First Mariner Headquarters

First Mariner Headquarters (Algerina Perna / Baltimore Sun / February 10, 2014)

A regional Pennsylvania bank submitted the highest bid at the auction for Baltimore's 1st Mariner Bank in a deal that must still be approved by a federal bankruptcy court judge and banking regulators.

National Penn Bank offered $19.1 million for 1st Mariner at Thursday's auction, topping a competing bid from a group with local ties led by New York-based Priam Capital LLC, according to a filing in the bankruptcy of bank parent First Mariner Bancorp.

A hearing is scheduled for Monday in Baltimore's U.S. Bankruptcy Court for a judge to rule on the outcome of the auction after hearing any potential objections from creditors of First Mariner.

If it goes through, a sale of 1st Mariner would bring to a close a once-grand Baltimore banking tradition; it is the last locally based bank with more than $1 billion in assets. Its sale 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."

First Mariner was founded in 1995 by Edwin F. Hale Sr., a former shipping and trucking executive. He  built 1st Mariner Bank as the "hometown" alternative to large out-of-town competitors, putting the bank's name on a downtown arena and recruiting local sports stars, such as Baltimore Ravens quarterback Joe Flacco, to serve as spokesmen.

Still the largest shareholder, Hale resigned as chairman of First Mariner in 2011. He also owns the soccer team the Baltimore Blast.

The bank, meanwhile, struggled with soured residential loans during the housing crisis and was operating under orders from regulators to boost its capital levels.

First Mariner filed Feb. 10 for a Chapter 11 bankruptcy after defaulting on a significant part of the roughly $60 million it owes creditors.

The debt in default is owed by the parent company and not the bank, which is not in bankruptcy. Bank deposits, loans and contracts are not affected.

National Penn Bank, which operates more than 100 branches in Pennsylvania and one in Cecil County, will continue operating 1st Mariner and its 18 Baltimore region branches under the locally known name if the sale is approved, said Michael Hughes, National Penn's chief financial officer. 

Hughes said he is optimistic his company's bid to buy the bank will be sealed and consummated before June 30. Once the sale closes, 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."

Monday's hearing on 1st Mariner's sale could prove perfunctory. National Penn's emergence with a competing bid may have eased concerns about a lack of competing bids expressed by creditors.

The official unsecured creditors committee in First Mariner's bankruptcy objected last month to the planned auction because the Priam Capital-led team was the only apparent bidder for the bank, calling the process a "lightning-quick private sale disguised as" an auction. The bankruptcy judge ruled for the auction to proceed.

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.

Before First Mariner filed for bankruptcy, Priam agreed to pay $4.8 million for the bank at auction and, if it won, 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 $1,75 million. First Mariner offered Priam the protections as the 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.