Ellicott City, Md. and Dundalk, Md. – March 3, 2015 – (BUSINESS WIRE) – Howard Bancorp, Inc. (NASDAQ: HBMD), the parent company of Howard Bank, and Patapsco Bancorp, Inc. (OTC: PATD,), the parent company of Patapsco Bank, jointly announced today that they have entered into an agreement to merge.
At December 31, 2014, Howard, headquartered in Ellicott City, had approximately $691 million in assets, $553 million in loans, $554 million in deposits and operates 14 banking offices in Greater Baltimore. At December 31, 2014, Patapsco, headquartered in Dundalk, had approximately $226 million in assets, $171 million in loans, and $184 million in deposits and operates three banking offices in Baltimore County and one in Baltimore City. Assuming the merger closes in 2015, Howard Bank, which opened in 2004, expects to end the year at, or near $1 billion in assets.
Under the merger agreement, Patapsco will merge into Howard, in a part stock, part cash transaction having an aggregate fixed value of $10.053 million. Patapsco shareholders will receive $5.09 per share in cash (20 percent of total consideration) or shares of Howard common stock (80 percent of total consideration), at their election, subject to an allocation and proration process. The per share exchange ratio for the stock portion of the merger consideration will be based upon the average closing price of Howard’s common stock for the 20 trading days prior to the five business days immediately before closing, subject to a maximum exchange ratio of 0.5656 and a minimum exchange ratio of 0.3030. Howard can elect to change the stock/cash mix from 80 percent/20 percent to up to 50 percent/50 percent at its election, subject to certain conditions. Patapsco has the right to terminate the transaction if Howard’s 20 day average closing price is less than $7.20 per share and certain other conditions are met. The transaction is subject to customary conditions, including regulatory and stockholder approval. The fixed value of $10.053 million represents 127 percent of Patapsco’s tangible common equity adjusted for accumulated and unpaid TARP dividends at December 31, 2014. There are presently no planned branch closings. Howard expects the transaction to be accretive to its earnings per share in the first full year of operations.
Thomas O’Neill, Patapsco Chairman and Director Gary Bozel are expected to join the Board of both Howard Bancorp and Howard Bank. Phil Phillips, Patapsco’s President and CEO, has been invited to join Howard in an executive leadership position.
“With the addition of Patapsco leadership, the combination of Howard and Patapsco is transformational and of exceptional strategic importance to us,” said Mary Ann Scully, Howard’s Chairman and CEO. “The merger will result in an institution with pro forma assets of approximately $1 billion, loans of $810 million and $815 million of deposits at closing resulting from our linked strategies of strong organic and acquired growth since we opened in 2004. We are excited to significantly reinforce our present franchise in Baltimore County, to enter Baltimore City, and for the opportunity to expand the reach of our diversified financial solutions in these very desirable markets and to leverage the considerable talents of the Patapsco team to ultimately enrich both our stakeholder groups- shareholders, employees and customers. We are both excited to offer the Baltimore community a strong, locally headquartered bank in a market dominated by our out of state colleagues. Patapsco’s board and management team has returned the bank to consistent profitability after recession related challenges and we are impressed with its turnaround. We are pleased to join forces with Patapsco to create what together we expect to be the largest bank headquartered in the Greater Baltimore metropolitan marketplace and the 7th largest publicly traded bank based in Maryland given our new platform for sustainable growth. As noted, the impact of Thomas O’Neill, Patapsco Chairman and Director Gary Bozel as both Howard Bancorp and Howard Bank directors and Phil Phillips, as a senior executive, enriches both our leadership and our opportunities for success.”
Thomas O’Neill, Patapsco Chairman added, “The combination of Howard Bank and Patapsco Bank is an exciting investment opportunity for our shareholders. With combined assets of approximately one billion dollars it will enable us to provide more sophisticated services to a broader customer base. Patapsco’s existing customers will also benefit through access to these new products and services. I am looking forward to being part of the development and growth of this premier banking franchise. Our existing employees will also have tremendous growth potential in the larger institution.”
Phil Phillips, President and Chief Executive Officer of Patapsco Bancorp, stated, “This transaction represents excellent value for Patapsco Bancorp shareholders. We are excited to partner with Howard Bank who shares our values of community service and will continue our legacy of over 100 years of banking service to the Dundalk and eastern Baltimore County community.”
The merger is expected to close in the third or early in the fourth quarter of 2015 and has been approved by the boards of both institutions.
Howard also announced today that it has received binding commitments to purchase an aggregate of 2,173,913 shares of its common stock for $25 million, in a private placement, from a limited number of institutional bank investors at a price of $11.50 per share, which represents the closing price on the day the offering was commenced and less than a 10 percent discount to the current rolling 20-day average. Completion of this capital raise is subject to approval by Howard’s shareholders. Howard intends to use the proceeds of the private placement to support the merger as well as continued organic and inorganic growth for the combined institution. Howard has no present intent to redeem SBLF preferred stock with proceeds of the raise.
Griffin Financial Group, LLC acted as financial advisor and placement agent to Howard, and Ober Kaler acted as its legal counsel. Patapsco was advised by Keefe, Bruyette & Woods, Inc. and its legal counsel was Kilpatrick Townsend & Stockton LLP.