<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, 2000.
/ / 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 13,
2000 was 3,196,708 shares.
<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, 2000 (unaudited) and at December 31, 1999..............................3
Consolidated Statements of Operations for the Three Months and Nine Months
Ended September 30, 2000 and September 30, 1999
(unaudited)..........................................................................4
Consolidated Statements of Cash Flow for the
Nine months ended September 30, 2000
and September 30, 1999 (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......................................16
PART II - OTHER INFORMATION
Item 1 - Legal proceedings...............................................................................17
Item 2 - Changes in securities and use of proceeds.......................................................17
Item 3 - Defaults on senior securities...................................................................17
Item 4 - Submission of matters to a vote of security holders.............................................17
Item 5 - Other information...............................................................................17
Item 6 - Exhibits and reports on Form 8-K...............................................................17
Signatures...............................................................................................18
</TABLE>
2
<PAGE>
First Mariner Bancorp and Subsidiaries
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
September 30 December 31,
2000 1999
------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 16,805 $ 19,490
Interest-bearing deposits 10,201 24,346
Available-for-sale securities, at fair value 176,659 191,895
Loans held for sale 39,737 26,299
Loans receivable 419,795 329,528
Allowance for loan losses (3,928) (3,322)
--------------------------------------
Loans, net 415,867 326,206
Other real estate owned 1,772 1,360
Federal Home Loan Bank of Atlanta stock, at cost 6,389 4,365
Property and equipment, net 13,576 10,300
Accrued interest receivable 4,543 3,312
Deferred income taxes 4,611 5,781
Prepaid expenses and other assets 4,089 2,718
------------------------------------------------------------------------------------------------
Total assets $ 694,249 $ 616,072
================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 459,502 $ 368,751
Borrowings 161,353 109,739
Repurchase agreements 24,043 77,185
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely
debentures of the Company 21,450 21,450
Proceeds on loan sales received in advance - 14,458
Accrued expenses and other liabilities 3,722 2,626
------------------------------------------------------------------------------------------------
Total liabilities 670,070 594,209
------------------------------------------------------------------------------------------------
Stockholders' equity
Common stock, $.05 par value; 20,000,000 shares
authorized; 3,196,708 shares issued and 3,166,813 shares
issued and outstanding, respectively 159 158
Additional paid-in capital 34,493 34,394
Accumulated deficit (5,473) (5,830)
Accumulated other comprehensive income (loss) (5,000) (6,859)
------------------------------------------------------------------------------------------------
Total stockholders' equity 24,179 21,863
------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 694,249 $ 616,072
================================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000 Sept. 30, 1999
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 9,849 $ 7,018 $ 26,089 $ 19,366
Investments 3,597 3,492 11,276 10,001
-------------- -------------- -------------- --------------
Total interest income 13,446 10,510 37,365 29,367
-------------- -------------- -------------- --------------
Interest expense:
Deposits 4,841 3,041 13,071 8,292
Borrowed funds and other 3,383 2,827 9,205 8,141
Total interest expense -------------- -------------- -------------- --------------
8,224 5,868 22,276 16,433
Net interest income -------------- -------------- -------------- --------------
5,222 4,642 15,089 12,934
Provision for loan losses 300 205 680 655
Net interest income after provision for loan losses 4,922 4,437 14,409 12,279
Noninterest income: -------------- -------------- -------------- --------------
Gain on sale of loans 491 623 1,148 1,477
Service fees on deposits 1,291 1,029 3,608 2,607
Gain on securities, net 116 118 240 202
Other 473 291 1,345 986
Total noninterest income 2,371 2,061 6,341 5,272
Noninterest expenses: -------------- -------------- -------------- --------------
Salaries and employee benefits 3,534 3,123 10,079 8,371
Net occupancy 939 763 2,645 2,177
Furniture, fixtures and equipment 416 341 1,186 914
Professional services 133 64 393 221
Advertising 228 254 728 698
Data processing 407 357 1,182 945
Cleaning and maintenance 222 146 659 430
ATM expenses 163 165 471 430
Other 956 876 2,722 2,235
Total noninterest expenses 6,998 6,089 20,065 16,421
Income before taxes -------------- -------------- -------------- --------------
295 409 685 1,130
Provision for income taxes 114 158 264 436
Net income $ 181 $ 251 $ 421 $ 694
Net income per common share: -------------- -------------- -------------- --------------
Basic $ 0.06 $ 0.08 $ 0.13 $ 0.22
