<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
Consolidated Balance Sheets
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1997 DECEMBER 31, 1996
-------------- -----------------
(UNAUDITED)
<S> <C> <C>
Cash on hand and in banks..................................................... $ 11,631,460 $ 5,323,984
Interest bearing deposits..................................................... 14,771,283 27,186,076
Available-for-sale securities, at fair value.................................. 15,324,227 324,875
Investment securities, fair value of $3,048,605 and $1,097,438,
respectively................................................................ 3,099,000 1,099,000
Federal Home Loan Bank of Atlanta stock, at cost.............................. 932,900 480,800
Loans receivable, net......................................................... 119,711,242 94,607,187
Other real estate owned....................................................... 640,386 --
Property and equipment, net.................................................. 3,576,420 2,671,018
Accrued interest receivable and other assets.................................. 2,401,502 868,606
-------------- -----------------
Total assets:................................................................. $ 172,088,420 $ 132,561,546
-------------- -----------------
-------------- -----------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits...................................................................... $ 128,667,273 $ 102,289,146
Federal Home Loan Bank of Atlanta advances.................................... 10,000,000 6,000,000
Other borrowings.............................................................. 5,189,449 --
Accrued expenses and other liabilities........................................ 1,583,907 476,398
-------------- -----------------
Total liabilities:............................................................ 145,440,629 108,765,544
-------------- -----------------
Stockholder's Equity
Common stock, $.05 par value; 5,000,000 shares authorized; 2,837,263 and
2,627,263 shares issued and outstanding, respectively....................... 141,863 131,363
Additional paid-in capital.................................................... 29,683,218 27,350,118
Accumulated deficit........................................................... (3,608,822) (3,696,904)
Unrealized gain on available-for-sale securities.............................. 431,532 11,425
-------------- -----------------
Total stockholders' equity:................................................... 26,647,791 23,796,002
-------------- -----------------
Total liabilities and stockholders' equity:................................... $ 172,088,420 $ 132,561,546
-------------- -----------------
-------------- -----------------
</TABLE>
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------- ----------------------------
JUNE 30, 1997 JUNE 30, 1996 JUNE 30, 1997 JUNE 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest income:
Loans................................................. 2,722,112 1,342,395 5,247,200 2,192,796
Investments........................................... 438,207 43,403 817,505 270,332
------------- ------------- ------------- -------------
Total interest income................................. 3,160,319 1,385,798 6,064,705 2,463,128
------------- ------------- ------------- -------------
Interest expense:
Deposits.............................................. 1,322,890 620,899 2,464,728 1,138,824
Borrowed funds and other.............................. 33,594 -- 75,803 --
------------- ------------- ------------- -------------
Total interest expense................................ 1,356,484 620,899 2,540,531 1,138,824
------------- ------------- ------------- -------------
Net interest income before provision for loan
losses.............................................. 1,803,835 764,899 3,524,174 1,324,304
Provision for loan losses............................. 100,762 205,489 235,762 238,689
------------- ------------- ------------- -------------
Net interest income after provision for loan losses... 1,703,073 559,410 3,288,412 1,085,615
------------- ------------- ------------- -------------
Non-interest income:
Fees on loans......................................... 349,298 45,198 508,603 109,557
Service fees on deposits.............................. 252,412 70,918 512,831 99,695
Gain on sale of securities............................ 69,247 1,772 69,247 1,772
Other................................................. 52,551 26,106 90,132 43,638
------------- ------------- ------------- -------------
Total non-interest income............................. 723,508 143,994 1,180,813 254,662
------------- ------------- ------------- -------------
Non-interest expense:
Salary................................................ 1,242,558 648,826 2,203,279 1,153,398
Occupancy............................................. 279,578 155,254 511,814 273,279
Insurance premiums.................................... 17,011 24,326 30,036 48,427
Furniture, fixtures and equipment..................... 103,289 58,298 201,288 104,281
Professional services................................. 38,330 14,082 76,894 (14,233)
Advertising........................................... 138,171 62,165 254,571 122,291
Data processing....................................... 95,999 85,000 196,999 129,067
