Pennsylvania bank emerges as winning bidder for 1st Mariner

April 13--A regional Pennsylvania bank has bid $19.1 million at auction for Baltimore's 1st Mariner Bank, hoping to leverage the city's last large independent banking brand in its plans for regional expansion.

National Penn Bank, which operates more than 120 branches in Pennsylvania and one in Cecil County, will continue operating 1st Mariner under the locally known name if the sale is approved, but 1st Mariner would cease to exist as an independent banking entity, Michael Hughes, National Penn's chief financial officer, said Saturday.

The deal, a sort of bookend on a once-grand Baltimore banking tradition, was spurred by the Chapter 11 bankruptcy reorganization filing of the bank's parent, First Mariner Bancorp, on Feb. 10. That filing came after a years-long struggle to rebound from soured residential loans during the housing bust.

If approved, it would be the latest in a string of acquisitions of Baltimore banks by out-of-state entities in recent years, from Mercantile Bankshares Corp. to Provident Bank to Maryland National Bank.

"You had a number of really significant banks headquartered there," said Bert Ely, a banking consultant based in Alexandria, Va., "and now you have nothing."

1st Mariner isn't part of the bankruptcy case, and its parent has stressed that bank deposits, contracts and other business will not be affected. First Mariner estimated in February that its obligations to creditors exceed $60 million.

Hughes said he is "optimistic" his company's bid to buy the bank, announced late Friday, will be sealed and consummated in the second quarter of this year, at which time National Penn would begin reinvigorating 1st Mariner franchises throughout Baltimore with a focus on expanding commercial business.

"It's consistent with our business approach: local, decision-making community banking in a very strong market," Hughes said. "We like the First Mariner brand in that market, we like the retail franchise, and we think the opportunity is there to grow that brand at a greater rate."

A sale hearing, where challenges to the transfer and sale can be raised, is scheduled in U.S. Bankruptcy Court in Baltimore on Monday. The sale would also be subject to regulatory approval.

What, if any, objections will be raised is unclear, though the competition National Penn introduced into the auction process may have eased some of concerns about a lack of competing bids expressed by creditors.

National Penn won 1st Mariner over rival bidder Priam Capital, a New York investment firm that had been the sole declared bidder for the Baltimore bank as of last week.

Priam's investment group included Patriot Financial Partners, GCP Capital Partners and TFO Financial Institutions Restructuring Fund LLC, along with "several prominent members of the Baltimore business community," First Mariner Bancorp said.

Priam had put forward a $4.8 million bid ahead of the auction, along with an offer to infuse the bank with $85 million to $100 million in cash to recapitalize it. If National Penn's deal stands, Priam will receive a $1 million breakup fee and an expense reimbursement of up to $1,750,000. First Mariner offered Priam the protections as an early bidder.

Howard Feinglass, the Baltimore native who leads Priam, could not be reached for comment Saturday.

Lawrence Yumkas and Robert Schmidt, attorneys for 1st Mariner, did not respond to a request for comment. The company has said it reached out to more than 130 potential investors in marketing itself for sale.

Last month, before National Penn had announced its interest, the Official Committee of Unsecured Creditors called the process a "lightning-quick private sale disguised as" an auction.

"Rather than encouraging competition among potential buyers for the Debtor's assets, the Auction Procedures -- and their condensed timeframes, excessive breakup fees, and preclusive requirements for competing bidders -- foreclose any realistic possibility of a competing bid," the committee's attorneys said in a court filing March 1.

Word of an unidentified second bidder, beyond Priam, first came in a court filing on Wednesday.

Hughes said National Penn's entry into the auction was consistent with its "acquisition strategy," and 1st Mariner met its two major criteria for banks to target: assets of $500 million or more and a location in a "contiguous market."

"When we looked at the market and the opportunity there and the franchise value, we saw great value and synergy" in 1st Mariner, he said.

The escalation of bids to its winning $19.1 million was a function of a "competitive" auction, he said, and the increase to well beyond Priam's initial bid wasn't a surprise.

"If you look at these transactions historically, across the country, I don't think that is atypical that the bid comes up substantially," Hughes said.