Diluted 0.06 0.07 0.13 0.20
-------------- -------------- -------------- --------------
</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, 2000 AND 1999
<TABLE>
<CAPTION>
Cash flows from operating activities: 2000 1999
---- ----
(dollars in thousands)
<S> <C> <C>
Net income $ 421 $ 694
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 1,474 1,117
Amortization of unearned loan fees and costs, net (326) (423)
Amortization of premiums and discounts on loans 20 30
Amortization of premiums and discounts on mortgage-backed securities, net 130 229
Gain on securities (240) (202)
Increase in accrued interest receivable (1,231) (1,003)
Provision for loan losses 680 655
Net decrease (increase) in mortgage loans held-for-sale (13,438) 4,188
Net increase (decrease) in accrued expenses and other liabilities (13,362) (1,212)
Net increase in prepaids and other assets (1,370) (754)
Net cash provided by (used in) operating activities ------------ ------------
(27,242) 3,319
Cash flows from investing activities: ------------ ------------
Loan disbursements, net of principal repayments (90,035) (82,195)
Purchases of property and equipment (4,750) (3,641)
Purchases of Federal Home Loan Bank of Atlanta stock (2,024) (2,380)
Purchases of available for sale securities (18,942) (55,879)
Sales of available for sale securities 23,417 12,484
Principal repayments of available for sale securities 13,899 23,622
Maturities of investment securities - 3,501
Construction disbursements-other real estate owned (903) (240)
Sales of other real estate owned 491 485
Net cash used in investing activities ------------ ------------
(78,847) (104,243)
Cash flows from financing activities: ------------ ------------
Net increase in deposits 90,751 79,609
Net increase (decrease) in other borrowings (26,003) (10,874)
Proceeds from advances from Federal Home Loan Bank of Atlanta 324,275 115,100
Repayment of advances from Federal Home Loan Bank of Atlanta (299,800) (67,500)
Proceeds from stock issuance, net 99 -
Dividends paid (63) (126)
Net cash provided by financing activities 89,259 116,209
(Decrease) increase in cash and cash equivalents (16,830) 15,285
Cash and cash equivalents at beginning of period 43,836 24,439
------------ ------------
Cash and cash equivalents at end of period $ 27,006 $ 39,724
------------ ------------
Supplemental information:
Interest paid on deposits and borrowed funds $ 21,288 $ 15,500
Real estate acquired in satisfaction of loans 575 100
Income taxes paid 658 518
------------ ------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2000 AND 1999
(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, 1999. 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,
2000 1999
(Unaudited)
(dollars in thousands)
-------------------------
<S> <C> <C>
Net income $ 421 $ 694
Other comprehensive income items:
Unrealized holding gains (losses) arising during the period
(net of tax (benefit) of $1,170 and $(2,951), respectively) 1,859 (4,567)
Less: reclassification adjustment for gains (net of taxes of
$93 and $78, respectively) included in net income 148 124
-------------------------
Total other comprehensive income (loss) 1,711 (4,691)
Total comprehensive income (loss) $ 2,132 $ (3,997)
-------------------------
-------------------------
</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,
2000 1999 2000 1999
---------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income-basic and diluted $ 181,096 $ 250,968 $ 420,758 694,124
---------------------------------------------------------------------
Weighted-average shares outstanding 3,186,967 3,166,813 3,176,660 3,166,813
Dilutive securities-options and warrants - 180,090 - 232,352
---------------------------------------------------------------------
Adjusted weighted-average shares
outstanding-dilutive 3,186,967 3,346,903 3,176,660 3,399,165
---------------------------------------------------------------------
</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, 2000
(dollars in thousands)
<S> <C> <C>
Total revenue:
Commercial and consumer banking $ 6,284 (1)
Mortgage banking 1,506
Less related party transactions (197) (3)
------------
Net mortgage banking 1,309 (2)
------------
Consolidated revenue $ 7,593
============
Income (loss) before income taxes:
Commercial and consumer banking $ 538
Mortgage banking (46)
Less related party transactions (197) (3)
------------
Net mortgage banking (243)(2)
------------
Consolidated income before income taxes $ 295
============
</TABLE>
(1) Includes net interest income of $5,222.
(2) Includes net interest income of $503.
(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, 2000
(dollars in thousands)
<S> <C> <C>
Total revenue:
Commercial and consumer banking $ 18,273 (1)
Mortgage banking 3,745
Less related party transactions (588) (3)
------------
Net mortgage banking 3,157 (2)
------------
Consolidated revenue $ 21,430
============
Income (loss) before income taxes:
Commercial and consumer banking $ 1,355
Mortgage banking (82)
Less related party transactions (588) (3)
------------
Net mortgage banking (670) (2)
------------
Consolidated income before income taxes $ 685
============
Identifiable assets:
Commercial and consumer banking $668,224
Mortgage banking 26,025
------------
Consolidated total assets $694,249
============
</TABLE>
(1) Includes net interest income of $15,089.
