Hale buying trust preferred securities, won’t buy more First Mariner shares

Posted: 10:32 am Thu, February 4, 2010
By Danielle Ulman
Daily Record Business Writer

First Mariner Bancorp’s chief executive has agreed to buy up $20 million of trust preferred securities from the company in exchange for $2 million in common stock and warrants to increase its equity.

The exchange with Edwin F. Hale Sr., also the bank’s chairman, will have to be approved by company shareholders. The move also means that Hale will not purchase First Mariner common stock in the company’s upcoming offering.

“This will provide a significant benefit to the Company by canceling $20.0 million of its debt and increasing its equity,” Hale said in a Securities and Exchange Commission filing Thursday.

The move is part of a plan to improve the capital levels of subsidiary 1st Mariner Bank after federal regulators ordered the company to do so or face more intense scrutiny that has lead to many banks merging or being shut down in the last couple years.

“We anticipate that the impact of the transaction will bring us much closer to achieving our goal of meeting and exceeding the capital requirements established in the Company’s Written Agreement with the Federal Reserve Bank, and will further support our efforts to recapitalize the Company and the Bank,” the filing said.

Shareholders will vote next week whether to allow First Mariner to issue $20 million worth of additional shares of stock to raise capital, and bank watchers had assumed that Hale would be the largest investor. However, Hale said he anticipates that he will not purchase shares of common stock in First Mariner’s upcoming rights offering because of his involvement in the exchange.

The company said the trust preferred securities are “hybrid securities” that act both as subordinated debt and preferred stock, used by bank holding companies for their “favorable tax, accounting and regulatory capital treatments.” The exchange will eliminate the long-term debt, increasing shareholders’ equity by about $12.8 million.

Other board directors and company executives have agreed to purchase trust preferred securities worth $6 million, although no agreement with the holders of the securities has been arranged.