<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the quarterly period ended SEPTEMBER 30,1999.
-----------------
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934. For the transition period from
------------------
Commission file number: 0-21815
FIRST MARINER BANCORP
(Exact name of registrant as specified in its charter)
MARYLAND 52-1834860
(State of Incorporation) (I.R.S. Employer Identification Number)
1801 SOUTH CLINTON STREET, BALTIMORE, MD 21224 410-342-2600
- ---------------------------------------- ----- ------------
(Address of principal executive offices) (Zip Code) Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the 90 days. Yes X No
----- -----
The number of shares of common stock outstanding as of November 15, 1999
was 3,166,813 shares.
1
<PAGE>
FIRST MARINER BANCORP
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE
<S> <C>
Item 1 - Financial Statements
Consolidated Statements of Financial Condition at
September 30,1999 (unaudited) and at December 31, 1998.....................................3
Consolidated Statements of Operations for the Three Months and Nine Months
Ended September 30,1999 and September 30,1998
(unaudited)................................................................................4
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30,1999
and September 30,1998 (unaudited)..........................................................5
Notes to Consolidated Financial Statements (unaudited).......................................6
Item 2 - Management's discussion and analysis of
financial condition and results of operations................................................9
Item 3 - Quantitative and Qualitative Disclosures About Market Risk...........................................14
PART II - OTHER INFORMATION
Item 1 - Legal proceedings...........................................................................15
Item 2 - Changes in securities and use of proceeds...................................................15
Item 3 - Defaults on seniorsecurities................................................................15
Item 4 - Submission of matters to a vote of security holders.........................................15
Item 5 - Other information...........................................................................15
Item 6 - Exhibits and reports on Form 8-K...........................................................15
Signatures....................................................................................................16
</TABLE>
2
<PAGE>
First Mariner Bancorp and Subsidiaries
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
- ------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 15,838 $ 17,193
Interest-bearing deposits
23,886 7,246
Available-for-sale securities, at fair value
199,803 187,697
Investment securities, fair value of $2,000 and $5,547,
respectively
2,000 5,502
Mortgage loans held for sale
17,133 21,321
Loans receivable
325,397 242,725
Allowance for loan losses
(3,315) (2,676)
--------- --------
Loans, net
322,082 240,049
Other real estate owned
1,288 1,633
Federal Home Loan Bank of Atlanta stock, at cost
5,615 3,235
Property and equipment, net
10,054 7,530
Accrued interest receivable
3,658 2,655
Prepaid expenses and other assets
7,130 3,426
- ---------------------------------------------------------------------------------
Total assets $ 608,487 $ 497,487
- ---------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 341,920 $ 262,311
Borrowings
130,908 86,714
Repurchase agreements
86,982 94,450
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
debentures
of the Company
21,450 21,450
Accrued expenses and other liabilities
2,862 4,074
- ---------------------------------------------------------------------------------
Total liabilities
584,122 468,999
- ---------------------------------------------------------------------------------
Stockholders' equity
Common stock, $.05 par value; 20,000,000 shares
authorized; 3,166,813 shares issued
and outstanding
158 158
Additional paid-in capital
34,394 34,394
Accumulated deficit
(5,949) (6,517)
Accumulated other comprehensive income (loss)
(4,238) 453
- ---------------------------------------------------------------------------------
Net stockholders' equity
24,365 28,488
- ---------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 608,487 $ 497,487
- ---------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
First Mariner Bancorp and Subsidiaries
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine months ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest income:
Loans $ 7,018 $ 4,804 $19,366 $12,875
Investments 3,492 2,910 10,001 4,898
