CEO steers $2 million to First Mariner

Hale's investment will help eliminate debt, buoy bank

February 05, 2010|By Gus G. Sentementes |

First Mariner Bancorp CEO Edwin F. Hale Sr. plans to pump $2 million of his own money into the company in a complex deal that eliminates $20 million in debt - the latest step in the bank's months-long effort to satisfy federal regulators by raising capital and dealing with bad housing loans.

First Mariner also disclosed Thursday thatit no longer faces delisting from the Nasdaq Stock Market because the company's stock and market value have increased.

To regain compliance with Nasdaq, the stock price had to be at least $1 per share, and the minimum market value of its shares had to be at least $5 million, for 10 consecutive days.

The company said it satisfied Nasdaq's requirements on Feb. 2. The shares rose 7.4 percent Thursday, to $1.31.

Hale, who also serves as chairman, has agreed to buy First Mariner trust preferred securities, a hybrid of bond and stock, and exchange those for $2 million worth of stock plus warrants. The net effect of the deal is that stockholders' equity is expected to increase by $12.8 million, according to the company.

"It's a very, very noble move for Mr. Hale," said Anthony Polini, a research analyst with Raymond James who follows the bank. "Before today I couldn't tell you that this stock could double in a year, but now I can actually say that."

Other unnamed directors and executive officers also are buying trust preferred securities worth another $6 million, in exchange for $600,000 in common stock and warrants, the company reported.

While the agreement with Hale, which requires shareholder approval, helps improve the capital levels of the holding company, it will have less of an impact on its subsidiary, 1st Mariner Bank, which is facing the increased regulatory scrutiny, according to the company.

Bert Ely, an independent bank analyst based in Virginia, said First Mariner executives still have work to do to shore up the financial health of the bank subsidiary. "It's a positive for the company, but it doesn't really fully address its capital problem as it exists in the bank subsidiary," he said.

After agreeing to devise a plan to boost its capital last year, First Mariner has sold a consumer finance division for $10.5 million and plans this year to offer shareholders the right to buy additional stock as a way to raise $20 million.

Ely said the bank could have a difficult time raising that $20 million because he wasn't sure whether investors would pour more money into the struggling company. Hale does not expect to participate in the rights offering, according to First Mariner.

"Whoever puts in $20 million is going to want control of the company," Ely said.

In September, the Federal Deposit Insurance Corp. and the Maryland Division of Financial Oversight increased their oversight of the bank. In November, the bank also started facing increased oversight from the Federal Reserve Bank of Richmond, Va.

In an interview Thursday, Hale said the company worked on the trust preferred securities transaction for six months and received approvals from the Federal Reserve, the Securities and Exchange Commission, the FDIC and state banking regulators on the deal.

"We've had to go through a very rigorous approval process," Hale said.

He characterized the transaction as "unprecedented."

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