First Mariner withdraws from Priam Capital deal

Baltimore-based bank holding company says conditions have improved

November 09, 2012|By Eileen Ambrose, The Baltimore Sun

First Mariner Bancorp announced Friday that it is dropping out of an agreement that called for Priam Capital Fund I, a New York investment firm, to invest $36.4 million in the Baltimore-based bank holding company.

"Circumstances of the bank have changed considerably since we entered into the agreement over a year and a half ago, and the board of directors believed it was in the best interest of the company to withdraw from the agreement at this time," said CEO Mark A. Keidel in a statement.

First Mariner, struggling under bad loans from the real estate crisis, had been under orders from federal banking regulators to raise its capital levels for nearly two years when it entered into the agreement with Priam in April 2011. In exchange for its cash infusion, Priam was to receive a nearly 25 percent stake in the banking company.

But Priam's investment was contingent on First Mariner raising $123.6 million from other investors. As part of the agreement, too, First Mariner's founder, Edwin F. Hale Sr., stepped down as chairman and CEO.

But First Mariner, parent of 1st Mariner Bank, was unable to raise the money and missed deadlines. The pact, though, gave both sides the option of terminating the agreement at any time if the deal didn't go through by Nov. 30, 2011.

Priam is headed by Baltimore native Howard Feinglass. He did not return a phone call Friday afternoon seeking comment.

Since the initial agreement with Priam, First Mariner is in a better capital position now that the company is once again profitable, Keidel said.

After five years of losses, First Mariner turned a profit this year. And last month, it posted its third positive quarterly earnings report in a row. Banking experts said that First Mariner, along with other lenders, have been benefiting from a rash of mortgage refinancings.

For the quarter ended Sept. 30, First Mariner earned $7.9 million, or 42 cents per share. The results a year earlier were the mirror opposite, a loss of $7.9 million.

"While our capital ratios remain below the levels required by regulatory orders, we are making progress and will continue to work diligently to increase capital to levels required by regulatory agreements," Keidel said in a statement.

James D. Hardesty, chairman of Hardesty Capital Management in Baltimore, said First Mariner's announcement could mean one of three things.

"They feel that they can make it on their own and they think they see daylight," he said. "There could be yet another financial angel that has appeared."

Or, said Hardesty, a former executive with the old Mercantile-Safe Deposit and Trust Co., regulators weren't satisfied by the company's efforts, assisted by Priam, to raise the extra capital.

Banking consultant Bert Ely said it's possible that regulators started to pressure First Mariner again, given that the attempt to raise capital through Priam was going nowhere.

The agreement with Priam, Ely added, might have hindered First Mariner from attracting other serious investors or receiving a firm underwriting agreement with an investment bank to raise additional capital.

"The outlook for the bank at the time they entered into the agreement wasn't very good. Things are looking better," Ely said.

"What will be interesting," he added, "What happens next?"

First Mariner's stock, traded over the counter, closed Friday at 61 cents a share, unchanged for the day.

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