------ ------ ------ ------
Total interest income 10,510 7,714 29,367 17,773
Interest expense:
Deposits 3,041 2,384 8,292 6,647
Borrowed funds and other 2,827 2,135 8,141 2,722
------ ------ ------ ------
Total interest expense 5,868 4,519 16,433 9,369
------ ------ ------ ------
Net interest income 4,642 3,195 12,934 8,404
Provision for loan losses 205 338 655 707
------ ------ ------ ------
Net interest income after provision for loan losses 4,437 2,857 12,279 7,697
Noninterest income:
Gain on sale of loans 623 501 1,477 1,085
Service fees on deposits 1,029 655 2,607 1,553
Gain on securities, net 118 22 202 458
Other 291 243 986 497
Total noninterest income 2,061 1,421 5,272 3,593
Noninterest expenses:
Salaries and employee benefits 3,123 1,934 8,371 4,996
Net occupancy 763 473 2,177 1,302
Deposit insurance premiums 44 31 120 90
Furniture, fixtures and equipment 341 211 914 546
Professional services 64 186 221 480
Advertising 254 172 698 525
Data processing 357 232 945 640
Cleaning and maintenance 146 102 430 277
ATM expenses 165 128 430 298
Other 832 628 2,115 1,650
------ ------ ------ ------
Total noninterest expenses 6,089 4,097 16,421 10,804
------ ------ ------ ------
Income before taxes 409 181 1,130 486
Provision for income taxes 158 -- 436 --
------ ------ ------ ------
Net income $ 251 $ 181 $ 694 $ 486
------ ------ ------ ------
------ ------ ------ ------
Net income per common share:
Basic $ 0.08 $ 0.05 $ 0.22 $ 0.15
Diluted 0.07 0.05 0.20 0.14
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
First Mariner Bancorp and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For the nine months ended September 30, 1999 and 1998
<TABLE>
<CAPTION>
Cash flows from operating activities: 1999 1998
(dollars in thousands)
<S> <C> <C>
Net income $ 694 $ 486
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization 1,117 752
Amortization of unearned loan fees and costs, net (423) (352)
Amortization of premiums on deposits -- (11)
Amortization of premiums and discounts on loans 30 40
Amortization of premiums and discounts on mortgage-backed securities, net 229 --
Gain on securities (202) (458)
Decrease in accrued interest receivable (1,003) (1,164)
Provision for loan losses 655 707
Net decrease in mortgage loans held-for-sale 4,188 5,401
Net decrease (increase) in accrued expenses and other liabilities (1,212) 4,404
Net increase in prepaids and other assets (754) (1,993)
-------- --------
Net cash provided by operating activities 3,319 7,812
Cash flows from investing activities:
Loan disbursements, net of principal repayments (82,195) (75,256)
Purchases of property and equipment (3,641) (2,880)
Purchases of Federal Home Loan Bank of Atlanta stock (2,380) (1,101)
Purchases of available for sale securities (55,879) (172,007)
Sales of available for sale securities 12,484 11,198
Principal repayments of available for sale securities 23,622 6,831
Maturities of available for sale securities -- 6,500
Maturities of investment securities 3,501 2,099
Construction disbursements-other real estate owned (240) (607)
Sales of other real estate owned 485 956
--------- ---------
Net cash used in investing activities (104,243) (224,267)
--------- ---------
Cash flows from financing activities:
Net increase in deposits 79,609 46,268
Net increase (decrease) in other borrowings (10,874) 96,425
Proceeds from advances from Federal Home Loan Bank of Atlanta 115,100 73,500
Repayment of advances from Federal Home Loan Bank of Atlanta (67,500) (40,500)
Proceeds from stock issuance, net -- 257
Proceeds from trust preferred securities offering -- 21,450
Dividends paid (126) --
Net cash provided by financing activities 116,209 197,400
---------- ----------
Increase (decrease) in cash and cash equivalents 15,285 (19,055)
Cash and cash equivalents at beginning of period 24,439 45,917
---------- ----------
Cash and cash equivalents at end of period $ 39,724 $ 26,862
---------- ----------
---------- ----------
Supplemental information:
Interest paid on deposits and borrowed funds $ 15,500 $ 8,863
Real estate acquired in satisfaction of loans 100 435
Income taxes paid 518 --
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE NINE MONTHS ENDED SEPTEMBER 30,1999 AND 1998
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
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 Annual Report on Form
10-K for the year ended December 31, 1998. The results shown in this interim
report are not necessarily indicative of results to be expected for the full
year.
Consolidation of financial information has resulted in the elimination
of all significant intercompany accounts and transactions.
