1st Mariner acts to boost capital via stock sale

1st Mariner's shareholders could buy up to $20 million

December 09, 2009|By Hanah Cho

The parent of 1st Mariner Bank, which is operating under intense federal supervision, plans to raise up to $20 million by offering its shareholders the right to buy additional stock, according to a preliminary prospectus filed Tuesday.

The rights offering is part of the bank's plans to raise much-needed cash to boost its capital levels as required by banking regulators. In September, federal and state regulators ordered the bank to improve its capital and deal with problem real estate loans, among other requirements.

The bank took a major step in October by selling its consumer finance unit for $10.5 million. That sale is expected to close by Dec. 15.

The preliminary prospectus did not set a price or say how many shares it plans to sell because the offering is in the early stages, said Mark Keidel, chief operating officer and executive vice president. The sale could close in March, Keidel said.

Along with proceeds from the sale of its consumer finance unit, raising an additional $20 million would be "sufficient" to satisfy the capital needed to meet targets established by regulators, Keidel said.

One important benchmark the bank must meet is higher capital ratios. The bank, Baltimore's largest independent bank, must have a "Tier 1" leverage capital ratio of at least 7.5 percent and a total risk capital ratio of at least 11 percent by June 30, 2010.

The bank had a Tier 1 leverage capital ratio of 5.4 percent and a total risk capital ratio of 8.4 percent as of Sept. 30, according to regulatory filings.

The bank said a rights offering was the best option to improve its capital position.

"Our board of directors has chosen to raise capital through a rights offering to give our shareholders the opportunity to limit ownership dilution by buying additional shares of common stock," the bank said in a prospectus filed with the Securities and Exchange Commission. "Our board of directors also considered several alternative capital-raising methods prior to concluding that the rights offering was the appropriate option under current circumstances."

According to the prospectus, the bank said it has entered into "standby purchase agreements" with outsiders, such as institutional investors, to buy a certain number of shares, which would depend on what is available after the rights offerings to current shareholders.

1st Mariner said its directors and officers are expected to participate in the stock sale. Chairman and Chief Executive Officer Edwin F. Hale Sr. is the bank's largest shareholder, with nearly 1.5 million shares, or a 22.6 percent stake. Hale's holdings include options, according to the filing.

The bank also revealed that it has identified five branches that it intends to sell or close next year. One is the bank's downtown Charles Street branch, whose customers were notified last month about its closure on Feb. 15.

Dennis Finnegan, executive vice president, said the number of affected branches is preliminary, with the bank reviewing its distribution network. 1st Mariner has 24 branches in the Baltimore region.

The bank has not yet entered into any agreement to sell any branch, according to the filing. The move is expected to reduce overhead costs by $3 million.

Anthony Polini, an analyst at Raymond James & Associates in New York, said the rights offering is a positive but not unexpected development for the bank, which has reported several quarters of losses.

Polini said he estimates the bank would need to raise $10 million to $20 million to "bridge them to a period of profitability."

"Announcing up to a $20 million rights offering seems right on target," he said, noting he would still like more information on pricing and terms. "You always want to raise a little more."

The success of the stock sale could depend on insider participation, especially Hale's, Polini said. "How much Ed Hale puts into this from his own pocket? That's important, whether he takes the lead in a big, positive way," Polini said.

Shares of 1st Mariner lost 4 cents to close at 70 cents.

Baltimore Sun Articles
Please note the green-lined linked article text has been applied commercially without any involvement from our newsroom editors, reporters or any other editorial staff.