Stegman & Co., the auditor hired by First Mariner to review its finances for its annual report, said the company "has suffered recurring losses and has a limited capital base. These conditions raise substantial doubt about its ability to continue as a going concern."
First Mariner has been ordered to raise capital by federal regulators, who placed the bank under increased scrutiny two years ago, and Hale has made personal pitches to investors from Dundalk and around the region. But the bank reported in its latest financial filings with the Securities and Exchange Commission that it still needed to raise $37.6 million based on assets it held at the end of last year.
While some analysts and industry observers said the so-called "going concern" warning from auditors was expected, given the bank's reported losses and the heightened federal attention, others said the red flag could raise questions about the bank's future.
"You don't see that kind of language in an auditor's report unless the company is right on the verge of failure or going into bankruptcy or, in the case of a bank, being taken over," said Bert Ely, a banking analyst based in Virginia.
Hale founded First Mariner as a "hometown" bank, and it grew to be one of the largest independent financial institutions in the state. But like many banks after the housing market collapsed, First Mariner got burned holding bad commercial and consumer real estate loans.
"Ed Hale has a reputation of not having nine lives, but having 29 lives. And he doesn't have many left," said Stuart Greenberg, a bank consultant. "The reality is they may not survive in their present form."
Among the efforts to raise capital needed to satisfy federal banking regulators, the bank sold its consumer finance unit and the company launched a public offering last year that raised $10.9 million, or half of what the company hoped. Hale even put up $2 million of his own money into the company in a complex deal that erased $20 million in debt. And in recent months Hale has turned to local customers and others to raise capital.
None of the moves were enough to meet regulators' capital requirements by the latest deadline. First Mariner indicated in its SEC filing Thursday that it might raise capital in the future through one or more securities offerings.
"Our management believes that our current business plan will be successful; however, our business plan is subject to current market conditions and its successful implementation is uncertain," the banking company said in the document.
First Mariner acknowledged that concern about the fate of the company could have a negative reaction from the bank's customers, who may grow more concerned about the lender's financial condition. That could lead to a significant loss in deposits, customer relationships and the ability to do business with other institutions, the company said.
Even if First Mariner cannot overcome its troubles and regulators seize the bank, customers' deposits are protected by federal insurance up to $250,000.
In the past three years, First Mariner's annual losses have mounted from $15 million in 2008 to $22 million in 2009 and nearly $47 million last year, and the stock was trading as low as 35 cents per share in the past year. The stock fell less than a penny to 97 cents in trading Thursday.
"The figures keep getting worse and worse," Ely said.
Richard Clinch, director of economic research at the University of Baltimore's Jacob France Institute, said the going-concern warning was "not surprising," but is unwelcome news for a region where one local bank after another has disappeared in waves of consolidation and insolvency since the 1990s.
"The loss of local banks can hurt commercial lending because the decisions aren't being made locally anymore," he said. "It's not disastrous news, but it's bad news."
The financial sector was hard hit in the housing and financial market meltdowns of the past few years. As the economy slowly recovers from the recession, the financial sector is still shedding jobs overall, Clinch said.
"Banking is not strong right now, so these people are facing a very uncertain job market," he said.
Baltimore Sun reporter Lorraine Mirabella contributed to this article.