NOTE 2 - COMPREHENSIVE INCOME (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Nine months ended
September 30,
1999 1998
(Unaudited)
(dollars in thousands)
<S> <C> <C>
Net income $ 694 $ 486
Other comprehensive income items:
Unrealized holding losses arising during the period
(net of tax (benefit) of $(2,951) and $503, respectively)
(4,567) 820
Less: reclassification adjustment for gains (net of taxes of
$78 and $177, respectively) included in net income
124 281
--------- ---------
Total other comprehensive income (loss)
(4,691) 539
--------- ---------
Total comprehensive income (loss) $(3,997) $ 1,025
--------- ---------
--------- ---------
</TABLE>
NOTE 3 - PER SHARE DATA
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding.
Diluted earnings per share is computed after adjusting the numerator and
denominator of the basic earnings per share computation for the effects of all
dilutive potential common shares outstanding during the period. The dilutive
effects of options, warrants and their equivalents are computed using the
"treasury stock" method.
Information relating to the calculation of earnings per common share is
summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30, SEPTEMBER 30,
1999 1998 1999 1998
---------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income-basic and diluted 250,968 181,297 694,124 486,234
---------------------------------------------------------------
Weighted-average shares outstanding 3,166,813 3,164,925 3,166,813 3,155,526
Dilutive securities-options and warrants 180,090 376,226 232,352 419,244
---------------------------------------------------------------
Adjusted weighted-average shares 3,346,903 3,541,151 3,399,165 3,574,770
outstanding-dilutive ---------------------------------------------------------------
</TABLE>
6
<PAGE>
NOTE 4 - SEGMENT INFORMATION
The Company is in the business of providing financial services, and
operates in two business segments -commercial and consumer banking and mortgage
banking. Commercial and consumer banking is conducted through the Bank and
involves delivering a broad range of financial products and services, including
lending and deposit taking, to individuals and commercial enterprises. Mortgage
banking is conducted through First Mariner Mortgage Corporation, a subsidiary of
the Bank, and involves originating residential single family mortgages for sale
in the secondary market and to the Bank.
<TABLE>
<CAPTION>
For the quarter ended September 30, 1999
(dollars in thousands)
<S> <C> <C>
Total revenue:
Commercial and consumer banking $ 5,810
(1)
Mortgage banking
1,195
Less related party transactions
(302) (3)
------
Net mortgage banking 893 (2)
========
Consolidated revenue $ 6,703
========
Income (loss) before income taxes:
Commercial and consumer banking $ 738
Mortgage banking (27)
Less related party transactions
(302) (3)
------
Net mortgage banking (329)(2)
=======
Consolidated income before income taxes $ 409
=======
</TABLE>
(1) Includes net interest income of
$4,642.
(2) Includes net interest income of $94.
(3) Management's policy for the mortgage banking segment is to recognize a
value for loans sold to the Bank at market prices determined on a loan by
loan basis.
<TABLE>
<CAPTION>
For the nine month period ended September 30, 1999
(dollars in thousands)
<S> <C> <C>
Total revenue:
Commercial and consumer banking $ 15,829 (1)
Mortgage banking 3,575
Less related party transactions
(1,199) (3)
-------
Net mortgage banking 2,377 (2)
=======
Consolidated revenue $ 18,206
========
Income (loss) before income taxes:
Commercial and consumer banking $ 2,074
Mortgage banking 255
Less related party transactions (1,199) (3)
--------
Net mortgage banking (944)(2)
=======
Consolidated income before income taxes $ 1,130
=======
Identifiable assets:
Commercial and consumer banking $591,354
Mortgage banking
</TABLE>
<PAGE>
<TABLE>
<S> <C>
17,133
========
Consolidated total assets $608,487
========
</TABLE>
(1) Includes net interest income of
$12,934.
(2) Includes net interest income of $289.
(3) Management's policy for the mortgage banking segment is to recognize a
value for loans sold to the Bank at market prices determined on a loan by
loan basis.
