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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934. For the fiscal year ended December 31, 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
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(Exact name of registrant as specified in its charter)
MARYLAND 52-1834860
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(State of Incorporation) (I.R.S. Employer Identification Number)
1801 SOUTH CLINTON STREET, BALTIMORE, MD 21224 410-342-2600
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(Address of principal executive offices) (Zip Code) (Telephone Number)
Securities registered under Section 12(b) of the Exchange Act: NONE
# 7 Securities registered under Section 12 (g) of the Exchange Act:
COMMON STOCK, par value $.05 per share
(Title of Class)
Check whether the registrant (1) filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months
(or for such shorter period that the registrant was required to file such
report, and (2) has been subject to such filing requirements for the past 90
days. Yes /X/ No / /
Check if disclosure of delinquent filers in response to Item 405 of
Regulation S-K is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. / /
The issuer's revenues for its most recent year were $47,737,000.
The aggregate market value of the voting stock held by non-affiliates
of the registrant as March 28, 2000 was $15,061,140.
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The number of shares of common stock outstanding as of March 28, 2000
is 3,166,813 shares.
Documents incorporated by reference:
Annual Report of Stockholders - Parts II, IV
Proxy Statement - Part III
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FIRST MARINER BANCORP
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Annual Report on Form 10-K
December 31, 1999
Table of Contents
PART I
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PAGE
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Item I Business 3
Item 2 Properties 12
Item 3 Legal Proceedings 14
Item 4 Submission of Matters to a Vote of Security Holders 14
PART II
Item 5 Market for the Registrant's Common Stock and Related Stockholders Matters 15
Item 6 Selected Financial Data 16
Item 7 Management's Discussion and Analysis of Financial Condition and
Results of Operations 16
Item 7A Quantitative and Qualitative Disclosures About Market Risk 16
Item 8 Financial Statements and Supplementary Data 17
Item 9 Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures 17
PART III
Item 10 Directors and Executive Officers of the Registrant 17
Item 11 Executive Compensation 17
Item 12 Security Ownership of Certain Beneficial Owners and Management 17
Item 13 Certain Relationships and Related Transactions 17
PART IV
Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K 17
</TABLE>
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FORWARD-LOOKING STATEMENTS
Part I and Part II of this Annual Report on Form 10-K contain
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans and expectations, and unknown outcomes
including statements regarding growth strategies, new banking services and
payment of dividends. 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, the federal government, changes in tax
policies, changes in interest rates, deposit flow, the cost of funds, demand for
loan products and financial services and changes in the Company's competitive
position, changes in the quality or composition of loan and investment
portfolios, and the ability of the Company to manage growth and are described
further in Exhibit 99 to this Form 10K.
PART I
ITEM I BUSINESS
GENERAL
First Mariner Bancorp (the "Company") is a bank holding company formed in
Maryland in 1994 under the name MarylandsBank Corp. 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 24 full service branches and 41
Automated Teller Machines ("ATMs"). At December 31, 1999, the Company had total
assets of $616,072,000. The Company and its subsidiaries had approximately 430
full time and part time employees as of December 31, 1999.
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 offered by its larger competitors. The Bank offers its customers access
to local bank officers who are empowered to act with flexibility to meet
customers' needs in order to foster and develop long-term loan and deposit
relationships. The Bank offers residential lending services through its wholly
owned subsidiary, First Mariner Mortgage Corporation ("FMMC").
The Company's executive offices are located at 1801 South Clinton Street,
Baltimore, Maryland 21224 and its telephone number is (410) 342-2600.
MARKET AREA AND MARKET STRATEGY
The Bank's core market is central Maryland, which consists primarily of
Baltimore City, Baltimore County, Harford County, Talbot County and Anne Arundel
County. This area contains a high concentration of population and businesses and
the local governments are committed to business development in the region. The
Company believes that its market area is economically stable and is largely
middle-class with a median family income of $44,000, which is above the national
average.
As an independent Maryland-based community bank, the Bank is engaged in the
general commercial banking business with particular emphasis on the needs of
individuals and small to mid-sized business. The Bank emphasis 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 offered by its larger competitors. The Bank offers
its customers access to local bank officers who are empowered to act with
flexibility to meet customers' needs in order to foster and develop long-term
loan and deposit relationships. The Company believes that individuals and
businesses in its market area are dissatisfied with the large out-of-state
banking institutions, which have acquired local banks. Management
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believes that the Bank has a window of opportunity to establish business ties
with customers who have been displaced by the consolidations and who are anxious
to forge banking relationships with locally-owned and managed institutions.
These consolidations also benefit the Bank by making available experienced and
entrepreneurial managers from larger financial institutions and acquisition
opportunities from the remaining small independent banks in the Company's market
area.
GROWTH STRATEGIES
The Company's continuing strategy is to capture market share and build a
community franchise for its shareholders, customers and employees. To do so, the
Company intends to:
- Expand its existing network of traditional branches and ATMs to
ultimately operate a contiguous delivery system to accommodate
customers' needs for a continuum of essential banking services;
- Continue to attract highly experienced, entrepreneurial managers
and staff with in-depth knowledge of the Bank's customers and
target market;
- Acquire financial institutions or branches, which offer compatible
products, marketing opportunities, potential cost savings or
economies of scale;
- Establish nontraditional joint ventures with retail establishments
such as Mars Super Market and other retail entities that have high
traffic patterns; and
- Invest in new products and technology, including internet and
online banking.
BANKING SERVICES
COMMERCIAL BANKING. The Bank focuses its commercial loan originations on
small and mid-sized business (generally up to $20 million in annual sales) and
such loans are usually accompanied by significant related deposits. Commercial
loan products include residential and commercial real estate construction loans;
working capital loans and lines of credit; demand, term and time loans; and
equipment, inventory and accounts receivable financing. The Bank offers a range
of cash management services and deposit products to its commercial customers.
Computerized banking is currently available to the Bank's commercial customers.
RETAIL BANKING. The Bank's retail banking activities emphasize consumer
deposit and checking accounts. An extensive range of these services is offered
by the Bank to meet the varied needs of its customers from young persons to
senior citizens including "Absolutely Free Checking." The Bank's services
include alternatives to bank accounts, such as mutual funds and annuities.
Consumer loan products offered by the Bank include home equity lines of credit,
fixed rate second mortgages, new and used auto loans, new and used boat loans,
overdraft protection, unsecured personal credit lines and the debit card.
MORTGAGE BANKING. The Bank's mortgage banking business is structured to
provide a source of fee income largely from the process of originating product
for sale on the secondary market. Mortgage banking capabilities include FHA/VA
origination; conventional and nonconforming mortgage underwriting; and
construction and permanent financing. The Bank intends to improve its
competitive position in this market by streamlining the mortgage underwriting
process through the introduction of advanced technology.
COMMUNITY REINVESTMENT ACT. The Bank has a strong commitment to its
responsibilities under the Community Reinvestment Act and actively searches for
opportunities to meet the development needs of all members of the community it
serves, including persons of low to moderate income in a manner consistent with
safe and sound banking practices. The Bank currently fulfills this commitment by
participating in loan programs sponsored or guaranteed by the SBA, FHA, VA, CDA,
Maryland Industrial Development Financing Authority, and the Settlement Expense
Loan Program.
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LENDING ACTIVITIES
LOAN PORTFOLIO COMPOSITION. At December 31, 1999, the Bank's loan portfolio
totaled $329.5 million representing approximately 53.5% of its total assets of
$616.1 million. The following table sets forth the Bank's loans by major
categories as of December 31, 1999:
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(Dollars in thousands) AMOUNT PERCENT
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Commercial $ 67,665 20.5%
Real Estate Construction-Consumer 34,420 10.4%
Real Estate Development and Construction 17,051 5.2%
Real Estate Mortgage:
Residential 85,710 26.0%
Commercial 88,950 27.0%
Consumer 35,732 10.8%
Total loans $ 329,528 100.0%
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COMMERCIAL LOANS. The Bank originates secured and unsecured loans for
business purposes. Less than one percent of these loans is unsecured. Loans are
made to provide working capital to businesses in the form of lines of credit,
which may be secured by real estate, accounts receivable, inventory, equipment
or other assets. The financial condition and cash flow of commercial borrowers
are closely monitored by the submission of corporate financial statements,
personal financial statements and income tax returns. The frequency of
submissions of required financial information depends on the size and complexity
of the credit and the collateral which secures the loan. It is the Bank's
general policy to obtain personal guarantees from the principals of the
commercial loan borrowers.
REAL ESTATE DEVELOPMENT AND CONSTRUCTION LOANS. The real estate development
and construction loan portfolio consisted of the following as of December 31,
1999:
<TABLE>
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Amount Percent
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Commercial Construction 6,799 39.9%
Commercial Acquisition and Construction 200 1.2%
Commercial Land Acquisition 1,961 11.5%
Residential Builders Construction 6,183 36.3%
Residential Builders Acquisition and Development 1,423 8.3%
Residential Builders Acquisition, Development and Construction 485 2.8%
===========================
Total Real Estate-Development and Construction 17,051 100.0%
===========================
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The Bank provides interim real estate acquisition development and
construction loans to builders, developers, and persons who will ultimately
occupy the single family dwellings. Real estate development and construction
loans to provide interim financing on the property is generally made for 80% or
less of the appraised value of the property. Real estate development and
construction loan funds are disbursed periodically at pre-specified stages of
completion. Interest rates on these loans are generally adjustable. The Bank
carefully monitors these loans with on-site inspections and control of
disbursements.
Loans to individuals for the construction of their primary residences are
typically secured by the property under construction, frequently include
additional collateral (such as second mortgage on the borrower's present home),
and commonly have maturities of nine to twelve months.
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Loans to residential builders are for the construction of residential homes
for which a binding sales contract exists and the prospective buyers have been
pre-qualified for permanent mortgage financing. Development loans are made only
to developers with a proven track record. Generally, these loans are extended
only when the borrower provides evidence that the lots under development will be
sold to builders satisfactory to the Bank.
Development and construction loans are secured by the properties under
development or construction and personal guarantees are typically obtained.
Further, to assure that reliance is not placed solely in the value of the
underlying property, the Bank considers the financial condition and reputation
of the borrower and any guarantors, the amount of the borrowers equity in the
project, independent appraisals, costs estimates and pre-construction sale
information.
RESIDENTIAL REAL ESTATE MORTGAGE LOANS. The Bank's wholly-owned subsidiary,
First Mariner Mortgage Corporation, originates adjustable and fixed-rate
residential mortgage loans. Such mortgage loans are generally originated under
terms, conditions and documentation acceptable to the secondary mortgage market.
The Bank will place some of these loans into its portfolio, although the
substantial majority are sold to investors.
COMMERCIAL REAL ESTATE MORTGAGE LOANS. The Bank originates mortgage loans
secured by commercial real estate. Such loans are primarily secured by office
buildings, retail buildings, warehouses and general purpose business space.
Although terms may vary, the Bank's commercial mortgages generally have
maturities of five years or less.
The Bank seeks to reduce the risks associated with commercial mortgage
lending by generally lending in its market area and obtaining periodic financial
statements and tax returns from borrowers. It is also the Bank's general policy
to obtain personal guarantees from the principals of the borrowers and
assignments of all leases related to the collateral.
CONSUMER LOANS. The Bank offers a variety of consumer loans. These loans
are typically secured by residential real estate or personal property, including
automobiles and boats. Home equity loans are typically made up to 80% of the
appraised value, less the amount of any existing prior liens on the property and
generally have maximum term of 10 years, although the bank does offer a 90% loan
to value product. The interest rates on home equity loans are adjustable.
CREDIT ADMINISTRATION
The Bank's lending activities are subject to written policies approved by
the Board of Directors to ensure proper management of credit risk. Loans are
subject to a well defined credit process that includes credit evaluation of
borrowers, risk-rating of credits, establishment of lending limits and
application of lending procedures, including the holding of adequate collateral
and the maintenance of compensating balances, as well as procedures for on-going
identification and management of credit deterioration. Regular portfolio reviews
are performed to identify potential underperforming credits, estimate loss
exposure and to ascertain compliance with the Bank's policies. For significant
problem loans, management review consists of evaluation of the financial
strengths of the borrower and the guarantor, the related collateral and the
effects of economic conditions.
The Bank's loan approval policy provides for various levels of individual
lending authority. The maximum lending authority granted by the Bank to any one
individual is $500,000 for residential mortgages, commercial loans and consumer
construction loans, and for other types of loans the lending authority is
$250,000. The Board's Loan Committee is authorized to approve loans up to the
Bank's legal lending limit, which currently approximates $6,300,000 as of
December 31, 1999. The bank has established an in-house limit of $2,000,000
which is reviewed periodically by the Board of Directors.
The Bank generally does not make loans outside its market area unless the
borrower has an established relationship with the Bank and conducts its
principal business operations within the Bank's market area. Consequently the
Bank and its borrowers are affected by the economic conditions prevailing in its
market area.
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COMPETITION
The Company and the Bank operate in a competitive environment, competing
for deposits and loans with commercial banks, thrifts and other financial
entities. Principal competitors include other community commercial banks and
larger financial institutions with branches in the Bank's market area. Numerous
mergers and consolidations involving banks in the Bank's market area have
occurred recently, requiring the Bank to compete with banks with greater
resources.
The primary factors in competing for deposits are interest rates,
personalized services, the quality and range of financial services, convenience
of office locations and office hours. Competition for deposits comes primarily
from other commercial banks, savings associations, credit unions, money market
funds and other investment alternatives. The primary factors in competing for
loans are interest rates, loan origination fees, the quality and range of
lending services and personalized services. Competition for loans comes
primarily from other commercial banks, savings associations, mortgage banking
firms, credit unions and other financial intermediaries. The Bank also competes
with money market mutual funds for deposits. Many of the financial institutions
operating in the Bank's market area offer certain services such as trust and
international banking, which the Bank does not offer, and greater financial
resources or have substantially higher lending limits than does the Bank.
To compete with other financial services providers, the Bank principally
relies upon local promotional activities, personal relationships established by
officers, directors and employees with its customers and specialized services
tailored to meet its customers' needs. In those instances where the Bank is
unable to accommodate a customers' needs, the Bank will arrange for those
services to be provided by other banks with which it has a relationship.
Recent changes in banking laws facilitate interstate branching and merger
activity among banks. Since September, 1995, certain bank holding companies are
authorized to acquire banks throughout the United States. In addition, on and
after June 1, 1997, certain banks will be permitted to merge with banks
organized under the laws of different states. Such changes will result in an
even greater degree of competition in the banking industry and the Company and
the Bank may be brought into competition with institutions with which it does
not presently compete. As a result, intense competition in the Bank's market
area may be expected to continue for the foreseeable future.
SUPERVISION AND REGULATIONS
The Company and the Bank are extensively regulated under federal and state
law. Generally, these laws and regulations are intended to protect depositors,
not stockholders. The following is a summary description of certain provisions
of certain laws which affect the regulation of bank holding companies and banks.
The discussion is qualified in its entirety by reference to applicable laws and
regulations. Changes in such laws and regulations may have a material effect on
the business and prospects of the Company and the Bank.
FEDERAL BANK HOLDING COMPANY REGULATION AND STRUCTURE. The Company is a
bank holding company within the meaning of the Bank Holding Company Act of 1956,
as amended, and as such, it is subject to regulation, supervision, and
examination by the Board of Governors of the Federal Reserve System. The Company
is required to file annual and quarterly reports with the Federal Reserve and to
provide the Federal Reserve with such additional information as the Federal
Reserve may require. Federal Reserve may conduct examinations of the Company and
its subsidiaries.
With certain limited exceptions, the Company is required to obtain prior
approval from the Federal Reserve before acquiring direct or indirect ownership
or control of more than 5% of any voting securities or substantially all of the
assets of a bank or bank holding company, or before merging or consolidating
with another bank holding company. In acting on applications for such approval,
the Federal Reserve must consider various statutory factors, including among
others, the effect of the proposed transaction on competition in the relevant
geographical and product markets, each party's financial condition and
management resources and record of performance under the Community Reinvestment
Act ("CRA"). Additionally, with certain exceptions any person proposing to
acquire control through direct or indirect ownership of 25% or more of any
voting securities of the Company is required to give 60 days written notice of
the acquisition to the Federal Reserve, which may prohibit the transaction, and
to publish notice to the public.
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Generally, a bank holding company may not engage in any activities other
than banking, managing or controlling its bank and other authorized
subsidiaries, and providing services to these subsidiaries. With prior approval
of the Federal Reserve, the Company may acquire more than 5% of the assets or
outstanding shares of a company engaging in nonbank activities determined by the
Federal Reserve to be closely related to the business of banking or of managing
or controlling banks. Under current Federal Reserve regulations, such
permissible nonback activities include mortgage banking, equipment leasing,
securities brokerage and consumer and commercial finance company operations.
Subsidiary banks of a bank holding company are subject to certain
quantitative and qualitative restrictions on extensions of credit to the bank
holding company or its subsidiaries on investments in their securities and on
the use of their securities as collateral for loans to any borrower. These
regulations and restrictions may limit the Company's ability to obtain funds
from the Bank for its cash needs including funds for the payment of dividends,
interest and operating expenses. Further, a bank holding company and its
subsidiaries are prohibited from engaging in certain tie-in arrangements in
connection with any extension of credit, lease or sale of property or furnishing
of services. For example, the Bank may not generally require a customer to
obtain other services from itself or the Company, and may not require that a
customer promise not to obtain other services from a competitor as a condition
to and extension of credit to the customer. The Federal Reserve has ended the
anti-tying rules for bank holding companies and their non-banking subsidiaries.
Such rules were retained for banks.
Under Federal Reserve policy, a bank holding company is expected to act as
a source of financial strength to its subsidiary banks and to make capital
injections into a troubled subsidiary bank, and the Federal Reserve may charge
the bank holding company with engaging in unsafe and unsound practices for
failure to commit resources to a subsidiary bank when required. A required
capital injection may be called for at a time when the holding company does not
have the resources to provide it. In addition, depository institutions insured
by the FDIC can be held liable for any losses incurred by, or reasonably
anticipated to be incurred by, the FDIC in connection with the default of, or
assistance provided to, a commonly controlled FDIC-insured depository
institution. Accordingly, in the event that any insured subsidiary of the
Company causes a loss to the FDIC, other insured subsidiaries of the Company
could be required to compensate the FDIC by reimbursing it for the estimated
amount of such loss. Such cross guaranty liabilities generally are superior in
priority to the obligations of the depository institution to its shareholders
due solely to their status as shareholders and obligations to other affiliates.
STATE BANK HOLDING COMPANY REGULATION. As a Maryland bank holding company,
the Company is subject to various restrictions on its activities as set forth in
Maryland law, in addition to those restrictions set forth in federal law. Under
Maryland law, a bank holding company that desires to acquire a bank or bank
holding company that has its principal place of business in Maryland must obtain
approval from the Maryland Commissioner of Financial Regulation. Also, a bank
holding company and its Maryland state-chartered bank or trust company cannot
directly or indirectly acquire banking or nonbanking subsidiaries or affiliates
until the bank or trust company receives the approval of the Maryland
Commissioner.
