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First Mariner facing Monday deadline in deal with Priam Capital

When a private equity firm announced in April that it had agreed to pump $36.4 million into struggling 1st Mariner Bank, the deal contained clauses allowing it to terminate the deal if certain goals weren’t met. And the first of those deadlines hits Monday.

New York-based Priam Capital Fund I LP agreed to invest the money with the caveat that the Baltimore-based bank raise an additional $123.6 million, giving 1st Mariner a $160 million infusion of much-needed capital. In the April 25 agreement, Priam reserved the right to terminate the deal if the bank and its parent company, First Mariner Bancorp, had not raised $70.3 million by July 18. As of Friday, First Mariner had not announced that it had raised the money.

The bank did not return calls for comment on Friday. But in an interview with The Daily Record in June, First Mariner President and CEO Edwin F. Hale Sr. said he was confident they would be able to raise the money.

“This is the course that we’ve taken and we wouldn’t have taken it if we hadn’t thought that, you know, at the beginning of this it wouldn’t work,” he said at the time. “So, we think that it’s going to work.”

According to the agreement, Monday’s deadline is not an automatic trigger to terminate the deal. Priam has a second deadline of Sept. 1 set where it can terminate the deal if First Mariner has not raised $123.6 million. The firm can also cancel the deal if it is not closed by Oct. 16.

If the deal does close, Hale has agreed to step aside as president and CEO of the company, but he could stay on as a member of the board of directors.

Bert Ely, a Virginia-based banking consultant, said while the Monday deadline is not an automatic deal-killer, he was surprised that if the bank has raised the full amount or come close that they had not touted that by this point.

“I’ve been highly skeptical of their being able to do this,” he said of First Mariner. “I never thought they could raise that kind of money, and I’d be pretty surprised if they have.”

The company has been under pressure from federal regulators to boost its capital level. Under a 2009 cease-and-desist order from the Federal Deposit Insurance Corp. and the Maryland Division of Financial Regulation, First Mariner was to have raised its Tier 1 leverage and total risk-based capital ratios to 6.5 percent and 10 percent, respectively, by March 31, 2010, and 7.5 percent and 11 percent, respectively, by June 30, 2010.

The Tier 1 capital ratio is a bank’s core equity capital compared to its total assets; the total risk-based capital ratio is the requirement that banks keep a minimum ratio of estimated total capital to estimated risk-weighted assets. The bank has not hit those levels and has slipped further behind as it has been operating in the red.

In its most recent quarterly earnings report, First Mariner reported a pretax loss of $7.3 million for the first quarter of 2011, which ended in April, compared with a pretax loss of $5.7 million for the first quarter of 2010. The parent company also reported declines in revenue, deposits and total assets.