7
<PAGE>
(2) Includes net interest income of $1,078.
(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>
<S> <C> <C>
For the quarter ended September 30, 1999
(dollars in thousands)
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 3,576
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 17,133
---------------
Consolidated total assets $ 608,487
===============
</TABLE>
(1) Includes net interest income of $12,934.
(2) Includes net interest income of $289.
8
<PAGE>
(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.
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, 1999.
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 Company is a bank holding company formed in Maryland in 1994 under
the name MarylandsBank Corporation that later changed its name to First Mariner
Bancorp in May 1995. 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 26 full service branches and 43 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 $694,249,000 at September 30, 2000,
compared to $616,072,000 at December 31, 1999, increasing $78,177,000 or 12.7%
for the first nine months of 2000. Earning assets increased $76,348,000 or 13.2%
to $652,781,000 from $576,433,000, primarily due to increases in loans
outstanding of $90,267,000.
Total loans receivable increased $90,267,000 or 27.4% to $419,795,000
for the first nine months of 2000. The majority of the increase was real estate
secured loans. Mortgage loans held for sale increased $13,438,000 from
$26,299,000 at December 31, 1999 to $39,737,000 at September 30, 2000. First
Mariner Mortgage Corporation originated $343,263,000 of residential mortgages
during the first nine months of 2000 in comparison to approximately $267,187,000
during the first nine months of 1999. Increased loan demand and additions to the
loan production staff were the significant factor in the growth in residential
mortgages.
The loan portfolio was comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
--------------- --------------
AMOUNT AMOUNT
9
<PAGE>
<S> <C> <C>
TYPE OF LOANS
Commercial $ 74,628 $ 67,917
Commercial real estate and construction (1) 195,921 141,169
Residential real estate 111,611 85,874
Consumer 38,578 35,101
--------------- --------------
Total loans 420,738 330,061
--------------- --------------
Unamortized loan premiums 34 47
Unearned income and costs, net 977 580
--------------- --------------
Loans receivable $ 419,795 $ 329,528
=============== ==============
</TABLE>
(1) Net of undisbursed principal
CREDIT RISK MANAGEMENT
The third quarter provision for loan losses in 2000 was $300,000
resulting in a year-to-date provision for loan losses of $680,000 which compares
to $655,000 for the nine month period ended September 30, 1999. The allowance
for loan losses stands at $3,928,000 at September 30, 2000 compared to
$3,322,000 at December 31, 1999. As of September 30, 2000 the allowance for loan
losses is 0.94% of outstanding loans as compared to 1.01% at December 31, 1999.
The allowance for loan losses as a percentage of non-residential real estate
loans was 1.27% at September 30, 2000 as compared to 1.36% at December 31, 1999.
Activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Allowance for Loan Losses
(Dollars in thousands) NINE MONTHS ENDED SEPTEMBER 30,
2000 1999
---- ----
<S> <C> <C>
Allowance for loan losses, beginning of year $ 3,322 $ 2,676
----------- ----------
Loans charged off:
Commercial (57) -
Real estate (15) -
Consumer (10) (18)
----------- ----------
Total loans charged off (82) (18)
----------- ----------
Recoveries
Commercial - -
Real estate - -
Consumer 8 2
----------- ----------
Total recoveries 8 2
----------- ----------
Net chargeoffs (74) (16)
----------- ----------
Provision for loan losses 680 655
----------- ----------
Allowance for loan losses, end of year $ 3,928 $ 3,315
----------- ----------
----------- ----------
Loans (net of premiums and discounts)
Period-end balance 419,795 325,397
Average balance during period 368,243 288,417
Allowance as percentage of period-end loan balance 0.94% 1.02%
10
<PAGE>
Percent of average loans:
Provision for loan losses 0.25% 0.30%
Net chargeoffs 0.03% 0.01%
</TABLE>
Non-performing assets, expressed as a percentage of total assets,
decreased to 0.89% at September 30, 2000 from 0.91% at December 31, 1999,
reflecting the increase in assets. The increase in other real estate owned for
the period was due to the foreclosure of residential real estate properties
during the quarter.
<TABLE>
<CAPTION>
September 30, December 31, September 30,
----------------------------------------------------
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Loans on nonaccrual basis $ 4,411 $ 4,229 $ 2,007
Real estate acquired by foreclosure 1,771 1,360 1,288
----------------------------------------------------
Total non-performing assets $ 6,182 $ 5,589 $ 3,295
====================================================
Loans past-due 90 days or more and accruing $ 1,493 $ 2,062 $ 1,925
====================================================
</TABLE>
At September 30, 2000, the allowance for loan losses represented 89.1%
of nonaccruing loans compared to 78.6% at December 31, 1999. Management believes
the allowance for loan losses at September 30, 2000 is adequate.