FEDERAL AND STATE BANK REGULATION. The Company's banking subsidiary is a
Maryland state-chartered trust company, with all the powers of a commercial
bank. regulated and examined by the Maryland Commissioner and the Federal
Deposit Insurance Corporation (the "FDIC'). The FDIC has extensive enforcement
authority over the institutions it regulates to prohibit or correct activities
which violate law, regulation or written agreement with the FDIC or which are
deemed to constitute unsafe or unsound practices. Enforcement actions may
include the appointment of a conservator or receiver, the issuance of a cease
and desist order, the termination of deposit insurance, the imposition of civil
money penalties on the institution, its directors, officers, employees and
institution-affiliated parties, the issuance of directives to increase capital,
the issuance of formal and informal agreements, the removal of or restrictions
on directors, officers, employees and institution-affiliated parties and the
enforcement of any such mechanisms through restraining orders or other court
actions.
In its lending activities, the maximum legal rate of interest, fees and
charges which a financial institution may charge on a particular loan depends on
a variety of factors such as the type of borrower, the purpose of the loan, the
amount of the loan and the date the loan is made. Other laws tie the maximum
amount which may be loaned to any one customer and its related interest to
capital levels. The Bank is also subject to certain restrictions on extensions
of credit to executive officers, directors, principal shareholders or any
related interest of such persons which generally require that such credit
extensions be made on
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substantially the same terms as are available to third persons dealing with the
Bank and not involve more than the normal risk of repayment.
The Community Reinvestment Act ("CRA") requires that, in connection with
the examination of financial institutions within their jurisdictions the FDIC
evaluate the record of the financial institution in meeting the credit needs of
their communities including low and moderate income neighborhoods, consistent
with the safe and sound operation of those banks. 'These factors are also
considered by all regulatory agencies in evaluating mergers, acquisitions and
applications to open a branch or facility. As of the date of its most recent
examination report, the Bank has a CRA rating of "Satisfactory."
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), each federal banking agency is required to prescribe, by regulation,
noncapital safety and soundness standards for institutions under its authority.
The federal banking agencies, including the FDIC, have adopted standards
covering internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, and
compensation, fees and benefits. An institution which fails to meet those
standards may be required by the agency to develop a plan acceptable to the
agency, specifying the steps that the institution will take to meet the
standards. Failure to submit or implement such a plan may subject the
institution to regulatory sanctions. The Company, on behalf of the Bank,
believes that it meets substantially all standards which have been adopted.
FDICIA also imposed new capital standards on insured depository institutions.
Before establishing new branch offices, the Bank must meet certain minimum
capital stock and surplus requirements. With each new branch located outside the
municipal area of the Bank's principal banking office, these minimal levels
increase by $120,000 to $900,000, based on the population size of the municipal
area in which the branch will be located. Prior to establishment of the branch,
the Bank must obtain Commissioner and FDIC approval. If establishment of the
branch involves the purchase of a bank building or furnishings, the total
investment in bank buildings and furnishings cannot exceed, with certain
exceptions, 50% of the Bank's unimpaired capital and surplus.
DEPOSIT INSURANCE
As a FDIC member institution, deposits of the Bank are currently insured to
a minimum of $ 100,000 per depositor through the Savings Association Insurance
Fund ("SAIF"), administered by the FDIC. Insured financial institutions are
members of either SAIF or the Bank Insurance Fund ("BIF"). SAIF members
generally are savings and loan associations or savings banks, including banks
and trust companies that have converted from a savings and loan association or
savings bank to a commercial bank or trust company or bank and trust companies
that have acquired SAIF deposits. The Bank is a converted federal savings bank,
therefore, its deposits are through SAIF. Mergers or transfers of assets between
SAIF and BIF members generally are permitted with the assuming or resulting
depository institution making payments of SAIF assessments on the portion of
liabilities attributable to the SAIF-insured institution.
The FDIC is required to establish the semi-annual assessments for BIF- and
SAIF-insured depository institutions at a rate determined to be appropriate to
maintain or increase the reserve ratio of the respective deposit insurance funds
at or above 1.25 percent of estimated insured deposits or at such higher
percentage that the FDIC determines to be justified for that year by
circumstances raising significant risk of substantial future losses to the fund.
SAIF has not met the designated reserve ratio for the fund. Accordingly, federal
legislation that became effective September 30, 1996 assesses a one-time charge
on deposits insured by SAIF. This one-time charge for the Bank of approximately
$154,000, was paid in 1996.
This recapitalization has lowered the semiannual assessments paid by the
Bank as a SAIF member. Assessments are made on a risk-based premium system with
nine risk classifications based on certain capital and supervisory measures.
Financial institutions with higher levels of capital and involving a low degree
of supervisory concern are assessed lower premiums than financial institutions
with lower levels of capital or involving a higher degree of supervisory
concern. Before the recapitalization, the rates assessable on SAIF-insured
deposits ranged from $0.23 per $100 of domestic deposits to $0.31 per $100 of
domestic deposits; the Bank's assessment stood at $0.23 per $100. Rates
assessable to BIF members have been significantly lower at a range of $0.03 to
$0.27 per $100, with the highest rated BIF institutions paying the statutory
minimum of $2,000 per year. With recapitalization of SAIF, the assessment ranges
for both BIF and SAIF institutions has decreased. The Bank has an assessment
rate of $0.06 per $100 starting on January 1, 1999.
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LIMITS ON DIVIDENDS AND OTHER PAYMENTS
The Company's current ability to pay dividends is largely dependent upon
the receipt of dividends from its banking subsidiary, the Bank. Both federal and
state laws impose restrictions on the ability of the Bank to pay dividends.
Federal law prohibits the payment of a dividend by an uninsured depository
institution like the Bank if the depository institution is considered
"undercapitalized" or if the payment of the dividend would make the institution
"undercapitalized". See "Federal Deposit Insurance Corporation Improvement Act
of 1991" below. The Company does not anticipate that such provisions will be
applied to the Bank. The Federal Reserve has issued a policy statement which
provides that, as a general matter, insured banks and bank holding companies may
pay dividends only out of prior operating earnings. For a Maryland
state-chartered bank or trust company, dividends may be paid out of undivided
profits or, with the prior approval of the Commissioner, from surplus in excess
of 100% of required capital stock. It however, the surplus of a Maryland bank is
less than 100% of its required capital stock, cash dividends may not be paid in
excess of 90% of net earnings. The Bank must obtain approval of the Maryland
Commissioner to pay dividends to the Company for so long as the Bank's statement
of financial condition reflect as it did of December 31, 1999, negative
undivided profits (accumulated deficit), the Company anticipates that such
approval will be required for the foreseen future. In addition to these specific
restriction bank regulatory agencies, in general, also have the ability to
prohibit proposed dividends by a financial institution which would otherwise be
permitted under applicable regulations if the regulatory body determines that
such distribution would constitute an unsafe or unsound practice.
CAPITAL REQUIREMENTS
The Federal Reserve and FDIC have adopted certain risk-based capital
guidelines to assist in the assessment of the capital adequacy of a banking
organization's operations for both transactions reported on the balance sheet as
assets and transactions, such as letters of credit and recourse arrangement
which are recorded as off balance sheet items. Under these guidelines, nominal
dollar amounts of assets and credit equivalent amounts of off balance sheet
items are multiplied by one of several risk adjustment percentages, which range
from 0% for assets with low credit risk, such as certain U.S. Treasury
securities to 100% for assets with relatively high credit risk, such as business
loans.
A banking organization's risk-based capital ratio are obtained by dividing
its qualifying capital by its total risk adjusted assets. The regulators measure
risk-adjusted assets, which include off balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2
capital) and Tier 1 capital. "Tier 1", or core capital includes common equity,
perpetual preferred stock (excluding auction rate issues), trust preferred
securities, subject to certain limitations, and minority interest in equity
accounts of consolidated subsidiaries, less goodwill and other intangibles,
subject to certain exceptions. "Tier 2", or supplementary capital, includes,
among other things limited-life preferred stock, hybrid capital instruments,
mandatory convertible securities and trust preferred securities, qualifying and
subordinated debt, and the allowance for loan and lease losses subject to
certain limitations and less required deductions. The inclusion of elements of
Tier 2 capital is subject to certain other requirements and limitations of the
federal banking agencies. Banks and bank holding companies, subject to the
risk-based capital guidelines are required to maintain a ratio of Tier 1 capital
to risk-weighted assets of at least 4% and a ratio of total capital to
risk-weighted assets of at least 8%. The appropriate regulatory authority may
set higher capital requirements when particular circumstances warrant. At
December 31, 1999, the Bank's ratio of Tier 1 to risk-weighted assets stood at
11.2% and its ratio of total capital to risk-weighted assets stood at 12.1%. In
addition to risk-based capital banks and bank holding companies are required to
maintain a minimum amount of Tier 1 capital to fourth quarter average assets,
referred to as the leverage capital ratio, of at least 4%. At December 31, 1999,
the Bank's leverage capital ratio stood at 6.6%.
In August, 1995 and May, 1996, the federal banking agencies adopted final
regulations specifying that the agencies will include, in their evaluations of a
Bank's capital adequacy, an assessment of the Bank's interest rate risk ("IRR")
exposure. The standards for measuring the adequacy and effectiveness of a
banking organization's interest rate risk management includes a measurement of
board of director and senior management oversight, and a determination of
whether a banking organization's procedures for comprehensive risk management
are appropriate to the circumstances of the specific banking organization. The
Bank has internal IRR models that are used to measure and monitor IRR.
Additionally, the regulatory agencies have been assessing IRR on an informal
basis for several years. For these reasons the
10
<PAGE>
Company does not expect the addition of IRR evaluation to the agencies' capital
guidelines to result in significant changes in capital requirements for the
Bank.
Failure to meet applicable capital guidelines could subject a banking
organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority of
a capital directive to increase capital and, in the case of depository
institutions, the termination of deposit insurance by the FDIC, as well as to
the measures described under "Federal Deposit Insurance Corporation Improvement
Act of 1991" below, as applicable to undercapitalized institutions. In addition,
future changes in regulations or practices could further reduce the amount of
capital recognized for purposes of capital adequacy. Such a change could affect
the ability of the Bank to grow and could restrict the amount of profits, if
any, available for the payment of dividends to the Company.
FEDERAL DEPOSIT INSURANCE CORPORATION IMPROVEMENT ACT OF 1991
In December, 1991, Congress enacted the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), which substantially revised the
bank regulatory and funding provisions of the Federal Deposit Insurance Act and
made significant revisions to several other federal banking statutes. FDICIA
provides for, among other things, (i) publicly available annual financial
condition and management reports for financial institutions, including audits by
independent accountants, (ii) the establishment of uniform accounting standards
by federal banking agencies, (iii) the establishment of a "prompt corrective
action" system of regulatory supervision and intervention, based on
capitalization levels with more scrutiny and restrictions placed on depository
institutions with lower levels of capital, (iv) additional grounds for the
appointment of a conservator or receiver, and (v) restrictions or prohibitions
on accepting brokered deposits, except for institutions which significantly
exceed minimum capital requirements. FDICIA also provides for increased funding
of the FDIC insurance funds and the implementation of risked-based premiums.
A central feature of FDICIA is the requirement that the federal banking
agencies take "prompt corrective action" with respect to depository institutions
that do not meet minimum capital requirements. Pursuant to FDICIA, the federal
bank regulatory authorities have adopted regulations setting forth a five tiered
system for measuring the capital adequacy of the depository institutions that
they supervise. Under these regulations, a depository institution is classified
in one of the following capital categories: "well capitalized," "adequately
capitalized," "undercapitalized," "significantly undercapitalized," and
"critically undercapitalized." An institution may be deemed by the regulators to
be in a capitalization category that is lower than is indicated by its actual
capital position if, among other things, it receives an unsatisfactory
examination rating with respect to asset quality, management, earnings or
liquidity.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a cash dividend) or paying any management
fees to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to growth
limitations and are required to submit capital restoration plans. If a
depository institution fails to submit an acceptable plan, it is treated as if
it is significantly undercapitalized. Significantly undercapitalized depository
institutions may be subject to a number of other requirements and restrictions
including orders to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and stop accepting deposits
from correspondent banks. Critically undercapitalized institutions are subject
to the appointment of a receiver or conservator, generally within 90 days of the
date such institution is determined to be critically undercapitalized.
FDICIA provides the federal banking agencies with significantly expanded
powers to take enforcement action against institutions which fail to comply with
capital or other standards. Such action may include the termination of deposit
insurance by the FDIC or the appointment of a receiver or conservator for the
institution. FDICIA also limits the circumstances under which the FDIC is
permitted to provide financial assistance to an insured institution before
appointment of a conservator or receiver.
INTERSTATE BANKING LEGISLATION
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Riegle-Neal") was enacted into law on September 29, 1994. Riegle-Neal
authorized federal banking agencies to approve interstate bank merger
transactions even if such transactions are prohibited by the laws of a state. An
exception to
11
<PAGE>
such authorization arises if the home state where one of the banks which is a
party to the merger transaction is located opted out of the merger provisions of
Riegle-Neal by adopting a law after the date of the enactment of the Riegle-Neal
and prior to June 1, 1997. These laws must apply equally to all-out-of-state
banks and expressly prohibit merger transactions involving out-of-state banks.
Riegle-Neal also permits interstate branch acquisitions if the laws of the state
where the branch is located permits interstate branch acquisitions. The
interstate merger and branch acquisitions permitted by Riegle-Neal are subject
to nationwide and statewide insured deposit limitations as described in
Riegle-Neal.
Riegle-Neal also authorizes the federal banking agencies to approve DE
NOVO interstate branching by national and state banks in states which
specifically allow for such branching. Only two states, Texas and Montana, have
opted out of the Riegle-Neal provisions relating to interstate mergers,
acquisitions of branches and establishment of de novo branches. The Company
anticipates that Riegle-Neal may increase competition within the market in which
the Company operates although the Company cannot predict the timing or the
extent of such increased competition.
FINANCIAL SERVICES MODERNIZATION
In November 1999, the Gramm-Leach-Bliley Act ("GLBA") was signed into law.
Effective in pertinent part on March 11, 2000, GLBA revises the Bank Holding
Company Act of 1956 and repeals the affiliation provisions of the Glass-Steagall
Act of 1933, which, taken together, limited the securities, insurance and other
non-banking activities of any company that controls a FDIC insurance financial
institution. Under GLBA, bank holding companies can elect, subject to certain
qualifications, to become a "financial holding company". GLBA provides that a
financial holding company may engage in a full range of financial activities,
including, insurance and securities sales and underwriting activities, and real
estate development, with new expedited notice producers. GLBA also permits
certain qualified national bank subsidiaries to form financial subsidiaries,
which have broad authority to engage in all financial activities except
insurance underwriting, insurance investments, real estate investment or
development, or merchant banking.
ITEM 2 PROPERTIES
The principal executive offices of the Company and the main office of
the Bank are located at 1801 South Clinton Street, Baltimore, Maryland. The
Company and the Bank occupy approximately 49,000 square feet of space leased
from Edwin F. Hale, Sr., Chairman and Chief Executive Officer of the Company.
Rental for this space in 1999 was approximately $699,000 annually, of which
$664,000 is allocated for 47,830 square feet of office and $35,000 is allocated
for 1,170 square feet of Bank branch space and drive-up banking and customer
parking facilities. Management believes that such terms are at least as
favorable as those that could be obtained from an unaffiliated third party
lessor.
The Bank has branches at the following locations:
<TABLE>
<CAPTION>
SQUARE LEASE RENEWAL
LOCATION FEET ANNUAL RENT EXPIRATION OPTIONS
-------- ------ ----------- ---------- -------
<S> <C> <C> <C> <C>
1801 South Clinton Street 1,170 $ 35,000 10/31/2013 5 Years
(Baltimore City)
115 East Joppa Road 2,750 Owns building - -
Towson (Baltimore County) (subject to $25 ground
rent)
1641 Joppa Road 2,480 Owns building - -
Towson (Baltimore County)
9833 Liberty Road 2,800 Owns building - -
(Baltimore County) (subject to $12,000
ground rent)
</TABLE>
12
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
12 A. S. Bel Air Parkway 2,288 Owns building 6/30/2017 -
Bel Air (Harford County) (subject to $35,000
ground rent)
16 South Calvert Street 2,515 $ 26,595 5/14/2001 5 Years
(Baltimore City)
2375 Rolling Road (Mars Store) $ 36,500 11/1/2000 5 Years
667
Woodlawn (Baltimore County)
Chesapeake Center Drive (Mars 484 $ 36,500 3/1/2001 5 Years
Store) Glen Burnie (Anne Arundel
County)
1013 Reisterstown Town Road 4,156 Owns building - -
Pikesville (Baltimore County)
60 Painters Mill Road 2,350 $ 80,235 10/31/2005 5 Years
Owings Mills (Baltimore County)
161 Jennifer Road 4,400 $ 85,446 6/30/2001 5 Years
Annapolis (Anne Arundel County)
1401 Pulaski Highway (Mars Store) 484 $ 36,500 12/3/2001 5 Years
Edgewood (Harford County)
1770 Merritt Blvd 2,500 $ 32,500 2/19/2007 5 Years
Dundalk (Baltimore County)
1740 York Road 1,200 $ 36,000 4/30/2012 15 Years
Lutherville (Baltimore County)
1018 Beards Hill Rd (Mars Store) 525 $ 36,500 5/20/2002 5 Years
Aberdeen (Harford County)
15 E. Padonia Road (Mars Store) 276 $ 36,500 10/19/2002 5 Years
Timonium (Baltimore County)
8433 Bel Air Road 2,050 Owns building - -
Perry Hall (Baltimore County)
8133 Elliott Road 2,099 $ 31,485 3/31/2003 5 Years
Easton (Talbot County) x2
8206 Pulaski Highway 6,500 $ 38,350 2/28/2008 5 Years
Rosedale (Baltimore County) x2
360 Governor Ritchie Highway 2,200 $ 40,700 5/31/2008 5 Years
Severna Park (Anne Arundel County) x2
</TABLE>
13
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
7878 Wise Avenue (Mars Store) 450 $ 36,500 9/15/2003 5 Years
Dundalk (Baltimore County)
8587 Ft. Smallwood Rd (Mars Store) 450 $ 36,500 10/31/2003 5 Years
Pasadena (Anne Arundel County)
176 Carroll Island Road 1,800 $ 25,200 2/1/2004 5 Years
Baltimore (Baltimore County)
1053 MD Route 3 (2) 2,480 Owns building 4/28/2015 15 Years
Crofton (Anne Arundel County) (subject to $30,000
ground rent)
12505 Coastal Highway (2) 1,800 $ 31,878 10/31/2004 5 Years
Ocean City (Worcester)
10065 Baltimore National Pike (2) 2,480 Owns building 8/1/2009 10 Years
Ellicott City (Howard County) (subject to $75,000
ground rent)
7400 L Ritchie Highway (1) 2,250 $ 38,250 12/1/2004 5 Years
Glen Burnie (Anne Arundel)
</TABLE>
(1) Branch has opened in first quarter, 2000
(2) Branches are expected to open in second quarter, 2000
ITEM 3 LEGAL PROCEEDINGS
Neither the Company nor the Bank is a party to, nor is any of their
property the subject of, any material pending legal proceedings incidental to
the business of the Company other than those arising in the ordinary course of
business. In the opinion of management no such proceeding will have a material
adverse effect on the financial position or results of operations of the
Company.