<TABLE>
<CAPTION>
For the quarter ended September 30, 1998
(dollars in thousands)
<S> <C> <C>
Total revenue:
Commercial and consumer banking $ 3,918 (1)
Mortgage banking
803
Less related party transactions
(104) (3)
-----
Net mortgage banking
698 (2)
=========
Consolidated revenue $ 4,616
=========
Income (loss) before income taxes:
Commercial and consumer banking $ 497
Mortgage banking (212)
Less related party transactions
(104) (3)
-----
Net mortgage banking
(316) (2)
=========
Consolidated income before income taxes $ 181
=========
</TABLE>
(1) Includes net interest income of
$3,195.
(2) Includes net interest income of $38.
(3) Management's policy for the mortgage banking segment is to recognize a
value for loans sold to the Bank at market prices determined quarterly.
<TABLE>
<CAPTION>
For the nine month period ended September 30, 1998
(dollars in thousands)
<S> <C> <C>
Total revenue:
Commercial and consumer banking $ 10,412 (1)
Mortgage banking 1,902
Less related party transactions (317) (3)
-------
Net mortgage banking
1,585 (2)
=========
Consolidated revenue $ 11,997
=========
Income (loss) before income taxes:
Commercial and consumer banking $ 1,098
Mortgage banking (295)
Less related party transactions (317) (3)
-------
Net mortgage banking (612) (2)
=========
Consolidated income before income taxes $ 486
=========
</TABLE>
8
<PAGE>
<TABLE>
<S> <C>
Identifiable assets:
Commercial and consumer banking $ 448,150
Mortgage banking 11,653
=========
Consolidated total assets 459,802
=========
</TABLE>
(1) Includes net interest income of
$8,404.
(2) Includes net interest income of $142.
(3) Management's policy for the mortgage banking segment is to recognize a
value for loans sold to the Bank at market prices determined quarterly.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read and reviewed in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations set forth in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998.
In addition to historical information, this Form 10-Q contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans and expectations regarding the Year 2000 and
other matters, and unknown outcomes. The Company's actual results could differ
materially from management's expectations. Factors that could contribute to
those differences include, but are not limited to, changes in regulations
applicable to the Company's business, successful implementation of Company's
branch expansion strategy, its concentration in real estate lending, increased
competition, changes in technology, particularly internet banking, impact of
interest rates, possibility of economic recession or slow down (which could
impact credit quality, adequacy of loan loss reserve and loan growth) and
control by and dependency on key personnel, particularly Edwin F. Hale, Sr.,
chairman of the board of directors and CEO of the Company.
THE COMPANY
The business of the Company is conducted primarily 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 24 full service branches and 39 Automated Teller Machines.
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.
The Company's executive offices are located at 1801 South Clinton
Street, Baltimore, Maryland 21224 and its telephone number is (410) 342 - 2600.
FINANCIAL CONDITION
The Company's total assets were $608,487,000 at September 30, 1999,
compared to $497,487,000 at December 31, 1998, increasing $111,000,000 or 22.3%
for the nine months of 1999. Earning assets increased $103,728,000 or 22.3% to
$568,219,000 from $464,491,000, primarily due to increases in loans outstanding
of $82,672,000.
Total loans receivable increased $82,672,000 or 34.1% to $325,397,000
for the first nine months of 1999. The majority of the increase was in real
estate secured loans. Residential mortgage loans for sale decreased to
$17,133,000 from $21,321,000 due to faster delivery of residential mortgage to
investors.
9
<PAGE>
The loan portfolio at September 30, 1999 and December 31, 1998 was comprised of
the following (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- --------------
AMOUNT AMOUNT
<S> <C> <C>
TYPE OF LOANS
Commercial $ 64,597 $ 55,792
Commercial real estate and construction (1) 131,716 103,439
Residential real estate 95,615 63,330
Consumer 33,733 20,418
--------- ---------
Total loans
325,661 242,979
--------- ---------
Unamortized loan premiums 73 108
Unearned income and costs, net 337 362
========= =========
Loans receivable $ 325,397 $ 242,725
========= =========
</TABLE>
(1) Net of undisbursed principal
CREDIT RISK MANAGEMENT
The third quarter provision for loan losses in 1999 was $205,000
resulting in a year-to-date provision for loan losses of $655,000, which
compares to $707,000 for the nine month period ended September 30,1998. The
allowance for loan losses stands at $3.315 at September 30,1999 compared to
$2,676,000 at December 31, 1998. As of September 30,1999 the allowance for loan
losses is 1.02% of outstanding loans as compared to 1.01% at September 30,1998
and 1.10% at December 31, 1998.
