First Mariner Bancorp Files for Bankruptcy in Buyout Deal

February 10, 2014 4:41 p.m. ET
By: Stephanie Gleason

First Mariner Bancorp the holding company for Maryland community bank 1st Mariner, filed for Chapter 11 bankruptcy Monday in order to sell its bank subsidiary.

The company said it has an offer that would provide $100 million of new capital from a group of private-equity investors — Priam Capital, Patriot Financial Partners, GCP Capital Partners and TFO Financial Institutions Restructuring Fund LLC — and investors from the Baltimore business community.

"The $100 million capital infusion will create a bank poised for growth," Mark Keidel, interim president of 1st Mariner, said in a statement. "Upon approval by the court and regulatory authorities, the bank will become strong and secure. We will meet all federal and state regulatory requirements for capitalization."

According to its most recent financial disclosures, First Mariner had become undercapitalized and wasn't in compliance with Federal Deposit Insurance Corp. and Federal Reserve Bank of Richmond requirements.

The deal is structured so that the investors would purchase the shares of First Mariner Bancorp for $4.775 million and then recapitalize the bank, which isn't filing for bankruptcy. The offer will be tested at auction.

Along with its bankruptcy petition, filed with the U.S. Bankruptcy Court in Baltimore, First Mariner filed a request to limit trading of its stock in order to protect as much as $70 million in net operating losses. These losses can be used as a tax write-off and are factored into the price investors are willing to pay.

Chapter 11 filings have become a popular way for ailing banks to recapitalize and avoid takeover by the FDIC.

Capitol Bancorp Ltd., which owns Bank of Las Vegas, Indiana Community Bank, Michigan Commerce Bank and Sunrise Bank of Albuquerque, recently used this strategy and executed a deal with investor Wilbur Ross. Also, Mercantile Bancorp Inc. was purchased recently by United Community Bancorp of Illinois for $23 million through a Chapter 11 filing.

If First Mariner's proposed transaction is approved by the bankruptcy court, two former Wilmington Trust executives will take the reins; Jack Steil would become chairman and chief executive, and Robert Kunisch Jr. would become president and chief operating officer. Both men were also formerly with Mercantile Safe Deposit and Trust.

This is First Mariner's second attempt to strike a deal with Priam Capital, a New York investment firm. In April 2011, the two entered into an agreement where Priam agreed to invest $36.4 million as long as the bank raised $123.6 million from other investors. The deal fell apart in November 2012 when First Mariner withdrew, stating that its financial position had improved, according to a news release.

There are 16 1st Mariner Bank branches throughout Maryland as well as a 12-branch mortgage arm called 1st Mariner Mortgage. The bank employs 465 people.

(Dow Jones Daily Bankruptcy Review covers news about distressed companies and those under bankruptcy protection. Go to http://dbr.dowjones.com)

Corrections & Amplifications An earlier version of this story incorrectly identified the former firm of Jack Steil and Robert Kunisch Jr.

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