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
14
<PAGE>
PART II
ITEM 5 MARKET FOR THE REGISTRANT'S COMMON STOCK
AND RELATED STOCKHOLDERS MATTERS
MARKET FOR COMMON STOCK
Shares of First Mariner Bancorp trades on The Nasdaq Stock Market's
National Market under the trading symbol FMAR. For the period January 1, 1999
through December 31, 1999 the high and low prices as quoted on The Nasdaq Stock
Market were $13.250 and $7.250, respectively.
As of December 31, 1999, First Mariner Bancorp had approximately 2,512
shareholders of record. On May 22, 1998, a 10% stock dividend was declared and
stock distributed to shareholders on record. The Company paid its first cash
dividend of 2 cents per share in May, 1999, also paid dividends of 2 cents per
share in August, 1999 and November, 1999 for total dividends of 6 cents per
share paid in 1999.
RECENT COMMON STOCK PRICES
The Company's Common Stock is traded on the National Association of
Securities Dealers' Automated Quotation System ("Nasdaq") National Market tier
of the Nasdaq Stock Market under the symbol "FMAR".
The following table illustrates high and low sale prices of the Company's
Common Stock for the periods indicated.
<TABLE>
<CAPTION>
LOW HIGH
------- -------
<S> <C> <C>
1999 QUARTER ENDED:
Fourth quarter 7.250 10.250
Third quarter 9.875 11.750
Second quarter 10.750 12.063
First quarter 11.375 13.250
1998 QUARTER ENDED:
Fourth quarter 12.250 14.625
Third quarter 12.750 16.000
Second quarter 15.000 15.975
First quarter 14.175 16.425
</TABLE>
15
<PAGE>
ITEM 6 SELECTED FINANCIAL DATA
(Dollars in thousands except for per share data)
<TABLE>
<CAPTION>
At or For Year ended December 31,
--------------------------------------------------------------------
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net Interest Income $ 17,651 $ 12,022 $ 7,753 $ 3,629 $ 1,292
Provision For Loan Losses 785 1,212 472 1,040 190
Noninterest Income 7,264 5,595 2,351 1,074 197
Noninterest Expense 22,743 16,246 9,459 5,836 2,581
Net Income 877 1,123 365 (2173) (1282)
Net Income Per Common Share - Basic 0.28 0.36 0.12 (1.56) (1.71)
Total Assets $ 616,072 $ 497,487 $ 256,984 $ 132,562 $ 52,798
Loans Receivable, Net 326,206 240,049 142,458 90,822 29,559
Deposits 368,751 262,311 196,962 102,289 41,487
Stockholders' Equity 21,863 28,488 26,966 23,796 10,702
Allowance For Loan Losses 3,322 2,676 1,614 1,242 376
Net Charge-offs 139 150 100 174 59
Non-Performing Assets To Total Assets 0.90% 0.63% 1.36% 1.19% 1.20%
Return on Average Assets 0.16% 0.32% 0.21% (2.64%) (3.45%)
Return on Average Equity 3.30% 4.07% 1.39% (21.67%) (19.62%)
Regulatory capital ratios
Leverage 6% 8% 15% 19% 28%
Tier 1 capital to risk weighted assets 10% 14% 17% 18% 34%
Total capital to risk weighted assets 15% 19% 18% 19% 35%
</TABLE>
ITEM 7 THE INFORMATION REQUIRED BY THIS ITEM 7 IS INCORPORATED BY REFERENCE
HEREIN FROM THE ANNUAL REPORT OF STOCKHOLDERS ATTACHED AS EXHIBIT 13.
ITEM 7A 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 December 31, 1999, the Company had a one year cumulative
negative gap of approximately $112,000 million.
16
<PAGE>
ITEM 8 FINANCIAL STATEMENTS AND RELATED NOTED REQUIRED BY THIS ITEM 8 IS
INCORPORATED BY REFERENCE HEREIN FROM THE ANNUAL REPORT OF STOCKHOLDERS ATTACHED
AS EXHIBIT 13.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTATNS ON ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information relating to directors and executive officers of the
Company and Section 16(a) beneficial ownership reporting compliance is
incorporated by reference herein from the Company's proxy statement in
connection with its Annual Meeting of Stockholders to be held May 2, 2000, which
proxy statement will be filed with the Securities and Exchange Commission no
later than 120 days after the close of the fiscal year.
ITEM 11 EXECUTIVE COMPENSATION
Certain information relating to directors and executive officers
compensation, the Compensation Committee Report on Executive Compensation, and
stock performance is incorporated by reference herein from the Company's
definitive proxy statement in connection with its Annual Meeting of Stockholders
to be held on May 2, 2000, which proxy statement will be filed with the
Securities and Exchange Commission no later than 120 days after the close of the
fiscal year.
ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Certain Information relating to security ownership of certain directors, 5%
beneficial owners and management is incorporated by reference herein from the
Company's definitive proxy statement in connection with its Annual Meeting of
Stockholders to be held on May 2, 2000, which proxy statement will be filed with
the Securities and Exchange Commission not later than 120 days after the close
of the fiscal year.
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain information relating certain relationships and related transactions
is incorporated by reference herein from the Company's definitive proxy
statement in connection with its Annual Meeting of Stockholders to be held May
2, 2000, which proxy statement will be filed with the Securities and Exchange
Commission no later than 120 days after the close of the fiscal year.
PART IV
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1), (2) FINANCIAL STATEMENTS
Independent Auditors' Report
Consolidated Statements of Financial Condition as of December 31, 1999
and 1998
Consolidated Statements of Operations as of December 31, 1999, 1998
and 1997
Consolidated Statements of Stockholders' Equity as of December 31,
1999, 1998 and 1997
Consolidated Statements of Cash flows as of December 31, 1999, 1998
and 1997
Notes to Consolidated Financial Statements as of December 31, 1999,
1998 and 1997
(a)(3) Exhibits Required to be Filed by Item 601 of Regulation S-K
17
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
3.1 Amended and Restated Articles of Incorporation of First Mariner Bancorp (Incorporated by
reference to Exhibit 3.1 of the Registrant's Registration Statement on Form SB-2, as amended,
file no. 333-16011 (the "1996 Registration Statement"))
3.2 Amended and Restated Bylaws of First Mariner Bancorp (Incorporated by reference to Exhibit 3.2
of the 1996 Registration Statement)
10.1 1996 Stock Option Plan of First Mariner Bancorp (Incorporated by reference to Exhibit 10.1 of
the Registration Statement)
10.2 Employment Agreement dated May 1, 1995 between First Mariner Bancorp and First Mariner Bank
and George H. Mantakos (Incorporated by reference to Exhibit 10.2 of the 1996 Registration
Statement)
10.3 Lease Agreement dated March 1, 1996 between First Mariner Bank and Mars Super Markets, Inc.
(Incorporated by reference to Exhibit 10.3 of the 1996 Registration Statement)
10.4 Lease Agreement dated November 1, 1997 between Edwin F. Hale, Sr. and First Mariner Bank
(Incorporated by reference to Exhibit 10.4 of Pre-Effective Amendment Number 1 to Form S-1,
file no. 333-53789-01)
10.5 1998 Stock Option Plan of First Mariner Bancorp (Incorporated by reference to Exhibit 10.5 of
Pre-Effective Amendment Number 1 to Form S-1, file no. 333-53789-01)
10.6 Employee Stock Purchase Plan of First Mariner Bancorp (Incorporated by reference to Exhibit
10.6 of Pre-Effective Amendment Number 1 to Form S-1, file no. 333-53789-01)
10.7 Lease Agreement dated as of June 1, 1998 between Building #2, L.L.C. and First Mariner Bank
(Incorporated by reference to Exhibit 10.7 of Pre-Effective Amendment Number 1 to Form S-1,
file no. 333-53789-01)
13 1999 Annual Report of Stockholders filed herewith
21 Subsidiaries of Registrant filed herewith
22 Consent of KPMG LLP filed herewith
27 Financial Data Schedule for the 12 Months Ended December 31, 1999, filed electronically
herewith.
99 Risk Factors filed herewith.
</TABLE>
(b) Reports on Form 8-K
None
(c) Exhibits required by Item 601 of Regulation S-K
See the Exhibits described in Item 14(a) (3) above.
18
<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: 3/29/2000 By: /s/ Edwin F. Hale Sr.
----------- --------------------------------------
Edwin F. Hale Sr.
Chairman and Chief Executive Officer
Date: 3/29/2000 By: /s/Joseph A. Cicero
----------- --------------------------------------
Joseph A. Cicero
President & Chief Operating Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant in
their capacities as Director on the 31 day of March, 2000
/s/ /s/
- ---------------------------- ----------------------------------
Bondroff, Barry B. Lynch, Michael J.
/s/ /s/
- ---------------------------- ----------------------------------
Brown, Edith B. Mantakos, George H.
/s/ /s/
- ---------------------------- ----------------------------------
Cernack, Rose M. Matricciani, Jay J.
/s/ /s/
- ---------------------------- ----------------------------------
Cicero, Joseph A. O'Conor, James P.
/s/ /s/
- ---------------------------- ----------------------------------
D'Anna, Christopher P. Oliver, John J. Jr.
/s/ /s/
- ---------------------------- ----------------------------------
Friedman, Howard Schmoke, Patricia
/s/ /s/
- ---------------------------- ----------------------------------
Hale, Edwin F. Sr. Sibel, Hanan Y.
/s/ /s/
- ---------------------------- ----------------------------------
Hoffman, Bruce H. Stoler, Leonard
/s/ /s/
- ---------------------------- ----------------------------------
Kabik, Melvin S. Watson, Michael R.
19
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
The principal objective of this financial review is to provide a discussion
and an overview of the financial condition and results of operations of the
First Mariner Bancorp and its subsidiaries for the years ended December 31,
1999, 1998 and 1997. This discussion should be read in conjunction with the
accompanying financial statements and related notes as well as statistical
information included in the report.
First Mariner Bancorp ("The Company") through its wholly owned subsidiary,
First Mariner Bank ("the Bank"), offers consumer and commercial banking services
throughout central Maryland. The Bank offers mortgage lending services through
its wholly-owned subsidiary, First Mariner Mortgage Corporation ("FMMC").
OVERVIEW
The Company is a bank holding company incorporated under the laws of
Maryland and registered under the Bank Holding Company Act of 1956, as amended.
The Company was organized in 1994 and changed its name to First Mariner Bancorp
in May 1995. Since 1995, management has implemented a strategy of building a
branch network in its core market area. This strategy is intended to position
the Bank to optimize the opportunities that management believes have been
created by dislocations caused by the widespread consolidations among local
banks with large out-of-state acquirers.
The Company recorded a pre-tax income of $1,387,000 for 1999 a 767% increase
over the $160,000 for 1998 and net income of $877,000 for 1999 compared to
$1,123,000 for 1998. The 1998 results included an income tax benefit of
$963,000. The 1999 result continues to reflect the cost of the Company's
expansion strategy as the Bank has grown to twenty-four retail banking branches
and ten residential mortgage lending offices. Basic net income per share for the
year ended December 31, 1999 was $0.28 per share.
NET INTEREST INCOME/MARGINS - The primary source of earnings for the Company
is net interest income, which is the difference between income earned on
interest-earning assets, such as loans and investment securities, and interest
expense incurred on the interest-bearing sources of funds, such as deposits and
borrowings. The level of net interest income is determined primarily by the
average balances ("volume") and the rate spreads between the interest-earning
assets and the Company's funding sources.
Net interest income increased to $17,651,000 for 1999, a 46.8% increase from
the net interest income of $12,022,000 earned for 1998. Earning assets averaged
$522,491,000 for 1999, a 60.1% increase as compared to $326,261,000 for 1998.
The increase in net interest income was due to the growth of the loan and
investment portfolios. Average loans increased by 58.8% to $317,237,000 and
average investments and interest bearing deposits increased by 69.5% to
$197,883,000. The increase in loans reflects the Company's expansion of its
commercial and real estate lending activities among middle market borrowers in
the Baltimore-Washington area, the growth of the Bank's mortgage banking
subsidiary, FMMC, and the increase emphasis on consumer lending. The increase in
investments was primarily the result of the Bank's adoption of a leverage
strategy after issuing $21.45 million of Trust Preferred securities in mid 1998.
This strategy consisted of increasing the Bank's investment portfolio,
especially mortgage backed securities which were funded primarily with long term
borrowings and FHLB advances. This asset growth was funded by an increase in
average deposits of $95,446,000 or 42.7% and an 114.7% increase in average
borrowings or $108,827,000. The increase in deposits was due to the aggressive
expansion of the Company's retail banking network to twenty-four branches and
the introduction of new checking, money market and certificate of deposit
products.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
The increase in borrowings was primarily to fund the Bank's leverage strategy
and the increase in the investment portfolio.
Interest income on loans increased to $26,719,000 for 1999 which represents
an increase of $8,554,000 or 47.1% from $18,165,000 for 1998. Interest income on
investments increased to $13,754,000 for 1999 which represents an increase of
$5,598,000 or 68.6% from $8,156,000. Interest expense on deposits increased to
$11,797,000 in 1999, an increase of $2,716,000 or 29.9% from $9,081,000 for
1998. Interest expense on borrowings increased to $11,025,000 for 1999, an
increase of $5,807,000 or 111.3% from $5,218,000 for 1998.
Despite a lower interest rate spread (which is the difference between the
yield on earning assets and the cost of interest-bearing liabilities), which
decreased from 3.10% in 1998 to 2.96% in 1999, and net interest margin for the
Company, net interest income improved in 1999 due to the overall increase in
average earning assets.
The key performance measure for net interest income is the "net interest
margin", or net interest income divided by average earning assets. The Company's
net interest margin is affected by loan pricing, mix of earning assets, and the
distribution and pricing of deposits and borrowings. The Company's net interest
margin was 3.38% for the year ended December 31, 1999 as compared to 3.68% for
1998. The net margin decreased primarily due to increased borrowings and
investments by the Company as it continued its implementation of its leverage
strategy. These investments and borrowings have a lower spread than the loan and
deposit portfolios. The net margin also decreased due to a decrease in average
loans as a percentage of total average earning assets from 61.2% in 1998 to
60.7% in 1999.
Table 1: "Comparative Average Balances-Yields and Rates" indicates the
Company's average volume of interest-earning assets and interest-bearing
liabilities and average yields and rates. Changes in net interest income from
period to period result from increases or decreases in the volume and mix of
interest-earning assets and interest-bearing liabilities, increases or decreases
in the average rates earned and paid on such assets and liabilities and the
availability of particular sources of funds, such as non-interest bearing
deposits.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
TABLE 1: COMPARATIVE AVERAGE BALANCES (1) YIELDS AND RATES
<TABLE>
<CAPTION>
1999 1998
------------------------------ ------------------------------
<S> <C> <C> <C> <C> <C> <C>
AVERAGE INCOME/ YIELD/ AVERAGE INCOME/ YIELD/
(DOLLARS IN THOUSANDS) BALANCE EXPENSE RATE BALANCE EXPENSE RATE
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets:
Loans (net of unearned income) (1) $317,237 $ 26,719 8.42% $199,761 $18,165 9.09%
Mortgage-backed securities available for
sale 161,098 10,782 6.69% 91,762 6,089 6.64%
Interest-bearing bank balances 9,586 477 4.98% 9,513 471 4.95%
Treasury notes and agencies 6,205 392 6.32% 7,836 468 5.97%
Trust preferred securities 20,994 1,722 8.20% 7,626 644 8.44%
Other earning assets 7,371 381 5.17% 9,763 484 4.96%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Total earning assets 522,491 40,473 7.75% 326,261 26,321 8.07%
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Allowance for loan losses ) (3,067 ) (1,923
<S> <C> <C> <C> <C> <C> <C>
Other assets 34,871 23,346
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Total assets $554,295 $347,684
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Liabilities and stockholders' equity:
<S> <C> <C> <C> <C> <C> <C>
Deposits:
Passbook/Savings $ 19,140 529 2.78% $ 10,427 281 2.69%
NOW/MMDA 129,885 4,828 3.72% 96,297 3,993 4.15%
Certificates 123,228 6,440 5.23% 85,895 4,807 5.60%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 272,253 11,797 4.33% 192,619 9,081 4.71%
<S> <C> <C> <C> <C> <C> <C>
Other borrowed funds 203,709 11,025 5.41% 94,882 5,218 5.50%
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 475,962 22,822 4.79% 287,501 14,299 4.97%
<S> <C> <C> <C> <C> <C> <C>
Noninterest-bearing demand deposits 46,473 30,661
Other liabilities 5,323 1,915
Stockholders' equity 26,537 27,607
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $554,295 $347,684
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Interest rate spread 2.96% 3.10%
<S> <C> <C> <C> <C> <C> <C>
(Average yield less average rate)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Net interest income $ 17,651 $ 12,022
<S> <C> <C> <C> <C> <C> <C>
(Interest income less interest expense)
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
Net Interest Margin 3.38% 3.68%
<S> <C> <C> <C> <C> <C> <C>
(Net interest income/total earning
assets)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1997
------------------------------
AVERAGE INCOME/ YIELD/
(DOLLARS IN THOUSANDS) BALANCE EXPENSE RATE
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans (net of unearned income) (1) $124,794 $11,954 9.58%
Mortgage-backed securities available for sale 7,527 521 6.92%
Interest-bearing bank balances 21,137 1,212 5.73%
Treasury notes and agencies held to maturity 8,704 535 6.15%
Trust preferred securities - - -
Other earning assets 2,150 96 4.47%
<S> <C> <C> <C>
<S> <C> <C> <C>
<CAPTION>
- --------------------------------------------------------------------------------------------
Allowance for loan losses ) (1,441
<S> <C> <C> <C>
Other assets 13,412
<CAPTION>
- --------------------------------------------------------------------------------------------
Total assets $176,283
<S> <C> <C> <C>
<CAPTION>
- --------------------------------------------------------------------------------------------
Liabilities and stockholders' equity:
<S> <C> <C> <C>
Deposits:
Passbook/Savings $ 7,194 195 2.71%
NOW/MMDA 35,242 1,311 3.72%
Certificates 82,552 4,636 5.62%
<CAPTION>
- --------------------------------------------------------------------------------------------
Total interest-bearing deposits 124,988 6,142 4.91%
<S> <C> <C> <C>
Other borrowed funds 7,071 423 5.98%
<CAPTION>
- --------------------------------------------------------------------------------------------
Total interest-bearing liabilities 132,059 6,565 4.97%
<S> <C> <C> <C>
Noninterest-bearing demand deposits 16,374
Other liabilities 1,533
Stockholders' equity 26,317
<CAPTION>
- --------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $176,283
<S> <C> <C> <C>
<CAPTION>
- --------------------------------------------------------------------------------------------
Interest rate spread 3.74%
<S> <C> <C> <C>
(Average yield less average rate)
<CAPTION>
- --------------------------------------------------------------------------------------------
Net interest income $ 7,753
<S> <C> <C> <C>
(Interest income less interest expense)
<CAPTION>
- --------------------------------------------------------------------------------------------
Net Interest Margin 4.72%
<S> <C> <C> <C>
(Net interest income/total earning assets)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
COMPARED TO
YEAR ENDED DECEMBER 31, 1998
-----------------------------------
VARIANCE
DUE TO CHANGES IN
---------------------- NET
AVERAGE AVERAGE INCREASE/
(DOLLARS IN THOUSANDS) VOLUME RATE (DECREASE)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans (net of unearned income) $9,980 $(1,426) $8,554
Mortgage-backed securities available for sale 4,647 46 4,693
Interest-bearing bank balances 3 3 6
Treasury notes and agencies held to maturity (102) 26 (76)
Trust preferred securities 1,097 (19) 1,078
Other earning assets (123) 20 (103)
Total interest income 15,502 (1,350) 14,152
Interest Expense:
Passbook 241 7 248
NOW/MMDA 1,282 (447) 835
Certificates 1,969 (336) 1,633
Other borrowed funds 5,894 (87) 5,807
Total interest expense 9,386 (863) 8,523
<S> <C> <C> <C>
<S> <C> <C> <C>
<S> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
Loans (net of unearned income) $6,817 $ (606) $6,211
<CAPTION>
Interest Income:
COMPARED TO
YEAR ENDED DECEMBER 31, 1997
-----------------------------------
VARIANCE
DUE TO CHANGES IN
----------------------
NET
AVERAGE AVERAGE INCREASE/
(DOLLARS IN THOUSANDS) VOLUME RATE (DECREASE)
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Mortgage-backed securities available for sale 5,590 (22) 5,568
Interest-bearing bank balances (576) (165) (741)
Treasury notes and agencies held to maturity (52) (15) (67)
Trust preferred securities 644 - 644
Other earning assets 377 11 388
Total interest income(1) 13,065 (1,062) 12,003
Interest Expense:
Passbook 87 (1) 86
NOW/MMDA 2,532 150 2,682
Certificates 187 (16) 171
Other borrowed funds and escrow 4,829 (34) 4,795
Total interest expense(1) 7,731 3 7,734
<CAPTION>
- ----------------------------------------------------------------------------------------------
Change in net interest income(1) $ 5,334 ) (1,065 $ 4,269
<S> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service fees on deposits 3,696 2,454 865
Other operating income 1,420 959 577
Gain on securities 241 738 479
<S> <C> <C> <C>
<S> <C> <C> <C>
<S> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
Net occupancy 2,939 1,856 1,269
<CAPTION>
Salaries and employee benefits $ 11,458 $ 7,632 $ 4,371
------------------------------
1999 1998 1997
(DOLLARS IN THOUSANDS) AMOUNT AMOUNT AMOUNT
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deposit insurance premiums 167 122 77
Furniture, fixtures and equipment 1,271 790 361
Professional services 328 605 380
Advertising 1,028 683 574
Data processing 1,332 884 533
Cost of ATM Network 601 427 241
Office supplies 345 255 149
Service & maintenance 649 418 190
OREO expense 25 157 -
Other 2,600 2,416 1,314
<CAPTION>
- --------------------------------------------------------------------------------------------
Total noninterest expense $ 22,743 $ 16,245 $ 9,459
<S> <C> <C> <C>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
INCOME TAXES
In 1999 the Company recorded tax expense of $510,000 at an effective tax
rate of 36.8%. In 1998 the Company recorded an income tax benefit of $963,000.