DEPOSITS
Deposits were $459,502,000 as of September 30, 2000, increasing
$90,751,000 or 24.6% from the December 31, 1999 balance of $368,751,000. The
increase in deposits is attributable to management's growth strategy, which
includes significant marketing and promotion and the development of a branching
network.
RESULTS OF OPERATIONS
NET INCOME. Third quarter, 2000 net income was $181,000 compared to
earnings of $251,000 for the third quarter of 1999. The reduction in earnings
was primarily the increased costs associated with the expansion of the Bank's
mortgage banking subsidiary, First Mariner Mortgage Corporation (FMMC) and the
Bank's branch locations. FMMC now has ten mortgage banking offices in Maryland
and Virginia while the Bank currently has 26 branch locations.
NET INTEREST INCOME. Third quarter net interest income before provision
for loan losses was $5,222,000 in 2000, an increase of 12.5% over $4,642,000 for
the third quarter of 1999, reflecting primarily an increase of $116,645,000 in
average earning assets. The increase in average earning assets consisted
primarily of an increase of $107,083,000 in average loans. The net interest
margin was 3.38% for the first nine months of 2000 as compared to 3.42% for the
comparable period of 1999.
NONINTEREST INCOME AND EXPENSES-Noninterest income increased $310,000
or 15.0% for the third quarter of 2000 to $2,371,000 from $2,061,000 for the
third quarter of 1999. The principal reason for the increase was an increase in
deposit related fees.
Deposit service charges rose 25.5% as compared to the quarter ending
September 30, 1999 which is primarily due to the increased number of deposit
accounts. The number of deposit accounts increased approximately 23% to over
53,000 accounts. These increases are the result of continuing marketing and
promotion of the retail banking products.
The gain on the sales of securities was $116,000 for the quarter ending
September 30, 2000 compared to a gain of $118,000 for the quarter ending
September 30, 1999. For the nine month period
11
<PAGE>
ended September 30, 2000 gains were $240,000 as compared to $202,000 for the
period ended September 30, 1999.
Third quarter noninterest expense increased $909,000 or 14.9% to
$6,998,000 in 2000 from $6,089,000 in the third quarter of 1999. Increases in
almost all categories of expense were incurred to support the substantially
increased asset base and the expanding branch network including increases in
personnel.
INCOME TAXES- The Company recorded income tax expense of $264,000
on income before taxes of $685,000, resulting in an effective tax rate of 38.62%
for the nine month period ended September 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Stockholders' equity increased $2,316,000 in the first nine months
of 2000 to $24,179,000 from $21,863,000 as of December 31, 1999. The change
is due to the decrease in accumulated other comprehensive losses which
decreased $1,859,000. The remainder of the change was primarily an increase
in net income of $421,000 for the first nine months of 2000.
The first cash dividend for the Company was paid on May 31, 1999, a
third quarter dividend was paid on August 31, 1999 and a third quarter dividend
was paid on November 30, 1999. A cash dividend was paid on February 29, 2000 for
the fourth quarter of 1999. The Company's Board of directors suspended the cash
dividend for 2000 in order to retain capital to fund the continued strong asset
growth and does not intend to reinstitute a cash dividend until earnings are
sufficient to generate adequate internal capital to support growth.
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:
<TABLE>
<CAPTION>
At September 30,
-------------------------------
(unaudited)
2000 1999
<S> <C> <C>
Regulatory capital ratios
Leverage
Consolidated 5.8% 7.1%
The Bank 5.9% 7.0%
Tier 1 capital to risk weighted assets
Consolidated 8.8% 11.0%
The Bank 9.0% 11.8%
Total capital to risk weighted assets
Consolidated 12.3% 15.5%
The Bank 9.9% 12.7%
</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.
RECENT ACCOUNTING DEVELOPMENTS
12
<PAGE>
In September 1998, the Financial Accounting Standards Board 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 at fair value. In September 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 of SFAS No. 133 is for all fiscal quarters
of all fiscal years beginning after September 15, 2000. Earlier application is
encouraged. Upon application, hedging relationships must be designated anew and
documented and recognized in accordance with the transition pursuant to the
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.
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 borrowings. 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, 2000, the Company had a one year cumulative
negative gap of approximately $113 million.
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
13
<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: 11/14/00 By: /s/ Edwin F. Hale Sr.
--------------- ----------------------------------
Edwin F. Hale Sr.
Chairman and Chief Executive Officer
Date: 11/14/00 By: /s/ Joseph A. Cicero
--------------- ----------------------------------
Joseph A. Cicero
President
14
