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First Mariner Bancorp files for bankruptcy

After years of financial struggle, a long-awaited restructuring has begun at Baltimore’s 1st Mariner Bank.

First Mariner

Exteriors of the First Mariner Tower and the surrounding Canton Crossing project and power building as seen on Oct. 28, 2009. (The Daily Record/Maximilian Franz)

Holding company First Mariner Bancorp filed for Chapter 11 bankruptcy protection Monday after announcing that a group of investors plans to buy the bank for $4.7 million and recapitalize it with $100 million.

The process requires approval by regulators, and the sale is subject to a competitive bidding process for better offers. If the transaction proceeds as expected, it should be completed in April, Mark Keidel, the bank’s interim president, said in an interview with The Daily Record.

Throughout the process, customers will have no interruption in services, he said.

“They’re not home free by any means, but this is a major step forward,” said Bert Ely, of Virginia-based Ely & Co. Inc., an expert in deposit insurance and banking structures. “It’s a way for a bank to get rid of the albatross of its holding company and the holding company debt.”

According to Monday’s bankruptcy filing with the U.S. Bankruptcy Court in Maryland, First Mariner Bancorp has just less than $5.5 million in assets and more than $60.5 million in debts.

Community connections

In announcing the plan, the bank identified two proposed officers: Jack E. Steil, who is slated to be chairman and CEO, and Robert D. Kunisch Jr., president and chief operating officer.

Kunisch and Steil are both veterans of Mercantile Bank, where they focused on the Maryland market. They began working with 1st Mariner in July 2011 toward a solution to the bank’s ongoing financial woes.

Since they came on board, Kunisch and Steil put efforts into a number of transactions that never came to fruition, said Keidel. In November 2013, they submitted a proposal detailing the deal announced Monday, he said.

The bank identified the lead investors as Priam Capital, Patriot Financial Partners, GCP Capital Partners and TFO Financial Institutions Restructuring Fund LLC “as well as several prominent members of the Baltimore business community.”

“The community connections are very important,” said Ely. “That’s going to be key not only to bringing in business, but to bringing in the people that bring in the business,” such as loan officers.

The local investors include Jennifer W. Reynolds, director of commercial real estate for Ward Properties; James T. Dresher, CEO and principal of Skye Hospitality LLC; Josh E. Fidler, co-chairman and chief operating officer of Chesapeake Realty Partners and president of Chesapeake Realty Management Inc.; and Gary Dorsch, president of Keyser Capital LLC, a wholly owned subsidiary of Sinclair Broadcast Group Inc.

And the principals of two of the institutional investors, Boris Gutin of GCP Capital and Howard Feinglass of Priam Capital, are both Baltimore natives. They are also proposed investors.

“It’s obviously a validation of the strategy and the view of the bank being successful when you have local business people involved,” said Steil. “Obviously, they have a distinct view of the marketplace.”

Reorganizing the eggs

1st Mariner’s troubles began with the bursting of the real estate bubble, when mortgage lending practices backfired on banks. It experienced some revival in 2012, when refinancing activity spiked, but that was followed by losses throughout 2013.

In September 2009, the Federal Deposit Insurance Corp. issued a cease-and-desist order to address the bank’s low capital levels. The company has been looking for ways to raise capital since then.

This is not the first time Priam has gotten involved.

In April 2011, the New York-based investment company agreed to invest $36.4 million in First Mariner Bancorp, on condition the bank raise $123.6 million from other investors. Another condition was that the bank’s founder, Edwin F. Hale Sr., step down from his posts as president and CEO, which he did. After missing multiple deadlines on the agreement, First Mariner dropped out in November 2012.

The holding company plans to sell the bank in a 363 sale — a process that takes its name from the U.S. Bankruptcy Code and that is often preferred by both buyers and sellers because it’s generally faster than a sale through a Chapter 11 plan of reorganization.

Any proceeds from the sale will be distributed to First Mariner Bancorp’s creditors, said Keidel, and operations at the holding company will be wound down.

“It’s not a done deal, but it certainly has all the pieces in place to become one,” said Ely. But “they still have to reorient the bank.”

The bank’s proposed leaders are aware of its past weaknesses, and plan to avoid a recurrence, said Steil.

“The bank was very dependent on the mortgage business recently,” he said. “We plan to diversify that.”

The bank will continue to finance residential mortgages and provide retail services but will have a strong commercial component, Steil said, with a roughly even split between commercial and industrial loans and commercial real estate lending.

“I think it’s like anything. It’s a management of risk,” he said. “It gets down to making sure you don’t have all your eggs in one basket.”

1st Mariner’s stock is traded over the counter. It closed Monday at 15 cents, off 53 cents.