Activity in the allowance for loan losses is as follows (dollars in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
1999 1998
<S> <C> <C>
Allowance for loan losses, beginning of period $ 2,676 $ 1,614
---------- ---------------
Loans charged off:
Commercial - (43)
Real estate - (70)
Consumer (18) (12)
---------- ---------------
Total loans charged off (18) (125)
---------- ---------------
Recoveries:
Commercial - 8
Real estate - 4
Consumer 2 16
---------- ---------------
Total recoveries 2 28
---------- ---------------
Net chargeoffs
(16) (97)
---------- ---------------
Provision for loan losses 655 707
---------- ---------------
Allowance for loan losses, end of period $ 3,315 $ 2,224
========== ===============
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C>
Loans (net of premiums and discounts)
Period-end balance
325,397 219,108
Average balance during period
288,417 175,327
Allowance as percentage of period-end loan balance 1.02% 1.01%
Percent of average loans:
Provision for loan losses 0.30% 0.54%
Net chargeoffs 0.01% 0.07%
</TABLE>
Non-performing assets, expressed as a percentage of total assets,
decreased to 0.54% at September 30,1999 from 0.63% at December 31, 1998,
reflecting the decrease in other real estate owned and the significant increase
in assets. The decrease in other real owned for the period was due to the sale
of properties. Loans on nonaccrual basis have increased primarily due to one
restaurant loan of approximately $920,000 which was placed on nonaccrual status
in the third quarter.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
-------------------------------------------------
1999 1998 1998
---- ---- ----
<S> <C> <C> <C>
Loans on nonaccrual basis $ 2,007 $ 1,520 $ 775
Real estate acquired by foreclosure
1,288 1,633 2,031
=================================================
Total non-performing assets $ 3,295 $ 3,153 $ 2,806
=================================================
Loans past-due 90 days or more and accruing $ 1,925 $ 126 $ 369
=================================================
</TABLE>
At September 30,1999, the allowance for loan losses represented 165.2%
of nonaccruing loans compared to 176.1% at December 31, 1998. Management
believes the allowance for loan losses at September 30,1999 is adequate. In
October 1999, the Company placed loans to one borrower of approximately $510,000
on a nonaccrual basis.
DEPOSITS
Deposits were $341,920,000 as of September 30,1999, increasing
$79,609,000 or 30.3% from the December 31, 1998 balance of $262,311,000. The
increase in deposits is attributable to activity generated by an ongoing
advertising campaign and the addition of new branches this year.
RESULTS OF OPERATIONS
NET INTEREST INCOME. Third quarter, 1999 net interest income before
provision for loan losses was $4,642,000, an increase of 45.3% over $3,195,000
for the third quarter of 1998, reflecting primarily an increase of $219,628,000
in average earning assets. The increase in average earning assets was comprised
of an increase of $119,414,000 in average loans and $100,062,000 in average
investments, primarily available for sale mortgage backed securities. For the
nine month period ended September 30, net interest income before provision for
loan losses was $12,934,000 in 1999 compared to $8,404,000 in 1998 reflecting an
increase of 53.9%. The net interest margin was 3.42% for the first nine months
of 1999 as compared to 3.91% for the comparable period of 1998. The decline in
the net yield on earning assets was primarily due to the leveraging strategy
adopted by the Company in 1998 whereby available for sale securities were funded
by borrowings at significantly lower interest rate spreads than were generally
available in the loan and deposit portfolios.