Office supplies....................................... 36,227 16,752 57,171 31,401
Amortization of intangible assets..................... 18,732 15,096 37,464 33,828
Other................................................. 392,680 196,104 811,627 357,037
------------- ------------- ------------- -------------
Total noninterest expense............................. 2,362,575 1,275,903 4,381,143 2,238,776
------------- ------------- ------------- -------------
Income (Loss) before income tax benefit............... 64,006 (572,499) 88,082 (898,499)
Income taxes.......................................... -- -- -- --
Net income (loss)..................................... 64,006 (572,499) 88,082 (898,499)
------------- ------------- ------------- -------------
------------- ------------- ------------- -------------
Earnings per common and common equivalent shares
Primary............................................... 0.02 (0.46) 0.03 (0.73)
Fully diluted......................................... 0.02 (0.46) 0.03 (0.73)
</TABLE>
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
Consolidated Statement of Cash Flows (Unaudited)
For the six months ended June 30, 1997 and 1996
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES 1997 1996
- ------------------------------------------------------------------------------------ ------------- -------------
<S> <C> <C>
Net income (loss)................................................................... 88,082 (898,499)
Adjustments to reconcile net income (loss) to net cash used by operating activities:
Amortization of unearned loan fees, net............................................. (351,493) (220,074)
Amortization of premiums on deposits................................................ (12,093) (14,016)
Accretion of discounts on loans..................................................... (32,874) (26,205)
Depreciation and amortization....................................................... 290,579 174,142
Provision for loan losses........................................................... 235,762 238,689
Gain on sale of securities.......................................................... (69,247) 1,772
Net changes in:
Accrued expenses and other liabilities.............................................. 1,107,509 280,508
Prepaids and other assets........................................................... (1,570,360) 166,417
------------- -------------
Net cash used by operating activities............................................... (314,135) (297,266)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES
Loan disbursements, net of principal repayments..................................... (25,595,836) (32,313,089)
Purchases of property and equipment................................................. (1,158,517) (896,807)
Purchases of Federal Home Loan Bank of Atlanta stock................................ (452,100) --
Proceeds from sale of available for sale securities................................. -- 2,337,625
Purchase of investment securities available-for-sale securities..................... (14,509,998) (1,631,200)
Purchase of investment securities held-to-maturity.................................. (2,000,000)
------------- -------------
Net cash used in investing activities............................................... (43,716,451) (32,503,471)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposits............................................................ 26,390,220 28,089,685
Proceeds from advances from Federal Home Loan Bank of Atlanta....................... 10,000,000 --
Proceeds from other borrowings...................................................... 5,189,449 --
Repayment of advances from Federal Home Loan Bank of Atlanta........................ (6,000,000) --
Proceeds from stock issuance, net................................................... 2,343,600 4,800
------------- -------------
Net cash provided by financing activities........................................... 37,923,269 28,094,485
------------- -------------
DECREASE IN CASH AND CASH EQUIVALENTS............................................... (6,107,317) (4,706,252)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD.................................... 32,510,060 17,654,115
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD.......................................... 26,402,743 12,947,863
------------- -------------
------------- -------------
Supplemental information:
Interest paid on deposits and borrowed funds........................................ $ 2,540,531 $ 1,138,824
------------- -------------
------------- -------------
Transfer of loan to other real estate owned......................................... $ 640,386 $ --
------------- -------------
------------- -------------
</TABLE>
1
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)
JUNE 30, 1997
NOTE 1 - GENERAL
The foregoing consolidated financial statements of First Mariner Bancorp
(the "Company") are unaudited; however, in the opinion of management, all
adjustments (comprising only normal recurring accruals) necessary for a fair
presentation of the results of interim periods have been included. These
statements should be read in conjunction with the financial statements and
accompanying notes included in First Mariner Bancorp's 1996 Annual Report to
Shareholders. The results shown in this interim report are not necessarily
indicative of results to be expected for the full year 1997.
