Long road to a deal for 1st Mariner purchasers

Baltimore, MD--Feb. 10, 2014--First Mariner Bank's parent is selling it to a group of investors. Jack Steil, left, is Chairman and CEO of the recapitalized bank; Robert Kunisch, right, is President and COO of the recapitalized First Mariner Bank. staff photo/Barbara Haddock Taylor
Baltimore, MD--Feb. 10, 2014--First Mariner Bank's parent is selling it to a group of investors. Jack Steil, left, is Chairman and CEO of the recapitalized bank; Robert Kunisch, right, is President and COO of the recapitalized First Mariner Bank. staff photo/Barbara Haddock Taylor (Barbara Haddock Taylor / Baltimore Sun)

The deal to buy 1st Mariner Bank started with an irresistible offer — to two men who had nothing to do with the company.

Howard Feinglass, a Baltimore native running a New York investment firm, saw potential in the struggling bank headquartered near Canton's waterfront. He wanted to help recapitalize it in exchange for part ownership. And he wanted local bankers Jack E. Steil and Robert D. Kunisch Jr. on board.


He asked them at an ideal time, just as the bankers' employer was getting bought out by a bigger player for the second time in their careers.

"Having worked for two smaller regional banks like Wilmington Trust and before then, Mercantile, and having twice been acquired by larger out-of-state banks ... I really wanted to find an opportunity to control our destiny," Kunisch said.


But getting within shouting distance of the finish line took longer than he or Steil ever imagined.

Last Monday — more than three years after that first conversation — 1st Mariner's parent company announced a deal to sell the bank to Feinglass' Priam Capital and a group of other investors, who in turn agreed to recapitalize 1st Mariner with $85 million to $100 million of much-needed cash.

The deal's big players are mostly New York firms. But more than a dozen investors contributing millions of dollars are local, Feinglass said.

"That was one of the reasons that we were prepared to invest so much money — because we had that local support," he said.


Among those putting up their own money were Steil, 67, and Kunisch, 46. If the deal closes, they also would run the bank — Steil as chairman and CEO, Kunisch as president and chief operating officer.

Each declined to disclose how much he is investing.

Priam's earlier effort to get a partial stake, which hinged on 1st Mariner's parent raising more than $100 million in additional capital from other sources, fell through in 2012. By last summer, a deal seemed so unlikely that Steil and Kunisch threw in the towel and looked at other Maryland bank possibilities.

Then 1st Mariner's parent had a bad third quarter as mortgage rates rose, slicing new loan activity. And a deadline loomed for interest payments it could not afford.

The group tried again.

Steil chuckled ruefully as he recalled how quickly he'd thought a 1st Mariner deal would happen originally.

"Should have taken about six months," he said.

Even now, it isn't a done deal, and not just because regulators must approve it. The bank actually will be auctioned off as part of the bankruptcy of its parent, First Mariner Bancorp.

The bank itself is not part of the bankruptcy, and First Mariner officials stressed that customers, vendors and employees would not be affected.

The deal makes the investor group's nearly $4.8 million offer the initial bid in the auction. Whether competitors emerge remains to be seen.

But recent events feel like a major step to the group — at long last. Some otherwise interested investors dropped out over the years because they couldn't hang on through all the uncertainty.

One who stuck with it is Josh Fidler, co-chairman of real estate developer Chesapeake Realty Partners in Owings Mills. Fidler, like other locals in the group, talks about the deal with a passion that transcends bottom-line considerations.

They did not want to see 1st Mariner disappear in a federal takeover or an out-of-state acquisition.

"We used to support in this town four to five banks of 1st Mariner's size — Mercantile, Provident, Loyola, First National," said Fidler, 58, an Owings Mills resident who will join the company's board if the sale goes through. "And [now], without 1st Mariner, there are none."

He said big banks have treated his development firm well, but he doubts all local businesses could say the same. Bigger institutions take a one-size-fits-all approach, he said, while community banks can tailor themselves to their community.