NONINTEREST INCOME AND EXPENSES-Noninterest income increased $640,000
or 45.0% for the third quarter of 1999 to $2,061,000 from $1,421,000 for the
third quarter of 1998. For the nine month period in 1999, noninterest income was
$5,272,000 compared to $3,593,000 for the nine month period in 1998, an increase
of $1,679,000 or 46.7%. The principal reasons for the increase were gains on
sale of loans and an increase in deposit related fees. The increase in the gains
on sale of loans was a result of the greater
11
<PAGE>
volume of residential mortgage loans originated and sold by First Mariner
Mortgage Corporation. First Mariner Mortgage Corporation originated $276,187,000
of residential mortgages during the first nine months of 1999 in comparison to
approximately $155,813,000 during the first nine months of 1998. Continued
strong loan demand and an increase in loan production staff were the significant
factor in this growth in residential mortgages.
Deposit service charges rose 57.1% as compared to the quarter ended
September 30,1998 which is primarily due to the increased number of deposit
accounts. The number of deposit accounts increased 54.6% to approximately 43,000
accounts. These increases are the result of continuing marketing and promotion
of the retail banking products.
The gain on the sales of securities was $118,000 for the quarter ended
September 30,1999 compared to a gain of $22,000 for the quarter ended September
30,1998. For the nine month period ended September 30, 1999 gains were $202,000
as compared to $458,000 for the period ended September 30, 1998.
Third quarter noninterest expense increased $1,992,000 or 48.6% to
$6,089,000 in 1999 from $4,097,000 in the third quarter of 1998. Increases in
almost all categories of expense were incurred to support the substantially
increased asset and customer base and the expanding branch network. The number
of employees increased from 273 to 413.
While noninterest expense for the nine month period increased
$5,617,000, noninterest expense as a percent of average total assets continues
to decrease. Noninterest expense on an annualized basis as a percent of average
total assets for the quarter ended September 30 was 4.1% in 1999 as compared to
4.7% in 1998.
INCOME TAXES-.....The Company recorded income tax expense of $436,000
on income before taxes of $1,130,000, resulting in an effective tax rate of
38.62% for the nine month period ended September 30,1999. No income tax expense
was recognized in the third quarter 1998 or for the year to date, 1998 due to
the availability of net operating loss carryforwards.
LIQUIDITY AND CAPITAL RESOURCES
Stockholders' equity decreased $4,123,000 in the first nine months of
1999 to $24,365,000 from $28,488,000 as of December 31, 1998. The change is due
to the decrease in accumulated other comprehensive income which decreased
$4,691,000 which was caused by the decline in net unrealized holding gains on
certain investments, especially mortgage backed securities resulting from the
higher interest rate environment existing on September 30, 1999. This decrease
was partially offset by net income of $694,000 for the first nine months of
1999.
The first cash dividend for the Company was declared on May 4, 1999 in
the amount of $0.02 per share payable on or about May 31, 1999 to stockholders
of record on May 17,1999. The total amount of the dividend paid $63,336. A
second quarter dividend was paid to stockholders on or about August 31, 1999 for
$63,336. A third dividend was declared and payable on or about November 30, 1999
to shareholders of record on November 16, 1999.
Banking regulatory authorities have implemented strict capital
guidelines directly related to the credit risk associated with an institution's
assets. Banks and bank holding companies are required to maintain capital levels
based on their "risk adjusted" assets so that categories of assets with higher
"defined" credit risks will require more capital support than assets with lower
risk. Additionally, capital must be maintained to support certain off-balance
sheet instruments.
The Bank has exceeded its capital adequacy requirements to date. The
Company regularly monitors its capital adequacy ratios to assure that the Bank
exceeds its regulatory capital requirements. The regulatory capital ratios are
listed below:
12
<PAGE>
<TABLE>
<CAPTION>
At September 30,
----------------
(unaudited)
1999 1998
<S> <C> <C>
Regulatory capital ratios
Leverage
Consolidated 7.1% 8.8%
The Bank 7.0% 8.0%
Tier 1 capital to risk weighted assets
Consolidated 11.0% 14.5%
The Bank 11.8% 13.1%
Total capital to risk weighted assets
Consolidated 15.5% 20.4%
The Bank 12.7% 14.0%
</TABLE>
The Bank's principal sources of liquidity are cash and cash
equivalents, which are cash on hand, amounts due from financial institutions,
federal funds sold, stock investments, money market mutual funds, interest
bearing deposit and available-for-sale securities. The levels of such assets are
dependent on the Bank's operating, financing and investment activities at any
given time and are influenced by anticipated deposit flows and loan growth.