In assessing the realizability of the deferred tax asset in 1998, management
determined that the valuation allowance was no longer necessary. Management
believes that all of the deferred tax asset will be realized based on expected
future taxable income.
The amount of the net operating loss carryforward for federal and state
income tax purposes at December 31, 1999 approximates $416,000 and $2,318,000,
respectively. As a result of ownership changes in 1997 and 1996, utilization of
a portion of the net operating loss carryforward is subject to an annual
limitation.
FINANCIAL CONDITION
At December 31, 1999, the Company's total assets were $616,072,000 as
compared to $497,487,000 at December 31, 1998, an increase of 23.8%. This
increase was primarily due to the continued growth in the branching network,
marketing of deposit and loan products and the leverage strategy which increased
investments and borrowings. The Bank's overall asset size and customer base,
both individual and commercial, increased significantly during 1998 and this
growth continued through 1999.
Loans at December 31, 1999 were $329,528,000 as compared to $242,725,000 on
December 31, 1998, which represents an increase of $86,803,000 or 35.8%. The
increase was in commercial real estate, residential real estate, commercial and
consumer lending.
Total deposits have increased by $106,440,000 for 1999 or of 40.6% from
$262,311,000 at December 31, 1998. Total investments including interest bearing
deposits increased by $15,796,000 for 1999 to $216,241,000 compared to
$200,445,000 at December 31, 1998. This increase was primarily in mortgage
backed securities as a result of a leverage strategy adopted to utilize the
capital acquired through the issuance of $21.45 million of Trust Preferred
securities in mid 1998. These investments were funded primarily by the increases
in short and long term borrowings, repurchase agreements and FHLB advances which
increased $5,760,000 to $186,924,000 at December 31, 1999 compared to
$181,164,000 at year end, 1998.
COMPOSITION OF LOAN PORTFOLIO
Because loans are expected to produce higher yields than investment
securities and other interest-earning assets, the absolute volume of loans and
the volume as a percentage of total earning assets is an important determinant
of net interest margin.
Loans held for sale increased $4,978,000 at December 31, 1999 from
$21,321,000 at December 31, 1998, reflecting the growth of mortgage banking
activity in the Bank's mortgage banking subsidiary, First Mariner Mortgage
Corporation. First Mariner Mortgage Corporation sold approximately $226,000,000
of residential mortgages during the year ended December 31, 1999. In addition,
$14,337,000 of residential mortgages were classified as held for sale by the
Bank at December 31, 1999.
During 1999 average loans were $317,237,000 and constituted 60.7% of average
earning assets and 57.2% of average total assets for the same period. This
average loan balance represents an increase of $117,476,000 or 58.8% over 1999.
During the year ended December 31, 1998, average loans were $199,761,000 and
constituted 61.2% of average earning assets and 57.5% of average total assets.
At December 31, 1999 the loan to deposit ratio was 89.4% compared to 92.5% as of
December 31, 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
The Bank's loan portfolio composition as of December 31, 1999 reflects a
concentration in commercial real estate and construction loans. The following
table sets forth the composition of the Bank's loan portfolio.
TABLE 5: LOAN PORTFOLIO COMPOSITION
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------
(DOLLARS IN THOUSANDS) 1998 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------
AMOUNT AMOUNT AMOUNT AMOUNT AMOUNT
<S> <C> <C> <C> <C> <C>
Type of Loans
Commercial $ 67,917 $ 55,792 $ 24,119 $17,097 $ 869
Commercial real estate and construction
(1) 141,169 103,439 81,039 55,888 11,475
Residential real estate 85,874 63,330 34,396 17,140 16,216
Consumer 35,101 20,418 4,992 2,566 1,451
<CAPTION>
- -----------------------------------------------------------------------------------------------
Total loans 330,061 242,979 144,546 92,691 30,011
<S> <C> <C> <C> <C> <C>
Add:
Unamortized loan premiums 47 108 140 205 284
Less:
Unearned income 580 362 614 833 360
<CAPTION>
- -----------------------------------------------------------------------------------------------
Loans receivable $329,528 $242,725 $144,072 $ 92,063 $ 29,935
<S> <C> <C> <C> <C> <C>
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
TABLE 6: MATURITY SCHEDULE OF SELECTED LOANS
<TABLE>
<CAPTION>
DECEMBER 31, 1999
------------------------------------------------------
MORE
UP TO THAN 5 YEARS
ONE 1 YEAR TO 10 +
(DOLLARS IN THOUSANDS) YEAR TO 5 YEARS 10 YEARS YEARS TOTAL
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential real estate $ 443 $ 3,359 $ 9,819 $72,253 $ 85,874
Commercial real estate
and construction 47,626 86,657 6,886 - 141,169
Commercial 21,119 45,725 1,073 - 67,917
Consumer 948 21,467 12,686 - 35,101
- ------------------------------------------------------------------------------------------------------
Total $70,136 $157,208 $30,464 $72,253 $330,061
- ------------------------------------------------------------------------------------------------------
Fixed interest rate $52,618 $121,134 $27,698 $27,322 $228,772
Variable interest rate 17,518 36,074 2,766 44,931 101,289
- ------------------------------------------------------------------------------------------------------
Total $70,136 $157,208 $30,464 $72,253 $330,061
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1998
------------------------------------------------------
MORE
UP TO THAN 5 YEARS
ONE 1 YEAR TO 10 +
(DOLLARS IN THOUSANDS) YEAR TO 5 YEARS 10 YEARS YEARS TOTAL
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential real estate $ 1,055 $ 3,256 $ 769 $58,250 $ 63,330
Commercial real estate
and construction 57,779 26,742 15,069 3,849 103,439
Commercial 18,202 24,056 11,398 2,136 55,792
Consumer 1,081 4,302 10,668 4,367 20,418
- ------------------------------------------------------------------------------------------------------
Total $78,117 $58,356 $37,904 $68,602 $242,979
- ------------------------------------------------------------------------------------------------------
Fixed interest rate $29,853 $52,695 $22,480 $39,332 $144,360
Variable interest rate 48,264 5,661 15,424 29,270 98,619
- ------------------------------------------------------------------------------------------------------
Total $78,117 $58,356 $37,904 $68,602 $242,979
- ------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1997
------------------------------------------------------
MORE
UP TO THAN 5 YEARS
ONE 1 YEAR TO 10 +
(DOLLARS IN THOUSANDS) YEAR TO 5 YEARS 10 YEARS YEARS TOTAL
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Residential real estate $ 2,568 $ 2,008 $ 1,811 $28,009 $ 34,396
Commercial real estate
and construction 41,499 25,658 12,628 1,254 81,039
Commercial 9,111 8,303 6,303 402 24,119
Consumer 696 970 3,254 72 4,992
- ------------------------------------------------------------------------------------------------------
Total $53,874 $36,939 $23,996 $29,737 $144,546
- ------------------------------------------------------------------------------------------------------
Fixed interest rate $ 9,633 $26,984 $14,711 $11,942 $ 63,270
Variable interest rate 44,241 9,955 9,285 17,795 81,276
- ------------------------------------------------------------------------------------------------------
Total $53,874 $36,939 $23,996 $29,737 $144,546
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
LOAN QUALITY
The Bank attempts to manage the risk characteristics of its loan portfolio
through various control processes, such as credit evaluation of borrowers,
establishment of lending limits and application of lending procedures, including
the holding of adequate collateral and the maintenance of compensating balances.
However, the Bank seeks to rely primarily on the cash flow of its borrowers' as
the principal source of repayment. Although credit policies are designed to
minimize risk, management recognizes that loan losses will occur and the amount
of these losses will fluctuate depending on the risk characteristics of the loan
portfolio as well as general and regional economic conditions.
The allowance for loan losses represents a reserve for potential losses in
the loan portfolio. The adequacy of the allowance for loan loss is evaluated
periodically based on a review of all significant loans, with a particular
emphasis on nonaccruing, past due and other loans that management believes
require special attention.
For significant problem loans, management's review consists of evaluation of
the financial strengths of the borrower and the guarantor, the related
collateral, and the effects of economic conditions. Specific reserves against
the remaining loan portfolio are based on analysis of historical loan loss
ratios, loan chargeoffs, delinquency trends, previous collection experience, and
the risk rating on each individual loan along with an assessment of the effects
of external economic conditions. Table 8: "Allowance for Loan Loss Allocation,"
which is set forth below, indicates the specific reserves allocated by loan type
and also the general reserves included in the allowance for loan losses.
As of December 31, 1999 the Company had approximately $4,229,000 in
nonaccrual loans as compared with $1,520,000 at December 31, 1998. The Company
held other real estate owned of $1,360,000 at December 31, 1999 compared to
$1,633,000 at December 31, 1998.
The provision for loan losses is a charge to earnings in the current period
to maintain the allowance at a level management has determined to be adequate
based upon factors noted above. The Company provided $785,000 for loan losses
for the year ended December 31, 1999, as compared to $1,212,000 for the year
ended December 31, 1998.
As of December 31, 1999 the allowance for loan losses was $3,322,000, as
compared with the December 31, 1998 balance of $2,676,000, an increase of
$646,000 or 24.1%. Net charge-offs of $139,000 and $150,000 were recognized for
1999 and 1998, respectively. The growth in the reserve was warranted by the
growth and risk profile in the loan portfolio. The allowance for loan losses at
December 31, 1999 represented 1.01% of outstanding loans as compared with 1.10%
as of December 31, 1998. The decrease in the percentage was based on management
evaluation of the loan portfolio as of December 31, 1999 including the addition
of residential real estate and consumer loans which traditionally require a
lower allowance for loan losses. Residential real estate and consumer loans
represent 36.7% of the loan portfolio at year end 1999 versus 34.5% in 1998.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
The following table summarizes the allowance activities.
TABLE 7: ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997 1996 1995
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses, beginning of
year $ 2,676 $ 1,614 $ 1,242 $ 376 $ 245
<CAPTION>
- -----------------------------------------------------------------------------------------------
Loans charged off:
<S> <C> <C> <C> <C> <C>
Commercial - (88) - (157) (9)
Real estate - (70) (100) (49) (47)
Consumer (142) (23) - (42) (4)
<S> <C> <C> <C> <C> <C>
<S> <C> <C> <C> <C> <C>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Recoveries
<S> <C> <C> <C> <C> <C>
Commercial - 9 - 63 -
Real estate - 17 - - -
Consumer 3 5 - 11 1
<S> <C> <C> <C> <C> <C>
<S> <C> <C> <C> <C> <C>
<S> <C> <C> <C> <C> <C>
<S> <C> <C> <C> <C> <C>
<S> <C> <C> <C> <C> <C>
<CAPTION>
- -----------------------------------------------------------------------------------------------
Loans (net of premiums and discounts)
<S> <C> <C> <C> <C> <C>
Period-end balance 329,528 242,725 144,072 92,064 29,935
Average balance during period 301,108 188,156 124,794 64,705 22,699
Allowance as percentage of period-end
loan balance 1.01% 1.10% 1.12% 1.35% 1.26%
Percent of average loans:
Provision for loan losses 0.26% 0.64% 0.38% 1.61% 0.84%
Net chargeoffs 0.05% 0.08% 0.08% 0.27% 0.26%
</TABLE>
Management's judgment as to the level of future losses on existing loans is
based on management's internal review of the loan portfolio, including an
analysis of the borrowers' current financial position, the consideration of
current and anticipated economic conditions and their potential effects on
specific borrowers. In determining the collectibility of certain loans,
management also considers the fair value of any underlying collateral. However,
management's determination of the appropriate allowance level is based upon a
number of assumptions about future events, which are believed to be reasonable,
but which may or may not prove valid. Thus, there can be no assurance that
charge-offs in future period will not exceed the allowance for loan losses or
that additional increases in the allowance for loan losses will not be required.
The following table summarizes the allocation of allowance by loan type.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
TABLE 8: ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
----------------------------------- ----------------------------------- -----------------------------------
PERCENT PERCENT OF PERCENT PERCENT OF PERCENT PERCENT OF
OF LOANS TO OF LOANS TO OF LOANS TO
AMOUNT TOTAL TOTAL LOANS AMOUNT TOTAL TOTAL LOANS AMOUNT TOTAL TOTAL LOANS
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Real estate $ 1,442 43.4% 68.7% $ 1,073 40.1% 68.6% $ 918 56.9% 79.8%
Commercial 1,210 36.4% 20.6% 622 23.3% 23.0% 205 12.7% 16.7%
Consumer 124 3.7% 10.7% 68 2.5% 8.4% 14 0.8% 3.5%
Unallocated 546 16.5% - 913 34.1% - 477 29.6% -
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Total $ 3,322 100.0% 100.0% $ 2,676 100.0% 100.0% $ 1,614 100.0% 100.0%
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996 DECEMBER 31, 1995
----------------------------------- -----------------------------------
PERCENT PERCENT OF PERCENT PERCENT OF
OF LOANS TO OF LOANS TO
AMOUNT TOTAL TOTAL LOANS AMOUNT TOTAL TOTAL LOANS
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Real estate $ 793 63.9% 78.8% $ 92 24.5% 92.3%
Commercial 75 6.1% 18.4% 44 11.7% 2.9%
Consumer 9 0.7% 2.8% 28 7.5% 4.8%
Unallocated 365 29.3% - 212 56.3% -
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total $ 1,242 100.0% 100.0% $ 376 100.0% 100.0%
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
As a result of management's ongoing review of the loan portfolio, loans are
classified as non-accrual even though the presence of collateral or the
borrowers financial strength may be sufficient to provide for ultimate
repayment. Interest on non-accrual loans is recognized only when received.
TABLE 9: NONPERFORMING ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS) 1999 1998 1997
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans on nonaccrual basis $ 4,229 $ 1,520 $ 1,550
Real estate acquired by foreclosure 1,360 1,633 1,944
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total non-performing assets $ 5,589 $ 3,153 $ 3,494
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Loans past-due 90 days or more and accruing $ 2,062 $ 126 $ 276
</TABLE>
Nonperforming assets, expressed as a percentage of total assets, increased
to 0.91% at December 31, 1999 from 0.63% at December 31, 1998, reflecting the
increase in nonaccrual loans. Nonaccrual loans were $4,229,000 at December 31,
1999 compared to $1,520,000 at December 31, 1998. At December 31, 1999, the
allowance for loan losses represented 78.6% of nonaccruing loans compared to
176.1% at December 31, 1998. Management believes the allowance for loan losses
is adequate.
At December 31, 1999, impaired loans which are included in nonaccrual loans
amounted to $3,638,000. These impaired loans are classified as collateral
dependent and, accordingly are recorded at the lower of cost or fair value of
the collateral. The real estate acquired by foreclosure consists of a land
development project consisting of 213 residential building lots with a carrying
value of approximately $982,000. The land development project is being completed
under the direction of the Company. Currently, 96 lots are under contract, for
settlement through May 2002. In addition, six single family lots with a carrying
value of $269,000 and four single family units with a carrying value of $109,000
were also include in other real estate owned. Loans past due 90 days or more and
accruing consist predominantly of residential first mortgage loans which are in
the process of collection.
CAPITAL RESOURCES
Stockholders' equity was $21,863,000 as of December 31, 1999 as compared to
$28,488,000 as of December 31, 1998. The decrease of $6,625,000 was primarily
the result of the change in accumulated other comprehensive loss of $7,312,000
offset by the 1999 income of $877,000. Cash dividends of six cents per share
were declared and paid in 1999. The change in accumulated other comprehensive
loss reflects the decrease in value of the available for sale securities. As
rates have risen during 1999 the long term fixed rate nature of these securities
has resulted in a decline in market valuation.
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
"deemed" credit risks will require more capital support than assets with lower
risk. Additionally, capital must be maintained to support certain off-balance
sheet instruments.
To date, the Company has provided its capital requirements mainly through
the funds received from its stock offerings. In the future, the Company may
consider raising capital from time to time through an offering of common stock
or other securities. As reflected in Table 10 "Capital Ratios", the Bank
exceeded its capital adequacy requirements as of December 31, 1999 and 1998 and
meets the
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
requirement for "well capitalized" under Federal Banking Regulation. The Company
continually monitors its capital adequacy ratios to assure that the Bank exceeds
regulatory capital requirements.