Fidler said Feinglass approached him in 2011 with two questions: Would he help evaluate 1st Mariner's real estate loan portfolio? And if he liked what he saw at the bank, would he coordinate a group of local investors?

Fidler said yes. Ultimately, he and a relative decided to invest what he said amounts to "several percent" of the total.

"One of the really interesting stories to me in the last 21/2 years has been how stable the customer base has been," he said. "They need this bank."

At least two others in the group worked for Baltimore financial institutions bought out by bigger fish.

Jennifer W. Reynolds, a partner with commercial real estate developer Ward Properties in Edgewood, went from college to First National Bank of Maryland in 1977 to work in its wealth-management arm. Gary Dorsch, president of Hunt Valley private-equity firm Keyser Capital, spent years as a commercial lender at Maryland National Bank.

Dorsch competed against the two men who will run 1st Mariner if the sale goes through. He admired Mercantile Bankshares, where both Steil and Kunisch spent the formative part of their careers, and was intrigued by the pitch to remake 1st Mariner in that institution's image.

"I really like the Mercantile philosophy," Dorsch said. "Their total focus, and Jack and Rob certainly epitomize this, was very customer-relations oriented. I always thought about Mercantile as the best fraternity on campus. ... Once you were in there, they took care of you through thick or thin."

Keyser Capital, owned by Sinclair Broadcast Group, agreed to invest $3 million in the deal. Dorsch is putting up some of his own money, too, though he'd rather not say how much.

For Reynolds, hanging on to and strengthening a Baltimore-based company is a worthy effort.

"I do a fair amount of volunteer work in our community, and ... the nonprofit organizations in Baltimore have been suffering a bit in the last however many years because we've become a branch city," she said.

But the investors don't see the deal as an altruistic move.

They think 1st Mariner is a great brand that just needs more capital to erase troubles caused by mortgages that soured early in the loan crisis. They believe their Mercantile-trained management team would kick growth into overdrive. And they see one advantage in the long delay: The economy's better now than it was then.

"There's great timing there," said investor Jim Dresher, founder of hotelier Skye Hospitality in White Marsh.

Joe Sullivan, CEO of Market Insights, a Chicago consulting firm that works with community banks, said institutions can stage a comeback after well-publicized financial difficulties. He worked with a Seattle-area bank that was "barely alive" in 2009 and is doing very well now.

A key to success is not relying on "we're local" as the selling point, Sullivan said. Big banks have made strides the past few years in improving their battered reputations, he said. A community bank has to show why it matters, and great customer service — including convenience and plenty of choices — is important, he said.

Craig Simmers, managing partner at Stellar Strategic Group, said 1st Mariner ranked second in customer loyalty and third in service among all banks operating in the metro area in a study his Annapolis financial services marketing firm commissioned a couple of years ago.


1st Mariner wasn't high on the list of banks local residents think of first. But it does have name recognition.


"There hasn't been a single person that we spoke to during our visits to Baltimore that didn't know the name 1st Mariner," said Drago Kolev, a managing director of the TFO Financial Institutions Restructuring Fund in New York, which is on the team poised to buy the bank.

The fund, part of a Bahraini firm that manages assets for Arabian Gulf families, has invested in more than 15 community banks since 2010. Kolev said none of those deals involved as many locals as the 1st Mariner transaction.

"They will be a tremendous asset for the bank, deepening its relationships, bringing some of its old customers back," he said.

Then there are the group's former locals — Feinglass and Boris Gutin, a managing director at New York private-equity firm GCP Capital Partners. Gutin, who grew up in Baltimore County, graduated from the Johns Hopkins University in 1996.

He said local roots made the appeal of 1st Mariner easier to see. In some markets, he said, people don't care where their bank is headquartered. He thinks Baltimore is different.

"The local business community has more of a respect and sort of loyalty to a Maryland-based institution," Gutin said.


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