YEAR 2000 ACTION PLAN
In 1997, the Company adopted a Year 2000 Action Plan (the "Plan"). This
plan is consistent with the mandates and guidelines set forth by the FDIC and
FFIEC. As part of the plan the Company has established a senior management
committee to address the issue of computer programs and embedded computer chips
being unable to distinguish between the year 1900 and the year 2000. In
developing the Plan the committee identified five phases: Awareness, Assessment,
Renovation, Validation, and Implementation. The last four phases consist of (1)
inventorying Year 2000 affected items; (2) assigning priorities to identified
items; (3) assessing the Year 2000 compliance of items determined to be material
to the company; (4) repairing or replacing material items that are determined
not to be Year 2000 compliant; (5) testing material items; and (6) designing and
implementing contingency and business continuation plans for items identified as
critical.
The awareness phase is a continuing effort to educate employees,
customers, business partners and vendors of the impact of the Year 2000 issues.
The effort is well under way through communication with the appropriate
constituencies and required training for all employees.
During the assessment phase which has been completed, an inventory
database was created that details all hardware, software, facilities equipment,
and vendors. Each item was assigned a priority based on its importance to the
operations of the company and the risk associated with non compliance. The
critical areas were identified as the core banking system of deposits and loans,
(outsourced to NCR), and the telephone switches at each location. In addition,
the Company has assessed non-information technology systems as well including
the alarm systems at the various locations of the Company.
The validation phase has been completed for our major mission critical
processor NCR, including many of the systems that surround it. On May 9, 1998, a
Year 2000 test was conducted to validate the changes made to the NCR system. The
test was considered a success although future testing to assure integration with
other key systems of the Bank will continue in 1999. All the Company's ATMs have
been upgraded to be Year 2000 compliant. The validation and renovation, if
necessary, of other mission critical and material operating and support systems
were completed by September 1999. Contingency planning for all mission critical
functions were completed by September 1999.
The reasonably likely worst case scenario that management believes at
this time may occur would be that the branch banking network, including deposit
processing, could be off-line immediately following year end, 1999. This
off-line processing would have minimal impact if the length of time that this
condition existed is limited. To plan for this scenario, the Company will
provide every branch with the necessary data to process transactions at their
locations. In addition, to accommodate all branches, the customer call center
located at headquarters will have a complete trial balance of all accounts for
all branch locations.
13
<PAGE>
COSTS
Total costs associated with the Plan will primarily include costs
incurred to upgrade the existing software and hardware not currently Year 2000
compliant. The Company expects that these costs would be incurred in the normal
course of business as software and hardware is ordinarily upgraded to keep pace
with technological advances. To date, the Company has not spent any funds on
consultants; however, the Company has spent approximately $40,000 on making its
ATMs Year 2000 compliant and approximately $1,500 on education and training
seminars for Company personnel. The Company does not track internal costs for
personnel devoted to Year 2000 issues; however, one individual has spent a
significant amount of time overseeing the project and many other individuals
have spent numerous hours to ensure the Company will be compliant. Actual costs
are not expected to exceed $25,000 for the remainder of the year.
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES"
("SFAS No. 133"). SFAS No. 133 established accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial condition and measure those
instruments as fair value. In June 1999, the FASB issued SFAS No. 137,
"ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE
EFFECTIVE DATE OF FASB STATEMENT NO. 133" ("SFAS No. 137"). Pursuant to SFAS No.
