S. Route 40 in Ellicott City. (Maximilian Franz/The Daily Record)

Howard Bank growing out of the recession

At the end of 2013, some community banks in Maryland were cautiously stepping out of the shadows of the Great Recession. Others were still suffering its effects.

Howard Bank was making moves to expand its business.

The bank had just opened its seventh branch, in Towson and a regional office for the Baltimore County business. It had completed its acquisition of Cecil Bank’s Aberdeen branch, and it was on its way to opening a branch in Bel Air. That opened as scheduled on March 4.

Howard had even launched a mortgage division in 2013, which CEO Mary Ann Scully plans to grow into a significant portion of the business. She said it will account for 30 to 40 percent of profit in the next few years.

While other banks struggled to survive the economic downturn, Howard was determined to grow. It chose a specialty — small and midsize businesses — and set an eye on expansion in greater Baltimore. With a combination of deliberate management decisions, an opportunistic expansion approach and some lucky timing, the bank built its assets from $191 million at the end of 2007 to $499.9 million at the end of 2013.

From 2010 to 2013, it more than doubled its profit.

“We grew throughout the recession,” said Scully. “Our focus has been on growing not only within [Howard] County but in other counties as well.”

‘Young and hungry’

Howard was not the only Maryland bank to grow during the recession. Eagle Bank, Sandy Spring Bank and Old Line Bank also benefited from acquisitions and expansion.

But unlike the others, Howard chose to make greater Baltimore its market instead of focusing on the Washington region.

The Baltimore region had room for Howard, said banking consultant Anita Newcomb, of Columbia-based A.G. Newcomb & Co. Some of the local banks there had been acquired or were struggling, which provides an opening for a healthy bank to move in.

“Those are very vibrant markets,” said Newcomb. “They felt there was more of an opportunity to go north, due to a void in the market.”

The company picked a niche and a geographic region that others were not chasing, said Newcomb, two major factors in its success. Howard offers retail services, but at its heart it is designed to serve the needs of small to medium-sized businesses.

“Where the growth really can occur is when you pick a sector of services that you’re really good at and you go for it,” said Newcomb. “They’re not pretending to be a retail bank.”

And while other banks were busy dealing with problem loans from the past, Howard was able to spend more of its time with an eye on the future.

“They were just new enough that they hadn’t gotten themselves in the position of getting themselves in trouble,” said Kevin Cashen, CEO of Bay Bank, a competitor of Howard, which was born in 2010 out of the failed Bay National Bank.

“When you’re young and hungry, you can be active in the market when a lot of people are out of the market,” he said.

And that’s exactly what Howard Bank planned to do.

“There were a lot of opportunities to grow, to gain market share,” said Scully, and the bank was equipped with a capital cushion to make it happen. “That decision to keep growing, that was very much a conscious decision.”

Recession casualties

Eight Maryland-based banks have failed since 2007, and more than two dozen were acquired. An acquisition might simply mean that the buyer saw an attractive asset in a community institution, said Bert Ely of Virginia-based Ely & Co. Inc., but it could also mean that the acquirer saw a weakened bank at a discounted price.

‘There were a lot of opportunities to grow, to gain market share,’ says Howard Bank CEO Mary Ann Scully. (The Daily Record/Maximilian Franz)

‘There were a lot of opportunities to grow, to gain market share,’ says Howard Bank CEO Mary Ann Scully. (The Daily Record/Maximilian Franz)

Several of the acquired banks in Maryland later closed.

“Generally speaking, some banks did better than others,” said Ely. “In part, some were lucky. Some were better managed, some better capitalized than others. … The banks that kind of saw what was coming were able to sidestep the problems, work through their problems easier [and] they have been able to take advantage of the opportunities.”

According to the Federal Deposit Insurance Corp., Maryland has 72 banking institutions.

But not all of them survived scot-free.

Cecil Bancorp, parent company to Elkton-based Cecil Bank, told the Securities and Exchange Commission in December that it planned to deregister its stock. It was a decision made to cut costs, the bank said in a statement.

The company had posted a net loss of more than $20 million in 2012. It experienced a smaller loss in 2013, according to the FDIC, of $10.6 million.

Cecil sold its Aberdeen branch to Howard Bank in 2013 for an undisclosed purchase price. That branch came with $37 million in loans and $35 million in deposits.

Josh Siegel, managing partner and CEO at StoneCastle Partners LLC, said that Cecil’s problems were largely attributable to geography.

“The economic market there hasn’t been great, and they had issues,” he said. “It’s not like they made a specific bad loan. There’s just stress across their entire footprint.”

But Newcomb said that a bank cannot blame all of its problems on the local economy. While that does play a role, she said, a bank’s management decisions still affect its ability to survive a recession.

It’s no secret that 1st Mariner Bank, another Baltimore-area institution, also suffered from a combination of its own decisions and the economic downturn. It was the largest community bank in Baltimore, but it dipped to an insufficient capital level after relying too heavily on the mortgage business, which tanked in the recession.

1st Mariner has been under a cease and desist order from federal and state regulators since 2009, which requires that it raise capital. It failed to do so, despite numerous attempts, until recently.

First Mariner Bancorp has filed for bankruptcy protection and plans to sell the bank, with an auction in April. The plan is for the winning bidder not only to operate the company, but also to recapitalize it with at least $85 million.

Cecil and 1st Mariner went into the recession with handicaps, said Siegel, and the market conditions certainly didn’t help.

Minimizing problems

Howard was also affected by the economy. In a release about the bank’s 2009 earnings report, Scully said that a $2.2 million loss that year was attributable to the recession.

But she also said that “problem credits” that created the loss were related to a small number of clients. The next year, the company was back to positive net income.

Scully acknowledged Howard’s age and size advantage during that time — it opened in August 2004, so it was still young when the recession hit.

“They hadn’t built a big enough portfolio of loans to cause problems,” said Cashen.

The company announced in late 2011 that it would make an initial public offering, and in July 2012, it announced that the sale brought in $10.2 million in capital.

Scully said that investors often ask why Howard chose to expand in the Baltimore region rather than flocking to Washington, but she stands by the decision.

“We think that greater Baltimore is a terrific market and one that’s underrated,” she said. “You still have people coming from out-of-state and buying local banks. That speaks to how attractive the market is.”

Howard now has eight branches in Howard, Anne Arundel, Baltimore and Harford counties.

The company is now growing its mortgage business. Some might see that as a risky move in the current climate, said Newcomb, but she has been telling clients that now is an opportune time to jump back in, especially in Central Maryland.

Scully agrees with the onlookers — a combination of lucky timing and deliberate management decisions led to Howard’s current success.

“We’ve just been very blessed,” she said.