The accounting and reporting policies of the Company conform to generally
accepted accounting principles and to general practice within the banking
industry. Certain reclassifications have been made to amounts previously
reported to conform with current classifications.
Consolidation has resulted in the elimination of all significant
intercompany accounts and transactions.
NOTE 2 - PER SHARE DATA
Net income per common share is based on the weighted average number of
shares outstanding of 2,826,523 in 1997 and 1,226,863 in 1996.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
This Management's discussion and analysis contains forward-looking
statements, including statements of goals, intentions and expectation,
regarding or based upon general economics conditions, interest rates,
developments in national and local markets, and other matters, and which, by
their nature, are subject to significant uncertainties.
THE COMPANY
The Company is a bank holding company formed in Maryland in 1994 under
the name MarylandsBank Corporation. The business of the Company is conducted
through its wholly-owned subsidiary First Mariner Bank (the "Bank"), whose
deposits are insured by the Federal Deposit Insurance Corporation ("FDIC").
The Bank, which is headquartered in Baltimore City, serves the central region
of the State of Maryland through 15 full service branches and 26 Automated
Teller Machines ("ATMs").
1
<PAGE>
The Bank is an independent community bank engaged in the general
commercial banking business with particular emphasis on the needs of
individuals and small to mid-sized businesses. The Bank emphasizes personal
attention and professional service to its customers while delivering a range
of traditional and contemporary financial products and performing many of the
essential banking services.
The Company's executive officers are located at 1801 South Clinton
Street, Baltimore, Maryland 21224 and its telephone number is (410) 342 - 2600.
a) Financial Condition
The Company's total assets were $172,088,420 at June 30, 1997, compared
to $132,561,546 at December 31, 1996, increasing $39,526,874 or 29.8% for the
first six months of 1997. Earning assets increased $30,376,475 or 24.3% to
$155,316,076 from $124,939,601.
Total loans increased $25,339,816 or 26.4% to $121,188,666 for the first
six months of 1997. As a result of the loan growth a provision for loan
losses or $235,762 was recorded during the first and second quarters of 1997.
The allowance for loan losses stands at $1,477,425 at June 30, 1997 compared
to $1,241,663 at December 31, 1996. As of June 30, 1997 the allowance for
loan loss coverage is 1.22% of outstanding loans.
The investment portfolio, consisting of available-for-sale and
held-to-maturity securities increased $16,999,352 from December 31, 1996.
The increase was funded primarily from deposit growth experienced during the
same period together with an increase in advances from Federal Home Loan Bank
of Atlanta and other borrowings. Interest bearing deposits as of June 30,
1997 fell $12,414,793 to $14,771,283 when compared to the December 31, 1996
balance of $27,186,076. Securities designated as available-for-sale
represent a significant source of liquidity as of June 30, 1997.
Deposits were $128,667,273 as of June 30, 1997, increasing $26,378,127
or 25.8% from the December 31, 1996 balance of $102,289,146. The increase in
deposits is attributable to an advertising campaign and the expanding branch
network. FHLB advances increase to $10,000,000 as of June 30, 1997 from
$6,000,000 as of December 31, 1996.
Net Interest Income
Second quarter net interest income before provision for loan losses was
$1,803,835 in 1997, an increase of 135.8% over $764,899 in 1996, reflecting
primarily a higher volume of average earning assets. For the six month
period, net interest income before provision for loan losses was $3,524,174
compared to $1,324,304 reflecting an
2
<PAGE>
increase of 166.1%. The net yield on earning assets was 5.18% for the first
six months of 1997 as compared to 4.71% for the first six months of 1996.
Credit Risk Management
The second quarter provision for loan losses was $100,762 in 1997
resulted in a year-to-date loan loss provision of $235,762, which compared to
$238,689 for the six month period in 1996. No net charge-offs were recorded
for the three month or six period ended June 30, 1997 or for the same time
periods ended June 30, 1996.