Capital is classified as Tier 1 (common stockholders' equity less certain
intangible assets plus a portion of the trust preferred securities) and Total
Capital (Tier 1 plus the allowed portion of the allowance for loan losses and
the portion of trust preferred securities not included in Tier 1 capital).
Minimum required levels must at least equal 4% for Tier 1 capital and 8% for
Total Capital. In addition, institutions must maintain a minimum of 4% leverage
capital ratio (Tier 1 capital to average total assets for the previous quarter).
The Bank's capital position is presented in the following Table:
TABLE 10: CAPITAL RATIOS
<TABLE>
<CAPTION>
MINIMUM TO BE WELL
DECEMBER 31, REQUIREMENTS CAPITALIZED UNDER
------------------------------------- FOR CAPITAL PROMPT CORRECTIVE
1999 1998 1997 ADEQUACY PURPOSES ACTION PROVISION
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
Total capital to risk weighted
assets 12.1% 13.1% 12.0% 8.0% 10.0%
Tier 1 capital to risk
weighted assets 11.2% 12.2% 11.1% 4.0% 6.0%
Tier 1 capital leverage ratio 6.6% 7.2% 10.2% 4.0% 5.0%
</TABLE>
LIQUIDITY AND INTEREST RATE SENSITIVITY
The primary objective of asset/liability management is to ensure the steady
growth of the Company's primary earnings component, net interest income. Net
interest income can fluctuate with significant interest rate movements. To
lessen the impact of these rate swings, management endeavors to structure the
statement of financial condition so that repricing opportunities exist for both
assets and liabilities in roughly equivalent amounts at approximately the same
time intervals. Imbalances in these repricing opportunities at any point in time
constitute interest rate sensitivity.
The measurement of the Company's interest rate sensitivity, or "gap," is one
of the principal techniques used in asset/liability management. Interest
sensitive gap is the dollar difference between assets and liabilities which are
subject to interest-rate pricing within a given time period, including both
floating rate or adjustable rate instruments and instruments which are
approaching maturity.
The Company's management and the board of directors oversee the
asset/liability management function and meet periodically to monitor and manage
the statement of financial condition, control interest rate exposure, and
evaluate pricing strategies for the Company. The asset mix of the statement of
financial condition is continually evaluated in terms of several variables:
yield, credit quality, appropriate funding sources and liquidity. Management of
the liability mix of the statement of financial condition focuses on expanding
the various funding sources.
In theory, interest rate risk can be diminished by maintaining a nominal
level of interest rate sensitivity. In practice, this is made difficult by a
number of factors including cyclical variation in loan demand, different impacts
on interest-sensitive assets and liabilities when interest rates change, and the
availability of funding sources. Accordingly, the Company undertakes to manage
the interest-rate sensitivity gap by adjusting the maturity of and establishing
rates on the earning asset portfolio and certain interest-bearing liabilities
commensurate with management's expectations relative to market
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
interest rates. Management generally attempts to maintain a balance between
rate-sensitive assets and liabilities as the exposure period is lengthened to
minimize the overall interest rate risk to the Bank.
The interest rate sensitivity position as of December 31, 1999 is presented
in Table 11: "Rate Sensitivity Analysis." The difference between rate-sensitive
assets and rate-sensitive liabilities or the interest rate sensitivity gap, is
shown at the bottom of the table. As of December 31, 1999, the Company's
interest sensitive liabilities exceeded interest sensitive assets within a one
year period by $112.0 million. Assets and liabilities are scheduled based on
maturity or repricing data except for mortgage loans and mortgage backed
securities which are based on prevailing prepayments assumptions and core
deposits which are based on core deposit studies done for banks in the
Mid-Atlantic region. The Company would generally benefit from increasing market
rates of interest when it is asset sensitive and would benefit from decreasing
market rates of interest when it is liability sensitive. This suggests that if
interest rates should increase over this period, the net interest margin would
improve; and if interest rates should decrease, the net interest margin would
decline. Since all interest rates and yields do not adjust at the same velocity,
the gap is only a general indicator of interest rate sensitivity. The analysis
presents only a static view of the timing of maturities and repricing
opportunities, without taking into consideration the fact that changes in
interest rates do not affect all assets and liabilities equally. Net interest
income may be impacted by other significant factors in a given interest rate
environment including changes in the volume and mix of earning assets and
interest-bearing liabilities.
Cash flows from financing activities, which included funds received from new
and existing depositors, provided a large source of liquidity for the years
ended December 31, 1999 and 1998. The Bank seeks to rely primarily on core
deposits from customers to provide stable and cost-effective sources of funding
to support loan growth. The Bank also seeks to augment such deposits with longer
term and higher yielding certificates of deposit. CD's of $100,000 or more are
summarized by maturity in Table 12: "Maturity of Time Deposits $100,000 or
More". Other sources of funds available to the Bank include short-term and long
term borrowings, primarily in the form of Federal Home Loan Bank collateralized
borrowings and repurchase agreements.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
TABLE 11: RATE SENSITITIVITY ANALYSIS
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1999
--------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LONGER THAN
10 YEARS
180 DAYS 181 DAYS - ONE-FIVE FIVE-TEN OR NON-
(DOLLARS IN THOUSANDS) OR LESS ONE YEAR YEARS YEARS SENSITIVE TOTAL
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets:
Interest-bearing deposits $ 24,346 $ - $ - $ - $ - $ 24,346
Investment securities 15,714 7,851 52,819 48,942 66,569 191,895
Loans held for sale 26,299 - - - - 26,299
Loans 129,063 22,987 132,126 30,295 11,735 326,206
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total interest-earnings assets $ 195,422 $ 30,838 $ 184,945 $ 79,237 $ 78,304 $ 568,746
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing liabiltities:
Savings $ 1,049 $ 1,064 $ 9,057 $ 12,815 $ - $ 23,985
NOW accounts 1,261 1,268 10,443 13,828 - 26,800
Money market accounts 97,233 1,368 11,686 - 110,287
Certificates 32,265 20,798 104,867 14 - 157,944
Borrowings 134,411 47,513 26,450 - - 208,374
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Total interest-bearing liabilities $ 266,219 $ 72,011 $ 162,503 $ 26,657 $ - $ 527,390
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest rate sensitive gap $ (70,797) $ (41,173) $ 22,442 $ 52,580 $ 78,304 $ 41,356
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Cumulative interest rate gap $ (70,797) $(111,970) $ (89,528) $ (36,948) $ 41,356
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Ratio of rate sensitive assets to rate
sensitive liabilities 73% 43% 114% 297%
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
DEPOSITS
The Bank uses deposits as the primary source of funding of its loans. The
following table describes the maturity of time deposits of $100,000 or more at
the dates indicated.
TABLE 12: MATURITY OF TIME DEPOSITS $100,000 OR MORE
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS) 1999 1998 1997
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Under 3 months $ 4,600 $ 2,988 $ 6,774
3 to 6 months 6,261 4,508 8,046
6 to 12 months 5,870 2,840 4,170
Over 12 months 18,327 7,790 3,117
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total $ 35,058 $ 18,126 $ 22,107
<CAPTION>
- -------------------------------------------------------------------------------------------------------
</TABLE>
The Bank offers individuals and businesses a wide variety of accounts. These
accounts include checking, savings, money market and CD's and are obtained
primarily from communities which the Bank serves. The Bank holds no brokered
deposits. The following table details the average amount,
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
the average rate paid and the percentage of each category to total deposits for
the years ended December 31, 1999, 1998 and 1997.
TABLE 13: AVERAGE DEPOSIT COMPOSITION AND COST
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1999
---------------------------------
<S> <C> <C> <C>
AVERAGE AVERAGE PERCENT
(DOLLARS IN THOUSANDS) BALANCE RATE OF TOTAL
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NOW & money market deposits $ 129,885 3.72% 40.7%
Regular savings deposits 19,140 2.76% 6.0%
Time deposits 123,228 5.23% 38.7%
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total interest-bearing deposits 272,253 4.33% 85.4%
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Noninterest-bearing demand deposits 46,473 - 14.6%
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total deposits $ 318,726 3.70% 100.0%
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1998
---------------------------------
<S> <C> <C> <C>
AVERAGE AVERAGE PERCENT
BALANCE RATE OF TOTAL
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NOW & money market deposits $ 96,297 4.15% 43.1%
Regular savings deposits 10,427 2.69% 4.7%
Time deposits 85,895 5.60% 38.5%
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total interest-bearing deposits 192,619 4.71% 86.3%
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Noninterest-bearing demand deposits 30,661 - 13.7%
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total deposits $ 223,280 4.07% 100.0%
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1997
---------------------------------
<S> <C> <C> <C>
AVERAGE AVERAGE PERCENT
BALANCE RATE OF TOTAL
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NOW & money market deposits $ 35,242 3.72% 24.9%
Regular savings deposits 7,194 2.71% 5.1%
Time deposits 82,552 5.62% 58.4%
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total interest-bearing deposits 124,988 4.91% 88.4%
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Noninterest-bearing demand deposits 16,374 - 11.6%
<CAPTION>
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total deposits $ 141,362 4.64% 100.0%
<CAPTION>
- -------------------------------------------------------------------------------------------------------
</TABLE>
Total deposits as of December 31, 1999 were $368,751,000 compared to
$262,311,000 as of December 31, 1998, an increase of $106,440,000. While the
main source of the increase was money market and time deposits, other types of
deposits increased as well, including savings accounts, interest bearing demand
deposits, and non-interest bearing demand deposits. These increases reflect
management's growth strategy, which includes significant marketing and promotion
and the development of a branching network.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
INVESTMENT SECURITIES
The following table presents the composition of the Company's securities
portfolio as of December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------------------
<S> <C> <C> <C>
(DOLLARS IN THOUSANDS) 1999 1998 1997
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment securities--available for sale:
Mortgage-backed securities $ 163,734 $ 163,099 $ 24,255
Trust preferred securities 20,536 20,725 -
Agency bonds 4,836 - 6,433
Other bonds 350 100 -
Equity securities 2,439 3,773 2,164
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total investment securities--available-for-sale 191,895 187,697 32,852
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Investment securities--held to maturity:
U.S. Treasury securities - 5,502 8,502
Certificates of deposit - - 99
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total investment securities--held to maturity - 5,502 8,601
<CAPTION>
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Total investment securities $ 191,895 $ 193,199 $ 41,453
<CAPTION>
- -----------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
SHORT-TERM BORROWINGS
Short-term borrowings consist of short-term promissory notes issued to
certain qualified investors, short-term repurchase agreements and borrowings
from FHLB. The short-term promissory notes were in the form of commercial paper,
which repriced daily and had maturities of 270 days or less. Short-term
repurchase agreements were priced at origination and are payable in one year or
less. Short-term borrowings from FHLB outstanding during 1999 and 1998 had
maturities of one year or less and can be prepaid without penalty.
TABLE 16: SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
(DOLLARS IN THOUSANDS) 1999 1998 1997
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Amount outstanding at year-end:
FHLB Short-term advances $ 7,300 $19,700 $15,000
Short-term promissory notes 22,439 22,014 15,331
Short-term repurchase agreements 12,185 14,450 -
Weighted average interest rates at year-end:
FHLB Short-term advances 4.55% 4.95% 6.50%
Short-term promissory notes 4.01% 3.72% 4.83%
Short-term repurchase agreements 5.58% 5.62% -
Maximum outstanding at any month-end:
FHLB Short-term advances $32,300 $19,700 $15,000
Short-term promissory notes 29,705 32,030 15,461
Short-term repurchase agreements 22,958 14,450 -
Average outstanding:
FHLB Short-term advances $ 7,844 $ 4,615 $ 1,904
Short-term promissory notes 18,474 11,149 4,128
Short-term repurchase agreements 15,828 5,693 -
Weighted average interest rate during the year:
FHLB Short-term advances 5.61% 5.61% 6.05%
Short-term promissory notes 3.79% 3.96% 5.47%
Short-term repurchase agreements 5.60% 5.97% -
</TABLE>
<PAGE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
[LOGO]
The Board of Directors
First Mariner Bancorp:
We have audited the accompanying consolidated statements of financial
condition of First Mariner Bancorp and subsidiaries (the Company) as of
December 31, 1999 and 1998 and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three year period ended December 31, 1999. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First
Mariner Bancorp and subsidiaries as of December 31, 1999 and 1998, and the
results of their operations and their cash flows for each of the years in the
three year period ended December 31, 1999, in conformity with generally accepted
accounting principles.
[LOGO]
Baltimore, Maryland
January 28, 2000
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
<S> <C> <C>
1999 1998
<CAPTION>
- ------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
ASSETS
Cash and due from banks $ 19,490 17,193
Interest-bearing deposits 24,346 7,246
Available for sale securities, at fair value (notes 3 and 8) 191,895 187,697
Investment securities, fair value of $5,547 in 1998 (note 3) - 5,502
Loans held for sale 26,299 21,321
Loans receivable (notes 4 and 8) 329,528 242,725
Allowance for loan losses (note 4) (3,322) (2,676)
- ------------------------------------------------------------------------------------------
Loans, net 326,206 240,049
Other real estate owned (note 5) 1,360 1,633
Federal Home Loan Bank of Atlanta stock, at cost (notes 8
and 12) 4,365 3,235
Property and equipment, net (note 6) 10,300 7,530
Accrued interest receivable 3,312 2,655
Defered income taxes 5,781 1,189
Prepaid expenses and other assets 2,718 2,237
- ------------------------------------------------------------------------------------------
Total assets $616,072 497,487
- ------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits (note 7) $368,751 262,311
Borrowings (note 8) 109,739 86,714
Repurchase agreements (note 8) 77,185 94,450
Company-obligated manditorily redeemable preferred
securities of subsidiary trust holding solely debentures
of the Company (note 9) 21,450 21,450
Proceeds on loan sales received in advance 14,458 -
Accrued expenses and other liabilities 2,626 4,074
- ------------------------------------------------------------------------------------------
Total liabilities 594,209 468,999
- ------------------------------------------------------------------------------------------
Stockholders' equity (notes 9, 13 and 14):
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 (5,830) (6,517)
Accumulated other comprehensive income (6,859) 453
- ------------------------------------------------------------------------------------------
Total stockholders' equity 21,863 28,488
- ------------------------------------------------------------------------------------------
Commitments and contingencies (notes 5, 6 and 8)
- ------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $616,072 497,487
- ------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
------------------------------------
<S> <C> <C> <C>
1999 1998 1997
<CAPTION>
- -----------------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS, EXCEPT
PER SHARE DATA)
<S> <C> <C> <C>
Interest income:
Loans $26,719 18,165 11,954
Investments 13,754 8,156 2,364
- -----------------------------------------------------------------------------------------------------
Total interest income 40,473 26,321 14,318
- -----------------------------------------------------------------------------------------------------
Interest expense:
Deposits (note 7) 11,797 9,081 6,142
Borrowed funds and other (note 8) 11,025 5,218 423
- -----------------------------------------------------------------------------------------------------
Total interest expense 22,822 14,299 6,565
- -----------------------------------------------------------------------------------------------------
Net interest income 17,651 12,022 7,753
Provision for loan losses (note 4) 785 1,212 472
- -----------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 16,866 10,810 7,281
- -----------------------------------------------------------------------------------------------------
Noninterest income:
Gain on sale of loans 1,907 1,444 430
Service fees on deposits 3,696 2,454 865
Gain on securities, net 241 738 479
Other 1,420 959 577
- -----------------------------------------------------------------------------------------------------
Total noninterest income 7,264 5,595 2,351
- -----------------------------------------------------------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 11,458 7,632 4,371
Net occupancy 2,939 1,856 1,269
Deposit insurance premiums 167 122 77
Furniture, fixtures and equipment 1,271 790 361
Professional services 328 605 380
Advertising 1,028 683 574
Data processing 1,332 884 533
Other (note 12) 4,220 3,673 1,894
- -----------------------------------------------------------------------------------------------------
Total noninterest expenses 22,743 16,245 9,459
- -----------------------------------------------------------------------------------------------------
Income before income taxes 1,387 160 173
Income tax expense (benefit) (note 10) 510 (963) (192)
- -----------------------------------------------------------------------------------------------------
Net income $ 877 1,123 365
- -----------------------------------------------------------------------------------------------------
Net income per common share (note 1):
Basic $ 0.28 0.36 0.12
Diluted 0.26 0.32 0.10
- -----------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
NUMBER OF ACCUMULATED
SHARES OF ADDITIONAL OTHER TOTAL
COMMON COMMON PAID-IN ACCUMULATED COMPREHENSIVE STOCKHOLDERS'
STOCK STOCK CAPITAL DEFICIT INCOME EQUITY
<S> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance at
December 31, 1996 2,889,989 $145 31,645 (8,005) 11 23,796
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Common stock issued, net
<S> <C> <C> <C> <C> <C> <C>
of costs of issuance
and exercise of common
stock options and
warrants 246,730 12 2,475 - - 2,487
Net income - - - 365 - 365
Other comprehensive
income - - - - 318 318
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Balance at
<S> <C> <C> <C> <C> <C> <C>
December 31, 1997 3,136,719 157 34,120 (7,640) 329 26,966
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Exercise of common stock
<S> <C> <C> <C> <C> <C> <C>
options and warrants 30,094 1 274 - - 275
Net income - - - 1,123 - 1,123
Other comprehensive
income - - - - 124 124
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Balance at
<S> <C> <C> <C> <C> <C> <C>
December 31, 1998 3,166,813 158 34,394 (6,517) 453 28,488
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Net income - - - 877 - 877
<S> <C> <C> <C> <C> <C> <C>
Other comprehensive
income - - - - (7,312) (7,312)
Cash dividends - - - (190) - (190)
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Balance at
<S> <C> <C> <C> <C> <C> <C>
December 31, 1999 3,166,813 $158 34,394 (5,830) (6,859) 21,863
</TABLE>
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
1999 1998 1997
- ---------------------------------------------------------------------------------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 877 1,123 365
Adjustments to reconcile net income to net cash used by
operating activities:
Depreciation and amortization 1,555 1,237 542
Amortization of unearned loan fees, net (490) (636) (175)
Amortization of premiums on deposits - (11) (24)
Amortization of premiums on loans 40 53 22
Amortization of premiums and discounts on
mortgage-backed securities, net 269 (105) -
Gain on securities, net (241) (738) (479)
Loss on other real estate owned 21 157 -
Deferred income taxes 9 (1,075) (192)
Increase in accrued interest receivable (657) (1,221) (721)
Provision for loan losses 785 1,212 472
Net increase in mortgage loans held-for-sale (4,978) (4,426) (13,823)
Increase in proceeds on loan sales received in advance 14,458 - -
Net increase (decrease) in accrued expenses and other
liabilities (1,448) 1,349 1,735
Net (increase) decrease in prepaids and other assets (481) (1,930) 352
<CAPTION>
- ---------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 9,719 ) (5,011 )(11,926
<S> <C> <C> <C>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Cash flows from investing activities:
<S> <C> <C> <C>
Loan disbursements, net of principal repayments (86,592) (98,656) (53,554)
Purchases of property and equipment (4,325) (3,781) (2,646)
Purchases of Federal Home Loan Bank of Atlanta Stock (1,130) (1,836) (919)
Purchases of available for sale securities (56,937) (192,940) (43,383)
Sales of available for sale securities 12,727 16,374 5,044
Principal repayments on mortgage-backed securities 28,071 16,265 806
Maturities of available for sale securities - 6,500 -
Purchases of investment securities - - (7,492)
Maturities of investment securities 5,502 3,099 6,000
Construction disbursements--other real estate owned (471) (705) (345)
Sales of other real estate owned 823 1,296 -
<CAPTION>
- ---------------------------------------------------------------------------------------------
Net cash used in investing activities )(102,332 )254,384 )(96,489
<S> <C> <C> <C>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Cash flows from financing activities:
<S> <C> <C> <C>
Net increase in deposits $ 106,440 65,359 95,004
Net increase (decrease) in other borrowings (16,840) 101,133 15,331
Proceeds from advances from Federal Home Loan Bank of
Atlanta 142,500 66,700 9,000
Repayments of advances from Federal Home Loan Bank of
Atlanta (119,900) (17,000) -
Proceeds from trust preferred securities offering - 21,450 -
Proceeds of stock options and warrants exercised - 275 143
Proceeds from stock issuance, net - - 2,344
Cash dividends (190) - -
<CAPTION>
- ---------------------------------------------------------------------------------------------
Net cash provided by financing activities 112,010 237,917 121,822
<S> <C> <C> <C>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 19,397 )(21,478 13,407
<S> <C> <C> <C>
Cash and cash equivalents at beginning of year 24,439 45,917 32,510
<CAPTION>
- ---------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 43,836 24,439 45,917
<S> <C> <C> <C>
<CAPTION>
- ---------------------------------------------------------------------------------------------
Supplemental information:
<S> <C> <C> <C>
Interest paid on deposits and borrowed funds $ 22,556 13,826 6,440
Real estate acquired in satisfaction of loans 100 436 1,599
Income taxes paid 495 8 1
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(A) ORGANIZATION AND BASIS OF PRESENTATION - First Mariner Bancorp (the
"Company") is a bank holding company incorporated under the laws of Maryland and
registered under the Bank Holding Company Act of 1956, as amended. The Company
owns 100% of the common stock of First Mariner Bank (the "Bank").
