First Mariner Bank in Baltimore — on pace to post its first annual profit since 2012 — is gearing up for even bigger accomplishments.
The $985 million-asset bank has been profitable "every month this year" and is on track to generate 15% loan growth this year, President and Chief Operating Officer Robert Kunisch Jr. said. "We're not out of the woods, but we're turned around and marching in the right direction," he said.
For most banks, something as basic as making money hardly rates as news, but the feat will have special meaning at First Mariner, an institution that often seemed to be on the brink of failure during the financial crisis and its aftermath. The bank lost $120 million over a nine-year period spanning from 2006 to 2015.
First Mariner was hemorrhaging cash when Kunisch and his colleagues, including Chief Executive Officer Jack Steil, gained control and recapitalized the bank after a contentious bankruptcy auction in 2014. (First Mariner's former holding company even went as far as warning investors that it could fail two years earlier.)
"When we acquired the bank, it was on a $2 million [monthly] loss rate," Kunisch said. "In the first six months we ran the bank, we lost $4.4 million."
The intervention by Steil, Kunisch and their group undoubtedly preserved the independence of Baltimore's last remaining bank of size. For Kunisch, who moved to the city as a high school sophomore, rescuing the bank had personal meaning. It also allowed the group to position First Mariner as a distinctly local alternative to Bank of America, M&T and other big, out-of-town banks that dominate the city's $70 billion deposit market.
"It's a lot easier for us to drive two miles up the street and look at a project and say, 'OK, we get it,' than it is for someone who may be sitting in Charlotte or Buffalo or somewhere else," Kunisch said. "It's a real competitive edge for us."
Once again in the black, First Mariner has shifted its focus from crisis management to strategic planning. Management, among other things, wants to automate the bank's application process for small-business loans and roll out a redesigned website. The bank is also giving serious consideration to entering Small Business Administration lending.
"We're finally able to get strategic in how we approach the business," Kunisch said. "A year ago, the conversations were all about what's going to happen tomorrow. Today, our conversations are all about next year and the years following. It was always fun, but now it's getting to be a lot of fun."
First Mariner's performance over the last 18 months validates a belief that small community banks can capture market share from their larger competitors, said Boris Gutin, managing director of GCP Capital Partners in New York.
GCP, along with Priam Capital, Patriot Financial Partners and TFO Financial Institutions Restructuring Fund led the group that backed Steil and Kunisch by providing $100 million to recapitalize the bank.
"In this environment, if you're achieving double-digit loan growth, you're doing great," Gutin said. "Clearly they're taking share. … We're seeing our thesis playing out with First Mariner."
Numbers back Gutin's view.
First Mariner lost a considerable chunk of deposit market share during its problem years. According to Federal Deposit Insurance Corp. research, the bank's market share in the Baltimore area fell to 1.04% in mid-2015 after reaching nearly 2% four years earlier.
The bank's market share, spread out over 15 branches, inched up to 1.10% on June 30, based on the latest FDIC data.
The increase can be attributed to a determined effort to capture deposits from business borrowers, Kunisch said.
"The loans that we put on today are largely relationship-oriented, so deposit and treasury-management relationships come with them," Kunisch said. "That was what drove our core deposit growth. When we acquired the bank, about 9% of our borrowers were actually depositors. Today that number is pushing up on 40%."
First Mariner has also revamped its loan book. Legacy loans, or those held by the bank in mid-2014, are down 35%, to $339 million. Meanwhile, the bank has $215 million in loans that it didn't have two years earlier.
"If you look at our loans in general, you might say we're flat or a little bit better than flat," Kunisch said. "What you don't see is that we have continued to work our legacy loan portfolio down. … We've completely flipped the balance sheet around."
Kunisch and Gutin said no special strategy explains First Mariner's recovery. Rather, it can be attributed to solid execution of the banking's so-called blocking and tackling.
While he credited management for making progress, Robert Kafafian, president and CEO of Kafafian Group in Parsippany, N.J., said it is still too early to label its turnaround as a success. For Kafafian, the real indicator of success will be sustainable earnings.
While the numbers are "clearly headed in the right direction," credit quality "is still not back to what I'd call normal," Kafafian said.
Nonaccrual loans made up 1.4% of total loans at June 30.
"Operating expenses are still very high," Kafafian added. "They should continue to focus on, and manage, expenses. … First Mariner will clearly be on the right track if, a year from now, they continue to improve and grow earnings."
Kunisch noted that noninterest expenses fell 18% over the 12-month period that ended on June 30, adding that more cost-cutting will occur in coming months. The bank, for instance, plans to consolidate its headquarters and a branch into an adjoining, company-owned building.
"It will be a significant cost-save for us," Kunisch said. "Aside from not having to pay rent, to pick up the efficiencies of everybody in one location is tremendous."
First Mariner spent $4.2 million on premises-and-equipment expenses in the first half of this year, after spending $8.7 million last year, so trimming as little as 5% could add hundreds of thousands of dollars to the bottom line.
With such opportunities within reach, First Mariner's investors are strongly supportive of the bank's top executives.
"Looking at the progress this team has made, they're well past the turnaround stage," Gutin said. "Besides the name, First Mariner bears literally no resemblance to the old bank."
One looming question involves the exit strategy for the 2014 investors and whether First Mariner would pursue a public offering to help those shareholders sell some of their holdings.
"We're putting kind of a four- or five-year forecast out there for" the board to consider an IPO, Kunisch said. "There're a lot of costs to being public … and then you kind of look at some of these smaller banks [with] less than $2 billion of assets, their stocks are very thinly traded. I don't know what the advantage [of being publicly traded] is."
A stock sale "is not on the agenda," as far as Gutin is concerned. "We want to see the bank get bigger and more successful," he said.