Non-performing assets, expressed as a percentage of total assets,
increased to 1.3% at June 30, 1997 from 1.2% at December 31, 1996. The
balance of non-performing assets was $2,235,239 at June 30, 1997 compared to
$1,573,766 at December 31, 1996.
At June 30, 1997, the allowance for loan losses was 1.22% of total loans
versus 1.30% at December 31, 1996. Coverage of risk in the loan portfolio
may be evaluated using a ratio of the allowance for loan losses to
nonperfoming loans. Significant variation in this coverage ratio may occur
from period to period because the amount of nonperforming loans depends
largely upon the condition of a small number of individual loans and
borrowers relative to the total loan portfolio. At June 30, 1997, the
allowance for loan losses represented 92.6% of nonperforming loans compared
to 78.9% at December 31, 1996. Management believes the allowance for loan
losses at June 30, 1997 is adequate.
Noninterest Income and Expenses
Second quarter noninterest income increased $579,514 or 402.5% in 1997
to $723,508 from $143,994 in 1996. For the six month period in 1997,
noninterest income was $1,180,813 compared to the six month period in 1996 of
$254,662, an increase of $926,151 or 363.7%. The primary causes were an
increased volume of fees on loans originated by the Bank's mortgage banking
subsidiary (First Mariner Mortgage Corporation) and by an increase in deposit
related fees, primarily ATM fees and overdraft fees. First Mariner Mortgage
Corporation originated $27,460,891 in residential mortgage loans in 1997
compared to $10,349,250 in 1996 for six month period. The substantial
majority of these loans are sold in the secondary market.
Second quarter noninterest expense increased $1,086,672 or 85.2% to
$2,362,575 in 1997 from $1,275,903 in 1996. For the six month period in 1997,
noninterest income was $4,381,143 compared to the six month period in 1996 of
$2,238,776, an increase of $2,142,367 or 95.7%. Increases in almost all
areas were realized as noninterest expenses increased to support the
substantially increased asset base and the expanding branch network.
3
<PAGE>
Income Taxes
The Company did not recognize any income tax benefit or expense for the
three months and six months ended June 30, 1997 and 1996. As of June 30,
1997 and December 31, 1996 the entire net deferred asset, consisting
primarily of net operating loss carryforwards, has been offset by a valuation
allowance.
4
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 11,631,460
<INT-BEARING-DEPOSITS> 14,771,283
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 3,099,000
<INVESTMENTS-CARRYING> 3,048,605
<INVESTMENTS-MARKET> 15,324,227
<LOANS> 121,188,667
<ALLOWANCE> 1,477,425
<TOTAL-ASSETS> 172,088,420
<DEPOSITS> 128,667,273
<SHORT-TERM> 15,189,449
<LIABILITIES-OTHER> 1,583,907
<LONG-TERM> 0
0
0
<COMMON> 141,863
<OTHER-SE> 26,505,928
<TOTAL-LIABILITIES-AND-EQUITY> 172,088,420
<INTEREST-LOAN> 2,722,112
<INTEREST-INVEST> 438,207
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 3,160,319
<INTEREST-DEPOSIT> 1,322,890
<INTEREST-EXPENSE> 1,356,484
<INTEREST-INCOME-NET> 1,803,835
<LOAN-LOSSES> 100,762
<SECURITIES-GAINS> 69,247
<EXPENSE-OTHER> 2,362,575
<INCOME-PRETAX> 64,006
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 64,006
<EPS-PRIMARY> .02
<EPS-DILUTED> .02
<YIELD-ACTUAL> 5.18
<LOANS-NON> 1,464,638
<LOANS-PAST> 967,350
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,241,663
<CHARGE-OFFS> 0
<RECOVERIES> 0
<ALLOWANCE-CLOSE> 1,477,425
<ALLOWANCE-DOMESTIC> 1,477,425
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