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All significant intercompany accounts and transactions
have been eliminated in consolidation.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ significantly
from those estimates.
Material estimates that are particularly susceptible to significant change
in the near term relate to the determination of the allowance for loan losses.
In connection with these determinations, management evaluates historical trends
and ratios and where appropriate obtains independent appraisals for significant
properties and prepares fair value analyses as appropriate.
Management believes that the allowance for losses on loans is adequate.
While management uses available information to recognize losses on loans, future
additions to the allowance may be necessary based on changes in economic
conditions, particularly in the State of Maryland. In addition, various
regulatory agencies, as an integral part of their examination process,
periodically review the Banks' allowance for losses on loans. Such agencies may
require the Banks to recognize additions to the allowance based on their
judgments about information available to them at the time of their examination.
(B) LOAN FEES - Origination and commitment fees and direct origination costs
on loans held for investment are deferred and amortized to income over the
contractual lives of the related loans using the interest method. Under certain
circumstances, commitment fees are recognized over the commitment period or upon
expiration of the commitment. Fees to extend loans three months or less are
recognized in income upon receipt. Unamortized loan fees are recognized in
income when the related loans are sold or prepaid.
(C) SALES OF MORTGAGE LOANS - Loans originated for sale are carried at the
lower of aggregate cost or market value. Market value is determined based on
outstanding investor commitments or, in the absence of such commitments, based
on current investor yield requirements. Gains and losses on loan sales are
determined using the specific identification method.
(D) INVESTMENT SECURITIES - Debt securities that the Company has the
positive intent and ability to hold to maturity are classified as held to
maturity and recorded at amortized cost. Debt and equity securities are
classified as trading securities if bought and held principally for the purpose
of selling them in the near term. Trading securities are reported at fair value,
with unrealized gains and losses included in earnings. Debt securities not
classified as held to maturity and debt and equity securities not classified as
trading securities are considered available for sale and are reported at fair
value, with unrealized gains and losses excluded from earnings and reported, net
of tax effect, in accumulated other comprehensive income.
The Company designates securities into one of the three categories at the
time of purchase. If a decline in value of an individual security classified as
held to maturity or available for sale is judged to be other than temporary, the
cost basis of that security is reduced to its fair value and the amount of the
write-down is reflected in earnings. Fair value is determined based on bid
prices published in financial newspapers or bid quotations received from
securities dealers. Gains or losses on the sales of investments is calculated
using a specific identification basis and is determined on a trade-date
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
1. CONTINUED
basis. Premiums and discounts on investment and mortgage-backed securities are
amortized over the term of the security using methods that approximate the
interest method.
(E) OTHER REAL ESTATE OWNED - Other real estate owned is recorded at the
lower of cost or estimated fair value on their acquisition dates and at the
lower of such initial amount or estimated fair value less selling costs
thereafter. Subsequent write-downs are included in noninterest expense, along
with operating income net of related expenses of such properties and gains or
losses realized upon disposition.
(F) PROPERTY AND EQUIPMENT - Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
accumulated using straight-line and accelerated methods over the estimated
useful lives of the assets. Additions and betterments are capitalized and
charges for repairs and maintenance are expensed when incurred. The cost and
accumulated depreciation or amortization are eliminated from the accounts when
an asset is sold or retired and the resultant gain or loss is credited or
charged to income.
(G) NONACCRUAL AND IMPAIRED LOANS - Loans are placed in nonaccrual status
when they are past due 90 days as to either principal or interest, unless the
loan is well secured and in the process of collection or earlier, when in the
opinion of management, the collection of principal and interest is in doubt. A
loan remains in nonaccrual status until the loan is current as to payment of
both principal and interest and the borrower demonstrates the ability to pay and
remain current. Loans are charged-off when a loan or a portion thereof is
considered uncollectible.
The Company identifies impaired loans and measures impairment (i) at the
present value of expected cash flows discounted at the loan's effective interest
rate; (ii) at the observable market price, or (iii) at the fair value of the
collateral if the loan is collateral dependent. If the measure of the impaired
loan is less than the recorded investment in the loan, an impairment is
recognized through a valuation allowance and corresponding charge to provision
for loan losses. The Company does not apply these provisions to larger groups of
smaller-balance homogeneous loans such as consumer installment, residential
first and second mortgage loans and credit card loans. These loans are
collectively evaluated for impairment.
A loan is determined to be impaired when, based on current information and
events, it is probable that the Company will be unable to collect all amounts
due according to the contractual terms of the loan agreement. A loan is not
considered impaired during a period of delay in payment if the Company expects
to collect all amounts due, including interest past-due. The Company generally
considers a period of delay in payment to include delinquency up to 90 days.
When the ultimate collectibility of an impaired loan's principal is in
doubt, wholly or partially, all cash receipts are applied to principal. Once the
recorded principal balance has been reduced to zero, future cash receipts are
applied to interest income, to the extent any interest has been foregone, and
then they are recorded as recoveries of any amounts previously charged off. When
this doubt no longer exists, cash receipts are applied under the contractual
terms of the loan agreements.
(H) STOCKHOLDERS' EQUITY - On May 12, 1998, the Board of Directors declared
a 10% stock dividend, which was paid on May 26, 1998. An amount equal to the
fair value of the common shares issued plus cash in lieu of fractional shares
was transferred from Accumulated deficit to Common stock and Additional paid-in
capital. The Stockholders' equity section of the Consolidated Statements of
Position have been adjusted accordingly. Except for the number of shares
authorized, all references to per share information and number of shares in the
consolidated financial statements have been adjusted to reflect the stock
dividend on a retroactive basis.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
1. CONTINUED
(I) COMPREHENSIVE INCOME - Comprehensive income includes all changes in
stockholders' equity during a period, except those relating to investments by
and distributions to stockholders. The Company's comprehensive income consists
of net earnings and unrealized gains and losses on securities available-for-sale
and is presented in note 17. Accumulated other comprehensive income is displayed
as a separate component of stockholders' equity.
(J) INCOME TAXES - Deferred income taxes are recognized for the tax
consequences of temporary differences between financial statement carrying
amounts and the tax bases of assets and liabilities. Deferred income taxes are
provided on income and expense items when they are reported for financial
statement purposes in periods different from the periods in which these items
are recognized in the income tax returns. Deferred tax assets are recognized
only to the extent that it is more likely than not that such amounts will be
realized based upon consideration of available evidence, including tax planning
strategies and other factors.
(K) STATEMENTS OF CASH FLOWS - The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
(L) NET INCOME PER SHARE - On May 12, 1998, the Board of Directors declared
a 10% stock dividend. Average shares outstanding and all per share amounts are
based on the increased number of shares giving retroactive effect to the stock
dividend.
Basic earnings per share (EPS) is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding.
Diluted EPS is computed after adjusting the numerator and denominator of the
basic EPS 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.
(M) STOCK-BASED COMPENSATION - The Company uses the intrinsic value method
to account for stock-based employee compensation plans. Under this method,
compensation cost is recognized for awards of shares of common stock to
employees only if the quoted market price of the stock at the grant date (or
other measurement date, if later) is greater than the amount the employee must
pay to acquire the stock. Information concerning the pro forma effects of using
an optional fair value-based method to account for stock-based employee
compensation plans is provided in note 9.
2. RESTRICTIONS ON CASH AND DUE FROM BANKS
The Bank is required by the Federal Reserve System to maintain certain cash
reserve balances based principally on deposit liabilities. The required reserve
balance was $275,000 and $300,000 at December 31, 1999 and 1998, respectively.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
3. INVESTMENTS
The composition of the investment portfolios and maturities, where
applicable, are as follows (in thousands) at December 31:
<TABLE>
<CAPTION>
1999
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale securities:
Mortgage-backed securities $171,189 - 7,455 163,734
Trust preferred securities - due after ten
years 23,332 56 2,852 20,536
Equity securities 3,213 7 781 2,439
Other bonds - due after one year through five
years 5,337 - 151 5,186
- -----------------------------------------------------------------------------------------------
$203,071 63 11,239 191,895
- -----------------------------------------------------------------------------------------------
Investment securities - held to maturity
U.S. Treasury $ - - - -
- -----------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1998
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
<CAPTION>
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for sale securities:
Mortgage-backed securities $162,463 838 202 163,099
Trust preferred securities - due after ten
years 21,006 226 507 20,725
Equity securities 3,391 441 59 3,773
Other bonds - due after one year through five
years 100 - - 100
- -----------------------------------------------------------------------------------------------
$186,960 1,505 768 187,697
- -----------------------------------------------------------------------------------------------
Investment securities - held to maturity
U.S. Treasury: $ 5,502 45 - 5,547
- -----------------------------------------------------------------------------------------------
</TABLE>
During 1999, 1998 and 1997, the Company recognized gains on the sale of
securities of $267,000, $1,090,000 and $479,000, respectively. During 1999,
losses on the sale of securities were recognized of $26,000. No losses on the
sale of securities were recognized in 1998 and 1997. During 1998, the Company
recorded write downs of $352,000 on certain equity securities based on
determination of other than temporary declines in market value of those
securities.
At December 31, 1999, available for sale securities with an aggregate
carrying value (fair value) of $27,000,000 were pledged as collateral for the
Federal Home Loan Bank of Atlanta borrowings. In addition, at December 31, 1999,
available for sale securities with an aggregate carrying value (fair value) of
$105,000,000 were pledged as collateral for borrowings under repurchase
agreements.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
4. LOANS RECEIVABLE
Approximately 70% of the Company's loans receivable are mortgage loans
secured by residential and commercial real estate properties located in the
State of Maryland. Loans are extended only after evaluation by management of
customers' creditworthiness and other relevant factors on a case-by-case basis.
The Company generally does not lend more than 90% of the appraised value of a
property and requires private mortgage insurance on residential first mortgages
with loan-to-value ratios in excess of 80%. In addition, the Company generally
obtains personal guarantees of repayment from borrowers and/or others for
construction, commercial and multi-family residential loans and disburses the
proceeds of construction and similar loans only as work progresses on the
related projects.
Residential lending is generally considered to involve less risk than other
forms of lending, although payment experience on these loans is dependent to
some extent on economic and market conditions in the Company's primary lending
area. Commercial and construction loan repayments are generally dependent on the
operations of the related properties or the financial condition of its borrower
or guarantor. Accordingly, repayment of such loans can be more susceptible to
adverse conditions in the real estate market and the regional economy.
Loans receivable are summarized as follows (in thousands) at December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------
Loans secured by first mortgages on real estate:
Residential $ 85,874 63,330
Commercial 89,470 46,283
Construction, net of undisbursed principle 51,699 57,156
- ---------------------------------------------------------------------------------
Total first mortgage loans 227,043 166,769
Commercial 67,917 55,792
Loans secured by second mortgages on real estate 17,930 11,613
Consumer loans 16,232 8,617
Loans secured by deposits and other 939 188
- ---------------------------------------------------------------------------------
Total loans 330,061 242,979
- ---------------------------------------------------------------------------------
Unamortized loan premiums 47 108
Unearned income (580) (362)
- ---------------------------------------------------------------------------------
Loans receivable $329,528 242,725
- ---------------------------------------------------------------------------------
</TABLE>
Nonaccrual loans totaled approximately $4,229,000, $1,520,000 and $1,550,000
at December 31, 1999, 1998 and 1997, respectively. The interest income which
would have been recorded in 1999, 1998 and 1997 under the original terms of
loans in nonaccrual status at December 31, 1999, 1998 and 1997, respectively,
was approximately $271,000, $111,000 and $85,000, respectively. The actual
interest income recorded on these loans was approximately $30,000, $67,000 and
$77,000, respectively, in 1999, 1998 and 1997.
Impaired loans totaled $3,638,000 and $1,039,000 at December 31, 1999 and
1998, respectively, and were all collateral dependent loans. Collateral
dependent loans are measured based on fair value of the collateral. There were
no impaired loans at December 31, 1999 and 1998 with an allocated valuation
allowance.
The average recorded investment in impaired loans was approximately
$1,279,000, $1,779,000 and $589,000 at December 31, 1999, 1998 and 1997,
respectively, and no income has been accrued or collected on these loans while
they have been classified as impaired.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
4. CONTINUED
Changes in the allowance for losses on loans are summarized as follows (in
thousands):
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Balance at beginning of year $2,676 1,614 1,242
Provisions for loan losses 785 1,212 472
Charge-offs, net of recoveries (139) (150) (100)
<CAPTION>
- --------------------------------------------------------------------------------------------
Balance at end of year $ 3,322 2,676 1,614
<S> <C> <C> <C>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
ESTIMATED
1999 1998 USEFUL LIVES
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Buildings and improvements 2,719 2,285 10-39 years
Leasehold improvements 3,380 2,241 10-15 years
Furniture, fixtures and equipment 6,829 4,847 3-7 years
- ------------------------------------------------------------------------------------------------
Total at cost 14,105 9,765
Less accumulated depreciation and amortization 3,805 2,235
- ------------------------------------------------------------------------------------------------
Total property and equipment, net $10,300 7,530
- ------------------------------------------------------------------------------------------------
</TABLE>
Rent expense for the years ended December 31, 1999, 1998 and 1997 was
approximately $1,705,000, $1,183,000 and $771,000, respectively.
The Company and the Bank occupy space leased from a company, of which the
Chairman and CEO of the Company, is the owner. In 1999, this company was paid
$699,000 for office and branch space. The term of the lease is 15 years.
Management believes that such terms are at least as favorable as those that
could be obtained from a third party lessor.
The Bank has opened a full-service branch in seven of Mars Super
Markets, Inc. stores and has installed ATMs in fourteen (14) of the markets. The
Bank pays rent of $37,000 per year for approximately 500 square feet of branch
space in each store. There is no charge to the Bank for the operation of
ATMs in each store. Mars Super Markets is represented on the Board of Directors
of the Company and the Bank.
Minimum lease payments due for each of the next five years are as follows
(dollars in thousands):
<TABLE>
<S> <C>
2000 $ 1,977
2001 1,872
2002 1,626
2003 1,494
2004 1,394
Thereafter 9,462
- ---------------------------------------------------------------------
$17,825
- ---------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
7. DEPOSITS
Deposits are summarized as follows (dollars in thousands) at December 31:
<TABLE>
<CAPTION>
1999 1998
--------------------- ----------------------
WEIGHTED WEIGHTED
AVERAGE AVERAGE
EFFECTIVE EFFECTIVE
AMOUNT RATE AMOUNT RATE
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Noncertificate:
Passbook and other $ 23,985 2.76% $ 12,117 2.75%
Interest bearing demand deposits 26,800 1.34% 38,460 1.25%
Money market accounts 110,287 4.23% 100,832 4.65%
Non interest bearing demand deposits 49,735 - 24,054 -
- --------------------------------------------------------------------------------------------
Total noncertificate deposits 210,807 175,463
- --------------------------------------------------------------------------------------------
Certificates of deposit:
Original maturities:
Under 12 months 11,736 4.72% 10,054 4.77%
12 to 60 months 135,328 5.27% 69,251 5.72%
IRA and KEOGH 10,880 5.31% 7,543 5.75%
- --------------------------------------------------------------------------------------------
Total certificates of deposit 157,944 86,848
- --------------------------------------------------------------------------------------------
Total deposits $368,751 $ 262,311
- --------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Percentage Percentage
Scheduled certificate of deposit maturities: of total of total
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Under 6 months $ 31,497 19.94% $ 27,177 31.29%
6 months to 12 months 20,880 13.22% 16,230 18.69%
12 months to 24 months 91,905 58.19% 34,627 39.87%
25 months to 36 months 11,550 7.31% 6,456 7.43%
36 months to 48 months 1,280 0.81% 927 1.07%
Over 48 months 832 0.53% 1,431 1.65%
- --------------------------------------------------------------------------------------------
$157,944 100.00% $ 86,848 100.00%
- --------------------------------------------------------------------------------------------
</TABLE>
Certificate of deposits of $100,000 or more totaled approximately
$35,058,000 and $18,126,000 at December 31, 1999 and 1998, respectively.
Deposits of directors, their affiliates and policy making officers were
$3,581,000 and $6,529,000 at December 31, 1999 and 1998, respectively.
8. OTHER BORROWINGS
Other borrowings consist of Federal Home Loan Bank at Atlanta (FHLB)
advances, short-term promissory notes and repurchase agreements with callable
options. The FHLB advances are available under a specific collateral pledge and
security agreement, which allows the Company to borrow up to $121,000,000 and
requires the Company to maintain collateral for all of its borrowings in the
form of either specific first mortgage loans with outstanding principal equal to
133% of the advances or securities equal to 103% of advances. At December 31,
1999, the Company had approximately $82,000,000 of first mortgage loans pledged
as collateral, and $27,000,000 of securities in addition to the balance of FHLB
stock.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
8. CONTINUED
In addition, at December 31, 1999, available for sale securities with an
aggregate carrying value (fair value) of $105,000,000 were pledged as collateral
for borrowings under repurchase agreements.
