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Improved 1st Mariner pulls out of deal with Priam

1st Mariner Bancorp has pulled out of its agreement with Priam Capital Fund I LP after posting three consecutive quarters of profits, the company announced Friday.

Under the deal, the New York-based hedge fund would have invested $36.4 million in 1st Mariner to help bolster the beleaguered company.

Both parties were permitted to withdraw from the agreement if 1st Mariner wasn’t able to raise an additional $123 million in capital.

“Over the last nine months, 1st Mariner has steadily improved its capital position with positive earnings,” said CEO Mark A. Keidel. “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.”

The deal had been in limbo since it was inked in April 2011 while 1st Mariner struggled to raise the additional capital. Priam has waived several soft deadlines and repeatedly given the bank additional time, but neither company had been particularly forthcoming about the status of the deal.

The company last month announced it had earned $7.9 million in the third quarter, and Keidel said the firm’s leadership believes walking away now is in the company’s best interests.

But the move doesn’t necessarily indicate that the tides are changing for the bank, said Bert Ely, a consultant based in Virginia. Because the agreement had continually failed to produce additional investment, it’s likely the bank just wanted to shed excess baggage, he said.

“Although First Mariner has had a few quarters of some earnings, they still have some significant capital issues that they need to address,” Ely said, adding he wouldn’t be surprised if the bank was under mounting regulatory pressure to shake things up.
Cancelling the agreement might open doors to raise capital elsewhere, he said, because it’s possible that the terms of the deal — or even just its presence — might have hindered other investors.

“There was just no advantage to keeping it in place,” he said. “They need capital. Someone needs to write checks. So at some point, someone needs to say, ‘OK, this isn’t working.’”

The good earnings last quarter were primarily due to high mortgage activity, which Ely said isn’t a reliable or sustainable source of cash. The bank’s ability to raise “fresh money” will depend on whether other investors believe it’s a viable economic venture, he said, in addition to the market environment moving forward.

Shares of 1st Mariner were unchanged Friday, closing at 61 cents.