First Mariner Enters Ch. 11 To Sell Bank Unit For $100M

February 10, 2014, 6:56 PM ET
By Maria Chutchian

Baltimore-based First Mariner Bancorp, the holding company for 1st Mariner Bank, entered bankruptcy Monday for the purpose of selling off its bank subsidiary to a group of private equity funds for $100 million.

The groups making up the stalking horse bid are Priam Capital, Patriot Financial Partners, GCP Capital Partners and TFO Financial Institutions Restructuring Fund LLC, as well as certain "prominent members" of the Baltimore business community, the company said.

Their offer will be subject to an auction that could produce a higher or better bid. The deal must also be cleared by state and federal regulators. The company intends to ask for an expedited sale process.

"The $100 million capital infusion will create a bank poised for growth," interim president Mark Keidel said. "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."

Keidel said the bank's operations will not be impacted by the bankruptcy filing, which is only being submitted by the holding company. Its depositors, creditors and vendors will also be unaffected, he said. The bank has maintained high levels of liquidity, including cash, cash equivalents and securities totaling $286 million as of Jan. 31, according to the company. First Mariner director and interim chairman Michael R. Watson said Monday that the company has tried for more than five years to raise capital and protect the value of the enterprise but that "With time, it's become clear... that the sale transaction is the best option to preserve 1st Mariner Bank, to maintain its independence and to protect its employment base."

Last summer, First Mariner reported a net loss of $1.48 million for the second quarter of 2013 following a six-month period ending June 30 in which the company experienced a net loss of $3.75 million. At the time, Keidel blamed the poor results on "rising long-term interest rates, which slowed refinancings and overall revenue from our mortgage banking operations as compared to the second quarter of 2012."

He also said the company was forced to pay higher operating expenses for professional services and its attempts to raise capital.

The bank operates 16 branches around Maryland. It began suffering losses in 2007 as a result of the global financial crisis and did not receive any assistance from the Troubled Asset Relief Program, Keidel said in a court filing.

In September 2009, the Federal Deposit Insurance Corp. ordered the company to raise sufficient capital to achieve certain capital ratio levels. Though the company completed capital raises and sold its consumer finance subsidiary in 2009 and 2010, it still continued to experience losses.

In November 2009, the Federal Reserve Board instructed First Mariner to reach certain minimum capital requirements. Though the company tried over the next few years to recapitalize, it was never able to do so.

Among its unsuccessful efforts was a proposed $160 million private placement in 2011, a proposed asset sale in 2012, a proposed prepackaged bankruptcy in the fall of 2012, a proposed prepackaged bankruptcy in early 2013, and a proposed sale of the bank in August 2013, according to Keidel.

The company is represented by Lawrence J. Yumkas of Yumkas Vidmar & Sweeney LLC.

1st Mariner Bank is represented by Gary R. Bronstein, Todd C. Meyers and Joel E. Rappoport of Kilpatrick Townsend & Stockton LLP.

The case is In re: First Mariner Bancorp., case number 1:14-bk-11952, in the U.S. Bankruptcy Court for the District of Maryland.

— Editing by Andrew Park.