The counterparties for (and the amounts of) the outstanding repurchase
agreements at December 31, 1999 are Salomon Smith Barney, Inc. ($30,000,000),
Merrill Lynch Pierce, Fenner & Smith Incorporated ($35,000,000) and Morgan
Stanley Dean Witter ($12,185,000), with maturities of 2008, 2003 and 2000,
respectively. The carrying value (fair value) of the related securities pledged
as collateral are $34,357,000, $36,196,000 and $13,530,000, respectively,
resulting in amounts at risk of $4,357,000, $1,196,000 and $1,345,000.
Certain information regarding borrowings are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------
Amount outstanding at year-end:
FHLB short-term advances $ 7,300 19,700
Short-term promissory notes 22,439 22,014
Short-term repurchase agreements 12,185 14,450
FHLB long-term advances 80,000 45,000
Long-term repurchase agreements 65,000 80,000
Weighted average interest rates at year end:
FHLB short-term advances 4.55% 4.95%
Short-term promissory notes 4.01% 3.72%
Short-term repurchase agreements 5.58% 5.62%
FHLB long-term advances 5.02% 5.02%
Long-term repurchase agreements 5.35% 5.17%
Maximum outstanding at any month-end:
FHLB short-term advances $32,300 19,700
Short-term promissory notes 29,705 32,030
Short-term repurchase agreements 22,958 14,450
FHLB long-term advances 80,000 45,000
Long-term repurchase agreements 87,797 80,000
Average outstanding:
FHLB short-term advances $ 7,844 4,615
Short-term promissory notes 18,474 11,149
Short-term repurchase agreements 15,828 5,386
FHLB long-term advances 64,317 24,507
Long-term repurchase agreements 78,857 38,448
Weighted average interest rates during the year:
FHLB short-term advances 5.61% 5.61%
Short-term promissory notes 3.79% 3.96%
Short-term repurchase agreements 5.60% 5.97%
FHLB long-term advances 4.94% 5.02%
Long-term repurchase agreements 5.26% 5.22%
- ---------------------------------------------------------------------------------
</TABLE>
The long-term repurchase agreements mature within five to ten years, subject
to call provisions beginning in 2000.
The FHLB long-term advances mature within five to ten years, subject to call
provisions beginning in 2000.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
9. REDEEMABLE TRUST PREFERRED SECURITIES
Company-obligated mandatorily redeemable preferred securities of a
subsidiary trust holding solely debentures of the Company (trust preferred
securities) consist of 2,145,000 securities with a liquidation amount of $10 per
security, which were issued in June 1998 by a statutory business trust, Mariner
Capital Trust (the "Trust"). The Trust is a wholly owned subsidiary of the
Company because the Company owns all of the securities of the Trust that
possesses general voting powers. The Trust used the proceeds of the trust
preferred securities to purchase at par $22,113,000 of 8.3% junior subordinated
debentures of the Company due June 30, 2028. The junior subordinated debentures
are the sole assets of the Trust.
Payments to be made by the Trust on the trust preferred securities are
dependent on payments that the Company has undertaken to make, particularly the
payments to be made by the Company on the debentures. Considered together, the
obligations of the Company constitute a full and unconditional guarantee of the
Trust's obligations under the trust preferred securities.
Distributions on the trust preferred securities are payable from interest
payments received on the debentures and are due quarterly at a rate of 8.3% of
the liquidation amount, subject to deferral for up to five years under certain
conditions. Distributions are included in interest expense. Redemptions of the
trust preferred securities are payable at the liquidation amount from redemption
payments received on the debentures. The Company may redeem the debentures at
par at any time after June 30, 2003.
10. EMPLOYEE BENEFIT PLANS
(A) PROFIT SHARING PLAN - The Company established a defined contribution
plan in 1997, covering employees meeting certain age and service eligibility
requirements. The Plan provides for cash deferrals qualifying under
Section 401(k). Matching contributions made by the Company totaled $115,000 and
$76,000 in 1999 and 1998, respectively.
(B) STOCK OPTIONS - The Company has stock option award arrangements which
provide for the granting of options to acquire common stock to directors and key
employees. Option prices are equal or greater than the estimated fair market
value of the common stock at the date of the grant. Options issued prior to 1999
are exercisable immediately after the date of grant. Beginning in 1999, options
granted have a three year vesting schedule with the first year vested upon
issuance. The vesting of certain options issued in 1999 are contingent upon the
Company's stock trading at a defined premium to the strike price. All options
expire ten years after the date of grant.
Information with respect to stock options is as follows for the years ended
December 31, 1999, 1998 and 1997:
<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------
Outstanding at beginning of year 190,930 $ 9.09 192,830 $ 9.09 198,660 $ 9.09
Granted 263,910 11.62 - - - -
Exercised - - (1,900) 9.09 (4,180) 9.09
Forfeited (2,650) 9.09 - - (1,650) 9.09
- ---------------------------------------------------------------------------------------------------
Outstanding at end of year 452,190 $ 10.57 190,930 $ 9.09 192,830 $ 9.09
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
10. CONTINUED
The options outstanding are summarized as follows at December 31, 1999:
<TABLE>
<CAPTION>
OPTIONS
OUTSTANDING
- ---------------------------------------------------
WEIGHT AVERAGE OPTIONS
REMAINING EXERCISABLE
EXERCISE CONTRACTUAL LIFE -----------
PRICE SHARES (YEARS) SHARES
<S> <C> <C> <C>
- -----------------------------------------------------------------
$ 8.69 10,000 9.9 3,333
9.09 188,280 6.6 188,280
10.50 3,000 9.6 1,000
11.75 250,910 9.6 6,970
- -----------------------------------------------------------------
$10.57 452,190 9.5 199,583
- -----------------------------------------------------------------
</TABLE>
At December 31, 1999, 1998 and 1997, options to purchase 199,583, 190,930
and 192,830 shares of the Company's common stock were exercisable at weighted
average prices of $10.57, $9.09 and $9.09, respectively.
The option price was equal to the market price of the common stock at the
date of grant for all options granted in 1999 and, accordingly, no compensation
expense related to options was recognized. If the Company had applied a fair
value-based method to recognize compensation cost for the options granted, net
income (in thousands) and net income per share would have been changed to the
following pro forma amounts for the year ended December 31, 1999:
<TABLE>
<S> <C> <C>
Net income As reported $877,000
Pro forma 733,000
Net income per share-basic As reported 0.28
Pro forma 0.23
Net income per share-diluted As reported 0.26
Pro forma 0.22
- ------------------------------------------------------------------------------------------
</TABLE>
The weighted average fair values of options granted during 1999 were
$1,347,000 or $5.10 per share, on the date of grant. The fair values of options
granted were calculated using the Black-Scholes option-pricing model with the
following weighted average assumptions: dividend yield of 0.55%; risk-free
interest rate of 6.01%: expected volatility of 25%; and expected lives of ten
years.
(C) WARRANTS - Warrants to acquire 860,376, 860,376 and 888,605 shares of
common stock at $9.09 per share were outstanding and exercisable at
December 31, 1999, 1998 and 1997, respectively.
(D) STOCK PURCHASE - The Company began a stock purchase plan for employees
in 1999 whereby the employees can purchase Company stock through payroll
deductions. The Company may provide a discount of up to 10% of the purchase
price.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
11. INCOME TAXES
Income taxes (benefit) consists of the following (in thousands) for the
years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Current $ 501 112 -
Deferred 9 (1,075) (192)
- --------------------------------------------------------------------------------------------
Income tax expense (benefit) $ 510 (963) (192)
- --------------------------------------------------------------------------------------------
</TABLE>
Income taxes (benefit) are reconciled to the amount computed by applying the
federal corporate tax rate of 34% to income before taxes as follows (in
thousands) for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Income tax expense (benefit) at federal corporate rate $ 472 54 59
Change in valuation allowance 107 (918) (216)
Other (69) (99) (35)
- --------------------------------------------------------------------------------------------
Income tax benefit $ 510 (963) (192)
- --------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences between the financial reporting
basis and income tax basis of assets and liabilities relate to the following (in
thousands) at December 31:
<TABLE>
<CAPTION>
1999 1998
<S> <C> <C>
- ---------------------------------------------------------------------------------
Deferred tax assets:
Allowance for losses on loans $1,178 920
Realized loss on investments - 135
Net operating loss carryforwards 268 428
Interest and fees on loans 150 39
Other 74 -
- ---------------------------------------------------------------------------------
Total gross deferred assets 1,670 1,522
Less valuation allowance (107) -
- ---------------------------------------------------------------------------------
1,563 1,522
- ---------------------------------------------------------------------------------
Deferred tax liabilities:
Depreciation and amortizaton 80 2
Federal Home Loan Bank stock dividends - 12
Excess of fair value of assets acquired over cost 18 34
- ---------------------------------------------------------------------------------
Total gross deferred tax liabilities 98 48
- ---------------------------------------------------------------------------------
Attributable to operations 1,465 1,474
Unrealized (gain) loss on investments charged to other
comprehensive income 4,316 (285)
- ---------------------------------------------------------------------------------
Net deferred tax asset $5,781 1,189
- ---------------------------------------------------------------------------------
</TABLE>
At December 31, 1999, the Company has net operating loss carryforwards for
federal income tax purposes of approximately $416,000 which are available to
offset future federal taxable income, if any, through 2010. As a result of
ownership changes, utilization of a portion of the net operating loss
carryforward is subject to annual limitations.
The Company has net operating loss carryforwards for state income tax
purposes of approximately $2,318,000 which is available to offset future state
taxable income of First Mariner Bancorp only. Management anticipates that it is
more likely than not that the future operations of First Mariner
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
11. CONTINUED
Bancorp will not generate sufficient taxable income to realize the deferred tax
asset in the amount of $107,000 relating to this state net operating loss.
12. OTHER EXPENSES
Other expenses are comprised of the following (in thousands) for the years
ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------
Service and maintenance $ 649 418 190
Office supplies 345 255 149
Amortization of cost of intangible assets - 210 75
Cost of ATM network 601 427 241
Printing 301 246 192
Corporate insurance 108 83 153
Other (a) 2,216 2,034 894
- --------------------------------------------------------------------------------------------
Other expenses $4,220 3,673 1,894
- --------------------------------------------------------------------------------------------
</TABLE>
(a) No single item included in this category exceeded one percent of total
revenues.
13. DIVIDENDS AND EARNINGS PER SHARE
As a depository institution whose deposits are insured by the Federal
Deposit Insurance Corporation (FDIC), the Bank may not pay dividends or
distribute any of its capital assets while it remains in default on any
assessment due the FDIC. The Bank currently is not in default under any of its
obligations to the FDIC. As a commercial bank under the Maryland Financial
Institution Law, the Bank may declare cash dividends from undivided profits or,
with the prior approval of the Commissioner of Financial Regulation, out of
surplus in excess of 100% of its required capital stock, and after providing for
due or accrued expenses, losses, interest and taxes.
The Company and the Bank, in declaring and paying dividends, are also
limited insofar as minimum capital requirements of regulatory authorities must
be maintained. The Company and the Bank comply with such capital requirements.
The Company's current ability to pay dividends is largely dependent upon the
receipt of dividends from its banking subsidiary, the Bank. Both federal and
state laws impose restrictions on the ability of the Bank to pay dividends. The
FRB has issued a policy statement which provides that, as a general matter,
insured banks and bank holding companies may pay dividends only out of prior
operating earnings. For a Maryland state-chartered bank or trust company,
dividends may be paid out of undivided profits or, with the prior approval of
the Commissioner, from surplus in excess of 100% of required capital stock. If
however, the surplus of a Maryland bank is less than 100% of its required
capital stock, cash dividends may not be paid in excess of 90% of net earnings.
In addition to these specific restrictions, bank regulatory agencies, in
general, also have the ability to prohibit proposed dividends by a financial
institution which would otherwise be permitted under applicable regulations if
the regulatory body determines at such distribution would constitute an unsafe
or unsound practice.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
13. CONTINUED
Information relating to the calculations of earnings per common share is
summarized as follows (dollars in thousands) for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------
Net income $ 877 1,123 365
- ---------------------------------------------------------------------------------------------
Weighted-average shares outstanding--basic 3,166,813 3,158,071 3,151,145
Dilutive securities - stock options and warrants 181,755 371,758 300,136
- ---------------------------------------------------------------------------------------------
Weighted-average shares outstanding - diluted 3,348,568 3,529,829 3,451,281
- ---------------------------------------------------------------------------------------------
</TABLE>
14. REGULATORY MATTERS
The Company and Bank are subject to various regulatory capital requirements
administered by the federal banking agencies. Failure to meet minimum capital
requirements can initiate certain mandatory and possibly additional
discretionary actions by regulators that, if undertaken, could have a direct
material effect on the Company's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of
assets, liabilities, and certain off-balance sheet items as calculated under
regulatory accounting practices. The Bank's capital amounts and classification
are also subject to qualitative judgments by the regulators about components,
risk weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios of total and Tier I
capital to risk-weighted assets, and of Tier I capital to average assets.
Management believes, as of December 31, 1999, that the Bank meets all capital
adequacy requirements to which it is subject. As of December 31, 1999 the Bank
was "well capitalized" under the regulatory framework for prompt corrective
action. There are no conditions or events since that notification that
management believes would change the Bank's category.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
14. CONTINUED
Regulatory capital amounts (dollars in thousands) and ratios for the Company
and the Bank as of December 31, 1999 and 1998, were:
<TABLE>
<CAPTION>
MINIMUM TO BE WELL
REQUIREMENTS CAPITALIZED
FOR CAPITAL UNDER
ADEQUACY PROMPT CORRECTIVE
ACTUAL PURPOSES ACTION PROVISION
------------------- ------------------- -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------
AS OF DECEMBER 31, 1999
Total capital (to risk weighted assets):
Consolidated $53,494 14.6% $29,227 8.0% $36,534 10.0%
The Bank 43,451 12.1% 28,687 8.0% 35,859 10.0%
Tier 1 capital (to risk weighted
assets):
Consolidated 38,296 10.5% 14,613 4.0% 21,920 6.0%
The Bank 40,129 11.2% 14,344 4.0% 21,515 6.0%
Tier 1 capital (to average assets):
Consolidated 38,296 6.4% 24,046 4.0% 30,057 5.0%
The Bank 40,129 6.6% 24,429 4.0% 30,537 5.0%
AS OF DECEMBER 31, 1998
Total capital (to risk weighted assets):
Consolidated 52,162 18.9% 22,092 8.0% 27,616 10.0%
The Bank 35,689 13.1% 21,729 8.0% 27,162 10.0%
Tier 1 capital (to risk weighted
assets):
Consolidated 37,381 13.5% 11,046 4.0% 16,570 6.0%
The Bank 33,013 12.2% 10,865 4.0% 16,297 6.0%
Tier 1 capital (to average assets):
Consolidated 37,381 8.1% 18,541 4.0% 23,176 5.0%
The Bank 33,013 7.2% 18,293 4.0% 22,866 5.0%
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The FDIC, through the Savings Association Insurance Fund (SAIF), insures
deposits of accountholders up to $100,000. The Bank pays an annual premium to
provide for this insurance. The Bank is a member of the Federal Home Loan Bank
System and is required to maintain an investment in the stock of the FHLB equal
to at least 1% of the unpaid principal balances of their residential mortgage
loans, .3% of their total assets or 5% of their outstanding advances from the
Bank, whichever is greater. Purchases and sales of stock are made directly with
the bank at par value.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
15. FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates, methods, and assumptions are set forth below for the
Company's financial instruments as of December 31, 1999 and 1998.
The carrying value and estimated fair value of financial instruments is
summarized as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998
---------------------- ------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
VALUE FAIR VALUE VALUE FAIR VALUE
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets:
Cash and interest-bearing deposits $ 43,836 43,836 24,439 24,439
Investment securities 191,895 191,895 193,199 193,244
Loans receivable 326,206 331,067 240,049 246,787
Loans held for sale 26,299 26,299 21,321 21,321
Liabilities:
Deposit accounts 368,751 366,931 262,311 262,588
Borrowings 109,739 109,503 86,714 87,855
Repurchase agreements 77,185 77,209 94,450 95,777
Company-obligated manditorily redeemable preferred
securities of subsidiary trust holding solely
debentures of the company 21,450 20,808 21,450 22,145
Off balance sheet instruments:
Commitments to extend credit - - - -
Loans sold with recourse - - - -
Unused lines of credit - - - -
- ---------------------------------------------------------------------------------------------------------
</TABLE>
(A) CASH ON HAND AND IN BANKS - The carrying amount for cash on hand and in
banks approximates fair value due to the short maturity of these instruments.
(B) FEDERAL FUNDS SOLD - The carrying amount for federal funds sold
approximates fair value due to the overnight maturity of these instruments.
(C) INVESTMENT SECURITIES - The fair value of investment securities is based
on bid prices received from an external pricing service or bid quotations
received from securities dealers.
(D) LOANS - Loans were segmented into portfolios with similar financial
characteristics. Loans were also segmented by type such as residential,
multifamily and nonresidential, construction and land, second mortgage loans,
commercial, and consumer. Each loan category was further segmented by fixed and
adjustable rate interest terms and performing and nonperforming categories. The
fair value of residential loans was calculated by discounting anticipated cash
flows based on weighted-average contractual maturity, weighted-average coupon,
and discount rate.
The fair value for nonperforming loans was determined by reducing the
carrying value of nonperforming loans by the Company's historical loss
percentage for each specific loan category.
(E) DEPOSITS - The fair value of deposits with no stated maturity, such as
noninterest bearing deposits, interest bearing now accounts, money market and
statement savings accounts, is deemed to be equal to the carrying amounts. The
fair value of certificates of deposit is based on the discounted
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
15. CONTINUED
value of contractual cash flows. The discount rate for certificates of deposit
was estimated using the rate currently offered for deposits of similar remaining
maturities.
(F) BORROWINGS - Borrowings were segmented into categories with similar
financial characteristics. Federal funds and short-term repurchase agreements
fair value approximates carrying values. All other borrowings were discounted at
a cash flow approach based on market rates as of December 31, 1999 specific for
each category.
(G) OFF-BALANCE SHEET FINANCIAL INSTRUMENTS - The Company's adjustable rate
commitments to extend credit move with market rates and are not subject to
interest rate risk. The rates and terms of the Company's fixed rate commitments
to extend credit are competitive with others in the various markets in which the
Company operates. The fair values of these instruments are immaterial.
The disclosure of fair value amounts does not include the fair values of any
intangibles, including core deposit intangibles. Core deposit intangibles
represent the value attributable to total deposits based on an expected duration
of customer relationships.
(H) LIMITATIONS - Fair value estimates are made at a specific point in time,
based on relevant market information and information about financial
instruments. These estimates do not reflect any premium or discount that could
result from offering for sale at one time the Company's entire holdings of a
particular financial instrument. Because no market exists for a significant
portion of the Company's financial instruments, fair value estimates are based
on judgments regarding future expected loss experience, current economic
conditions, risk characteristics of various financial instruments and other
factors. These estimates are subjective in nature and involve uncertainties and
matters of significant judgment and therefore cannot be determined with
precision. Changes in assumptions could significantly affect estimates.
16. 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.
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
16. CONTINUED
The following table presents certain information regarding these business
segments for the year ended December 31, 1999 and 1998 (dollars in thousands).
Information is not available for years prior to 1998.