137, the revised effective date SFAS No. 133 is all fiscal quarter of all fiscal
years beginning after June 15, 2000. Earlier application is encouraged. Upon
application, hedging relationships must be designated anew and documented and
recognized in accordance with the transition provisions of SFAS Nos. 133 and
137. While the Company has not completed its analysis of SFAS Nos. 133 and 137
and has not made a decision regarding timing of adoption, management does not
believe that adoption will have a material effect on the financial position or
results of operations since the Bank is not currently using derivative
instruments.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Results of operations for financial institutions, including the
Company, may be materially and adversely affected by changes in prevailing
economic conditions, including declines in real estate values, rapid changes in
interest rates and the monetary and fiscal policies of the federal government.
The profitability of the Company is in part a function of the spread between the
interest rates earned on assets and the interest rates paid on deposits and
other interest-bearing liabilities (net interest income), including advances
from Federal Home Loan Bank of Atlanta ("FHLB") and other borrowing. Interest
rate risk arises from mismatches (i.e., the interest sensitivity gap) between
the dollar amount of repricing or maturing assets and liabilities and is
measured in terms of the ratio of the interest rate sensitivity gap to total
assets. More assets repricing or maturing than liabilities over a given time
period is considered asset-sensitive and is reflected as a positive gap, and
more liabilities repricing or maturing than assets over a give time period is
considered liability-sensitive and is reflected as negative gap. An
asset-sensitive position (i.e., a positive gap) will generally enhance earnings
in a rising interest rate environment and will negatively impact earnings in a
falling interest rate environment, while a liability-sensitive position (i.e., a
negative gap) will generally enhance earnings in a falling interest rate
environment and negatively impact earnings in a rising interest rate
environment. Fluctuations in interest rates are not predictable or controllable.
The Company has attempted to structure its asset and liability management
strategies to mitigate the impact on net interest income of changes in market
interest rates. However, there can be no assurance that the Company will be able
to manage interest rate risk so as to avoid significant adverse effects on net
interest income. At September 30, 1999, the Company had a one year cumulative
negative gap of approximately $60.9 million or 10% of total assets.
14
<PAGE>
PART II - Other Information
Item 1 - Legal proceedings - None
Item 2 - Changes in securities and use of
proceeds - None
Item 3 - Defaults on senior securities - None
Item 4 - Submission of matters to a vote of security holders-None
Item 5 - Other information - None
Item 6 - Exhibits and reports on Form 8-K
a. Exhibits-27 Financial Data Schedule filed electronically herein
b. Reports on Form 8-K-None
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST MARINER BANCORP
Date: 11/15/99 By: //Edwin F. Hale Sr
----------------------- ---------------------------------
Edwin F. Hale Sr.
Chairman and Chief Executive Officer
Date: 11/15/99 By: /s/ Joseph A. Cicero
----------------------- ---------------------------------
Joseph A. Cicero
President
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<CIK> 0000946090
<NAME> FIRST MARINER BANCORP
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 15,838
<INT-BEARING-DEPOSITS> 23,886
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 199,803
<INVESTMENTS-CARRYING> 2,000
<INVESTMENTS-MARKET> 2,003
<LOANS> 325,397
<ALLOWANCE> 3,315
<TOTAL-ASSETS> 608,487
<DEPOSITS> 341,920
<SHORT-TERM> 86,982
<LIABILITIES-OTHER> 2,842
<LONG-TERM> 0
0
0
<COMMON> 158
<OTHER-SE> 24,200
<TOTAL-LIABILITIES-AND-EQUITY> 608,487
<INTEREST-LOAN> 19,366
<INTEREST-INVEST> 10,001
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 29,367
<INTEREST-DEPOSIT> 8,292
<INTEREST-EXPENSE> 16,433
<INTEREST-INCOME-NET> 12,934
<LOAN-LOSSES> 655
<SECURITIES-GAINS> 202
<EXPENSE-OTHER> 16,421
<INCOME-PRETAX> 1,130
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 694
<EPS-BASIC> 0.22
<EPS-DILUTED> 0.20
<YIELD-ACTUAL> 3.42
<LOANS-NON> 2,007
<LOANS-PAST> 1,925
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 510
<ALLOWANCE-OPEN> 2,676
<CHARGE-OFFS> 18
<RECOVERIES> 2
<ALLOWANCE-CLOSE> 3,315
<ALLOWANCE-DOMESTIC> 3,315
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