Ely, the banking consultant, said he also wondered why the bid jumped so high from Priam's initial offer. Still, if it was because of an intensely competitive bidding war with Priam, National Penn's decision makes sense, Ely said.

"I can see the logic of the geographical expansion," he said. "And what they may have figured is it's going to be a lot cheaper now than when new management comes in and cleans things up and gets things back on track."

National Penn should also be able to come into 1st Mariner and drop expenses by cutting down on overhead costs almost immediately, Ely said.

National Penn Bank, which represents the majority of the assets of the broader National Penn Bancshares, has $1 billion in tangible capital and a $1.5 billion market cap.

National Penn, headquartered in Allentown, operates 127 offices. It has 124 community banking offices in Pennsylvania and one office in Maryland through National Penn Bank and its HomeTowne Heritage Bank, KNBT and Nittany Bank divisions.

With the 1st Mariner brand, Hughes said, National Penn would be focused on expanding commercial banking and expanding products for local customers. While some "administrative IT functions" would be consolidated, most customers would continue to see familiar 1st Mariner employees in their neighborhood branches, he said, declining to provide specifics about potential job losses.

"What we would bring is a broader array of products, and what we hope to see on the commercial side is the ability to grow the employee base," Hughes said.

1st Mariner Bank was started by Edwin F. Hale Sr., the Baltimore trucking magnate and developer, in 1995. He retired as chief executive and chairman of First Mariner Bancorp in 2011.

First Mariner stock -- which once traded above $20 a share -- closed at 3 cents per share Friday. National Penn closed down slightly, at $10.35.

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Baltimore's former titans of banking

In recent years, Maryland has seen many local banks acquired by out-of-state rivals. A little over a decade ago, the state had 139 banks based here, 20 of them separately chartered affiliates of Mercantile-Safe Deposit & Trust Co., according to the Maryland Bankers Association. Here are a few of Baltimore's most prominent banks that have been bought up over past three decades.

Provident Bank (1886-2008)

Provident, based in Baltimore since the late 1800s, had long prided itself on its independence. But the bank struggled during the recession that began in 2008 and decided to sell itself to Buffalo, N.Y.-based M&T Bank despite getting a $151.5 million infusion from the federal Troubled Asset Relief Program. Before merging with M&T, the bank had 142 branches in Maryland, Virginia and southern Pennsylvania. For 25 years, Provident was headquartered in a 1920s-era building on Lexington Street.

Mercantile Bankshares Corp. (1864-2007)

Created as a repository of Southern wealth in 1864, it was a place where executives served their elite clientele quietly and ran their business conservatively. It was a place where vault security rivaled Fort Knox and federal insurance for deposits was considered a sign of banking weakness. The 143 year-old-bank ceased to exist in 2007 when Pittsburgh-based PNC Financial Services Group purchased the bank for $6 billion in cash and stock. The bank was known for philanthropic contributions. In 2005, Mercantile made $5 million in grants and donations to nearly 1,500 community organizations, according to the bank. Major gifts included $1 million to Catholic Charities for a new Our Daily Bread Employment Center and an expanded My Sister's Place, a day program for homeless women and children.

First National Bank of Maryland/Allfirst (1864-2002)

First National Bank of Maryland was established in 1864 and distinguished itself by continuously paying dividends to shareholders, even during the Great Depression. In 1989, Allied Irish Banks, PLC of Dublin, Ireland, purchased First Maryland Bancorp. The transaction marked the first acquisition of a major Maryland bank by a large foreign banking institution. In 1999, after more than a year of planning and test marketing, the company's name changed to Allfirst Financial Inc. But the bank brought down by millions in losses by rogue trader John M. Rusnak in 2002, leading to its eventual sale to Buffalo-based M&T Bank.

Maryland National Bank (1805-1993)

Maryland National Bank, which was long based in the towering skyscraper at 10 Light Street, was bought by NationsBank in 1993 for $1.38 billion. NationsBank was later acquired by Bank of America. When it was sold, it was Baltimore's oldest and largest banking company. MNC Financial, the bank's parent company, was among the state's most powerful business and philanthropic institutions in its mid-1980s prime. MNC Financial had more than 7,500 employees before it was sold.

--The Baltimore Sun

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