<TABLE>
<CAPTION>
1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total revenue:
Commercial and consumer banking $ 21,804(1) 15,420(1)
Mortgage banking 4,498 2,761
Less related party transactions 1,387 (3) (564) (3)
- -----------------------------------------------------------------------------------------------------
3,111(2) 2,197(2)
- -----------------------------------------------------------------------------------------------------
Consolidated revenue $ 24,915 17,617
- -----------------------------------------------------------------------------------------------------
Income before income taxes:
Commercial and consumer banking $ 2,749(1) 206(1)
Mortgage banking 25 518
Less related party transactions 1,387 (3) (564) (3)
- -----------------------------------------------------------------------------------------------------
(1,362 (2) (46)(2)
- -----------------------------------------------------------------------------------------------------
Consolidated income before income taxes $ 1,387 160
- -----------------------------------------------------------------------------------------------------
Identifiable assets:
Commercial and consumer banking $ 600,872 473,441
Mortgage banking 15,200 24,046
- -----------------------------------------------------------------------------------------------------
Consolidated total assets $ 616,072 497,487
- -----------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes net interest income of $17,283 and $11,801 for 1999 and 1998,
respectively.
(2) Includes net interest income of $368 and $221 for 1999 and 1998,
respectively.
(3) Management's policy for the mortgage banking segment is to recognize a gain
for loans sold to the Bank at market prices determined on an individual loan
basis.
17. COMPREHENSIVE INCOME
The Company's components of comprehensive income are as follows (in
thousands) for the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net income $ 877 1,123 365
- -----------------------------------------------------------------------------------------------------------
Other comprehensive income items:
Unrealized holding gains (losses) arising during the period (net of tax
(benefit) of $(2,978), $335, and $273, respectively) (7,164) 596 625
Less: reclassification adjustment for gains (net of tax of $93, $266,
and $172, respectively) included in net income 148 472 307
- -----------------------------------------------------------------------------------------------------------
Total other comprehensive income (loss) items (7,312) 124 318
- -----------------------------------------------------------------------------------------------------------
Total comprehensive income (loss) $ (6,435) 1,247 683
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
18. FINANCIAL INFORMATION OF PARENT COMPANY
The following is financial information of First Mariner Bancorp (parent
company only):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
STATEMENTS OF FINANCIAL CONDITION 1999 1998
- -------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C>
Assets:
Cash $ 2,254 8,883
Loans 4,810 2,960
Available for sale securities 2,439 3,773
Investment in subsidiary 32,342 33,230
Other assets 1,959 2,494
- -------------------------------------------------------------------------------------------------------
Total assets $ 43,804 51,340
- -------------------------------------------------------------------------------------------------------
Liabilities and Stockholders' Equity:
Other liabilities $ 491 1,402
Company-obligated manditorily redeemable preferred securities
of subsidiary trust holding solely debentures of the Company 21,450 21,450
Stockholders' equity 21,863 28,488
- -------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 43,804 51,340
- -------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
STATEMENTS OF OPERATIONS 1999 1998 1997
- ---------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
Interest income on investments $ 532 497 295
Interest income on loans 351 74 -
Gain on securities 182 690 455
Other income 75 208 20
- ---------------------------------------------------------------------------------------------------------
Total income 1,140 1,469 770
- ---------------------------------------------------------------------------------------------------------
Expenses:
Interest expense 1,881 940 -
Salaries and employee expenses 486 837 524
Amortization - 12 7
Professional expenses 65 312 52
Other expenses 247 222 16
- ---------------------------------------------------------------------------------------------------------
Total expenses 2,679 2,323 599
- ---------------------------------------------------------------------------------------------------------
Income (loss) before income tax benefit (1,539) (854) 171
Income tax benefit (602) (963) (192)
- ---------------------------------------------------------------------------------------------------------
Income before equity in undistributed net income (loss) of the Bank (937) 109 363
Equity in undistributed net income of the Bank 1,814 1,014 2
- ---------------------------------------------------------------------------------------------------------
Net income $ 877 1,123 365
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------
DECEMBER 31, 1999, 1998 AND 1997 FIRST MARINER BANCORP AND SUBSIDIARIES
18. CONTINUED
<TABLE>
<CAPTION>
FOR THE YEARS ENDED
DECEMBER 31,
-------------------------------
STATEMENTS OF CASH FLOWS 1999 1998 1997
- --------------------------------------------------------------------------------------------------------
(IN THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Income before undistributed net income (loss) of the Bank $ (937) 109 363
Depreciation and amortization - 12 7
Increase (decrease) in other liabilities (911) 833 (169)
Increase in other assets (5,621) (2,467) (27)
Gain on securities (182) (690) (455)
- --------------------------------------------------------------------------------------------------------
Net cash used in operating activities (7,651) (2,203) (281)
- --------------------------------------------------------------------------------------------------------
Net cash flows from investing activities:
Investment in subsidiaries 2,702 (13,927) -
Loan disbursements, net (1,850) (2,960) -
Purchase of available for sale securities (1,478) (8,050) (1,562)
Sale of available for sale securities 1,838 7,131 496
- --------------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 1,212 (17,806) (1,066)
- --------------------------------------------------------------------------------------------------------
Net cash flows from financing activities:
Proceeds from stock issuance, net - 275 2,487
Proceeds from trust preferred securities offering - 21,450 -
Dividends paid (190) - -
- --------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities (190) 21,725 2,487
Net increase (decrease) in cash and temporary investments (6,629) 1,716 1,140
- --------------------------------------------------------------------------------------------------------
Cash and temporary investments at beginning of year 8,883 7,167 6,027
- --------------------------------------------------------------------------------------------------------
Cash and temporary investments at end of year $ 2,254 8,883 7,167
- --------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
DIRECTORS AND OFFICERS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
BOARD OF DIRECTORS
Edwin F. Hale, Sr.
CHAIRMAN OF THE BOARD &
CHIEF EXECUTIVE OFFICER
FIRST MARINER BANCORP
FIRST MARINER BANK
Joseph A. Cicero
PRESIDENT AND CHIEF OPERATING OFFICER
FIRST MARINER BANCORP
CHIEF OPERATING OFFICER
FIRST MARINER BANK
George H. Mantakos
EXECUTIVE VICE PRESIDENT
FIRST MARINER BANCORP
PRESIDENT
FIRST MARINER BANK
Barry B. Bondroff
PRESIDENT & MANAGING DIRECTOR
GRABUSH, NEWMAN & CO., P.A.
Edith B. Brown
DIRECTOR OF PUBLIC & COMMUNITY RELATIONS
THE BALTIMORE ARENA
Rose M. Cernak
PRESIDENT
OLDE OBRYCKI'S CRAB HOUSE, INC.
Christopher P. D'Anna
EXECUTIVE VICE PRESIDENT
MARS SUPER MARKETS, INC.
Howard Friedman
CHAIRMAN
ARCA CAPITAL
Bruce H. Hoffman
VICE PRESIDENT
GILBANE BUILDING CO.
Melvin S. Kabik
COMMERCIAL REAL ESTATE INVESTOR
Michael J. Lynch
VICE PRESIDENT
THE GENERAL SHIP REPAIR COMPANY
Jay J. J. Matricciani
PRESIDENT
THE MATRICCIANI COMPANY
James P. O'Conor
PRESIDENT & CEO
O'CONOR, PIPER & FLYNN
John J. Oliver, Jr.
CEO AND PUBLISHER
AFRO-AMERICAN PUBLISHING CO.
Dr. Patricia Schmoke
LIBERTY MEDICAL CENTER
SINAI HOSPITAL
Hanan Y. Sibel
CEO
SIBEL ENTERPRISES
Leonard Stoler
OWNER & PRESIDENT
LEN STOLER, INC.
Captain Michael R. Watson
PRESIDENT
ASSOCIATION OF MARYLAND PILOTS
FIRST MARINER BANCORP
SENIOR OFFICERS
Edwin F. Hale, Sr.
CHAIRMAN & CHIEF EXECUTIVE OFFICER
Joseph A. Cicero
PRESIDENT & CHIEF OPERATING OFFICER
George H. Mantakos
EXECUTIVE VICE PRESIDENT
Eugene A. Friedman
VICE PRESIDENT &
CORPORATE SECRETARY
FIRST MARINER MORTGAGE
COMPANY
Brett J. Carter
PRESIDENT
Joseph A. Cicero
CHIEF OPERATING OFFICER
Albert Kavalsky
SENIOR VICE PRESIDENT
Lynda J. Goldberg
SENIOR VICE PRESIDENT
William A. Benner
VICE PRESIDENT
Deborah J. Leypoldt
VICE PRESIDENT
Barbara O'Brien Greaver
VICE PRESIDENT
Patty Robinson
VICE PRESIDENT
Carla Commons
VICE PRESIDENT
Tammy Pover
VICE PRESIDENT
<PAGE>
DIRECTORS AND OFFICERS
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
FIRST MARINER BANK
SENIOR OFFICERS
Edwin F. Hale, Sr.
CHAIRMAN & CHIEF EXECUTIVE OFFICER
George H. Mantakos
PRESIDENT
Joseph A. Cicero
CHIEF OPERATING OFFICER
Dennis Finnegan
EXECUTIVE VICE PRESIDENT
RETAIL BANKING
M. Neil Brownawell, II
SENIOR VICE PRESIDENT
COMMERCIAL LENDING
Eugene Fischgrund
SENIOR VICE PRESIDENT
COMMERCIAL LENDING
James Gast
SENIOR VICE PRESIDENT
ADMINISTRATION
Lawrence W. Mathe
SENIOR VICE PRESIDENT
COMMERCIAL LENDING
William A. Murphy
SENIOR VICE PRESIDENT
COMMERCIAL LENDING
Gerard T. Stanczyk
SENIOR VICE PRESIDENT
SYSTEMS
William F. Thompson
SENIOR VICE PRESIDENT
INTERNAL AUDIT
Robert P. Warr
SENIOR VICE PRESIDENT
COMMERCIAL LENDING
John Winkler
SENIOR VICE PRESIDENT
COMMERCIAL LENDING
Lila E. Yingling
SENIOR VICE PRESIDENT
OPERATIONS
Linda R. Heier
REGIONAL VICE PRESIDENT
BRANCH ADMINISTRATION
Wayne W. Spencer
REGIONAL VICE PRESIDENT
BRANCH ADMINISTRATION
Rodney J. Baker
VICE PRESIDENT
CONSUMER LENDING
Tina Barnickel
VICE PRESIDENT
ACCOUNTING
Kathy J. Bennett
VICE PRESIDENT
BRANCH ADMINISTRATION
Frances Crawford
VICE PRESIDENT
BRANCH ADMINISTRATION
Robert Friday, Jr.
VICE PRESIDENT
BRANCH ADMINISTRATION
Eugene A. Friedman
VICE PRESIDENT & CORPORATE SECRETARY
Linda D. Gaunt
VICE PRESIDENT
BRANCH ADMINISTRATION
Anthony Grosse
VICE PRESIDENT
LOAN OPERATIONS
Kenneth C. Jones
VICE PRESIDENT
FACILITIES
Imelda Liberatore
VICE PRESIDENT
BRANCH ADMINISTRATION
Belinda Norton
VICE PRESIDENT
ACCOUNTING
John Soos
VICE PRESIDENT
BRANCH ADMINISTRATION
Richard Sutton
VICE PRESIDENT
BRANCH ADMINISTRATION
Ralph Wood
VICE PRESIDENT
BRANCH ADMINISTRATION
<PAGE>
SHAREHOLDER INFORMATION
- -------------------------------------------------------------------
FIRST MARINER BANCORP AND SUBSIDIARIES
First Mariner Bancorp's periodic reports filed with the Securities and Exchange
Commission are available without charge to stockholders and other interested
parties. To request those publications, or if you have questions about First
Mariner Bancorp, you are invited to contact:
INVESTOR RELATIONS
First Mariner Bancorp
1801 South Clinton Street
Baltimore, MD 21224
410-342-2600
TRANSFER AGENT AND REGISTRAR
American Transfer & Trust Company
40 Wall Street
New York, NY 10005
212-936-5100
Communications concerning changes of address, lost certifcate and transfer
requests should be directed to the Transfer Agent.
ANNUAL MEETING
The 2000 Annual Meeting of Stockholders
will be held on May 2, 2000 at First Mariner Bank, 1801 S. Clinton St.,
Baltimore, Maryland.
1999 ANNUAL REPORT AND FORM 10-K
This report is submitted for the general information of the stockholders of
First Mariner Bancorp and is not intended to be used in connection with any sale
or purchase of securities. Copies of Form 10-K are available from the Corporate
Secretary of First Mariner Bancorp without charge.
<PAGE>
EXHIBIT 21
SUBSIDIARIES
1 Wholly owned subsidiary of First Mariner Bancorp
First Mariner Bank
Mariner Capital Trust
2 Wholly owned subsidiary of First Mariner Bank
First Mariner Mortgage Corporation
Compass Properties, Inc.
First Mariner Investment Corp.
20
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT AUDITORS
The Board of Directors
First Mariner Bancorp:
We consent to the incorporation by reference in the registration statements
(Nos. 333-60961, 333-60963 and 333-60967) on Form S-8 of First Mariner Bancorp
and subsidiaries (First Mariner) of our report dated January 28, 2000, relating
to the consolidated statements of financial condition of First Mariner as of
December 31, 1999 and 1998, and the related consolidated statements of
operations, stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1999, which report appears in the December
31, 1999 annual report on Form 10-K of First Mariner.
/s/ KPMG LLP
----------------------------------
KPMG LLP
Baltimore, Maryland
March 29, 2000
21
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<PAGE>
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<NAME> FIRST MARINER BANCORP
<MULTIPLIER> 1,000
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<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 19,490
<INT-BEARING-DEPOSITS> 24,346
<FED-FUNDS-SOLD> 0
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<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 191,895
<LOANS> 329,528
<ALLOWANCE> 3,322
<TOTAL-ASSETS> 616,072
<DEPOSITS> 368,751
<SHORT-TERM> 41,924
<LIABILITIES-OTHER> 17,084
<LONG-TERM> 145,000
0
21,450
<COMMON> 158
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<TOTAL-LIABILITIES-AND-EQUITY> 616,072
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<INTEREST-TOTAL> 40,473
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<INTEREST-INCOME-NET> 17,651
<LOAN-LOSSES> 785
<SECURITIES-GAINS> 241
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<INCOME-PRETAX> 1,387
<INCOME-PRE-EXTRAORDINARY> 1,387
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 877
<EPS-BASIC> .28
<EPS-DILUTED> .26
<YIELD-ACTUAL> 3.38
<LOANS-NON> 4,229
<LOANS-PAST> 2,062
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<PAGE>
EXHIBIT 99
RISK FACTORS
REGULATORY RISKS. The banking industry is subject to many laws and
regulations. Regulations protect depositors, not stockholders. The Maryland
Division of Financial Regulation, the Federal Deposit Insurance Corporation, and
the Board of Governors of the Federal Reserve System regulate the Company and
the Bank. Regulations and laws increase the Company's operating expenses, affect
the Company's earnings, and put the Company at a disadvantage with less
regulated competitors, such as finance companies, mortgage banking companies,
and leasing companies.
EXPOSURE TO LOCAL ECONOMIC CONDITIONS. Most of the loans made by the Bank
are made to Maryland borrowers. A decline in local economic conditions would
affect the Company's earnings.
CREDIT RISKS AND INADEQUACY OF LOAN LOSS RESERVE. When borrowers default
and do not repay the loans made to them by the Bank, the Company loses money.
Experience shows that some borrowers either will not pay to time or will not pay
at all. In these cases, the Bank will cancel, or "write off", the defaulted loan
or loans. A "write off" reduces the Company's assets and affects the Company's
earnings. The Company anticipates losses by reserving what it believes to be an
adequate cushion so that it does not have to take a large loss at any one time.
However, actual loan losses cannot be predicted, and the Company's loan loss
reserve may not be sufficient.
INTEREST RATE RISK. The Company's earnings depend greatly on its net
interest income, the difference between the interest earned on loans and
investments and the interest paid on deposits. If the interest rate paid on
deposits is high and the interest rate earned on loans and investments is low,
net interest income is small and the Company earns less. Because interest rates
are established by competition, the Company cannot completely control its net
interest income.
RISKS ASSOCIATED WITH REAL ESTATE LENDING. The Bank makes many real estate
secured loans. Real estate loans are in demand when interest rates are low and
economics are good. Even when economic conditions are good and interest rates
are low, these conditions may not continue. The Company may lose money if the
borrower does not pay a real estate loan. If real estate values decrease, then
the Company may lose more money when the borrowers default.
NO ASSURANCE OF GROWTH. The Company's ability to increase assets and
earnings depends upon many factors, including competition for deposits and
loans, the Company's branch and office locations, avoidance of credit losses,
and hiring and training of personnel. Many of these factors are beyond the
Company's control.
COMPETITION. Other banks and non-banks. Including savings and loan
associations, credit unions, insurance companies, leasing companies, small loan
companies, finance companies, and mortgage companies, compete with the Company.
Some of the Company's competitors offer services and products that the Company
does not offer. Larger banks and non-bank lenders can make larger loans and
service larger customers. Law changes now permit interstate banks, which may
increase competition. Increased competition may decrease the Company's earnings.
NO ASSURANCE OF CASH OR STOCK DIVIDENDS. Whether dividends may be paid to
stockholders depends on the Company's earnings, its capital needs, law and
regulations, and other factors. The Company's payment of dividends in the past
does not mean that the Company will be able to pay dividends in the future.
STOCK NOT ISSUED. Investments in the shares of the Company's common stock
are not deposits that are insured against loss by the government.
RISK INVOLVED IN ACQUISITION. Part of the Company's growth may come from
buying other banks and companies. A newly purchased bank or company may not be
profitable after the Company buys it and may lose money, particularly at first.
The new bank or Company may bring with it unexpected liabilities or bad loans,
bad employee relations, or the new bank or company may lose customers.
RISK OF CLAIMS. Customers may sue the Company for losses due to the
Company's alleged breach of fiduciary duties, errors and omissions of employees,
officers and agents, incomplete
22
<PAGE>
documentation, the Company's failure to comply with application laws and
regulations, or many other reasons. Also, employees of the Company conduct all
of the Company's business. The employees may not be aware of any violations
until after their occurrence. This lack of knowledge will not insulate the
Company from liability. Claims and legal actions may result in legal expenses
and liabilities that may reduce the Company's profitability and hurt its
financial condition.
DEVELOPMENTS IN TECHNOLOGY. Financial services use technology, including
telecommunication, data processing, computers, automation, internet-based
banking, debit cards, and "smart" cards. Technology changes rapidly. The
Company's ability to compete successfully with other banks and non-banks may
depend on whether it can exploit technological changes. The Company may not be
able to exploit technological changes and expensive new technology may not make
the Company more profitable.
ANTI-TAKEOVER EFFECTS OF CERTAIN CHARTER AND BYLAW PROVISIONS. The
Company's Articles of Incorporation and Bylaws divide the Company's Board of
Directors into three classes and each class serves for a staggered three-year
term. No director may be removed except for cause and then only by a vote of at
least6 two-thirds of the total eligible stockholder votes. In addition, Maryland
law contains anti-takeover provisions that apply to the Company. These
provisions may discourage or make it more difficult for another company to buy
the Company or may reduce the market price of the Company's common stock.
23
