<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C.
FORM 10-Q
(Mark One)
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the quarterly period ended June 30, 2000.
____________________________
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934. For the transition period from _______________________.
Commission file number: 0-21815
FIRST MARINER BANCORP
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Maryland 52-1834860
------------------------ ---------------------------------------
(State of Incorporation) (I.R.S. Employer Identification Number)
1801 South Clinton Street, Baltimore, Md 21224 410-342-2600
---------------------------------------- ---------- ------------------
(Address of principal executive offices) (Zip Code) (Telephone Number)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the 90 days.
Yes __X__ No ____
The number of shares of common stock outstanding as of August 11,
2000 was 3,186,854 shares.
<PAGE>
FIRST MARINER BANCORP
INDEX
PART I - FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
<S> <C>
Item 1 - Financial Statements
Consolidated Statements of Financial Condition at
June 30, 2000 (unaudited) and at December 31, 1999........................................3
Consolidated Statements of Operations for the Three Months and Six Months
Ended June 30, 2000 and June 30, 1999 (unaudited).........................................4
Consolidated Statements of Cash Flow for the
Six Months Ended June 30, 2000
and June 30, 1999 (unaudited).............................................................5
Notes to Consolidated Financial Statements (unaudited)......................................6
Item 2 - Management's discussion and analysis of
financial condition and results of operations.............................................9
Item 3 - Quantitative and Qualitative Disclosures About Market Risk.................................16
</TABLE>
PART II - OTHER INFORMATION
<TABLE>
<CAPTION>
<S> <C>
Item 1 - Legal proceedings...........................................................................16
Item 2 - Changes in securities and use of proceeds...................................................16
Item 3 - Defaults on senior securities...............................................................16
Item 4 - Submission of matters to a vote of security holders.........................................16
Item 5 - Other information...........................................................................16
Item 6 - Exhibits and reports on Form 8-K...........................................................16
Signatures...........................................................................................17
</TABLE>
2
<PAGE>
First Mariner Bancorp and Subsidiaries
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
----------------------------------------------------------------------------------------------------------
ASSETS (Unaudited)
<S> <C> <C>
Cash and due from banks $ 19,499 $ 19,490
Interest-bearing deposits 8,559 24,346
Available-for-sale securities, at fair value 188,805 191,895
Loans held for sale 41,155 26,299
Loans receivable 382,765 329,528
Allowance for loan losses (3,704) (3,322)
-------------------------
Loans, net 379,061 326,206
Other real estate owned 1,702 1,360
Federal Home Loan Bank of Atlanta stock, at cost 5,675 4,365
Property and equipment, net 12,078 10,300
Accrued interest receivable 3,975 3,312
Deferred income taxes 6,020 5,781
Prepaid expenses and other assets 4,464 2,718
----------------------------------------------------------------------------------------------------------
Total assets $ 670,993 $ 616,072
----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $ 433,990 $ 368,751
Borrowings 137,351 109,739
Repurchase agreements 52,531 77,185
Company-obligated mandatorily redeemable preferred
securities of subsidiary trust holding solely debentures
of the Company 21,450 21,450
Proceeds on loan sales received in advance -- 14,458
Accrued expenses and other liabilities 3,894 2,626
----------------------------------------------------------------------------------------------------------
Total liabilities 649,216 594,209
----------------------------------------------------------------------------------------------------------
Stockholders' equity
Common stock, $.05 par value; 20,000,000 shares authorized; 3,175,947 shares
issued and 3,166,813 shares issued and outstanding, respectively 159 158
Additional paid-in capital 34,511 34,394
Accumulated deficit (5,653) (5,830)
Accumulated other comprehensive income (loss) (7,240) (6,859)
----------------------------------------------------------------------------------------------------------
Total stockholders' equity 21,777 21,863
----------------------------------------------------------------------------------------------------------
----------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 670,993 $ 616,072
----------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
First Mariner Bancorp and Subsidiary
Consolidated Statements of Operations (Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------------------------------------------------------------------------------------------
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Interest income:
Loans $ 8,643 $ 6,580 $ 16,240 $ 12,348
Investments 3,810 3,246 7,679 6,509
---------------------------------------------------------------------------------------------------------------
Total interest income 12,453 9,826 23,919 18,857
---------------------------------------------------------------------------------------------------------------
Interest expense:
Deposits 4,373 2,790 8,230 5,251
Borrowed funds and other 3,063 2,642 5,822 5,314
---------------------------------------------------------------------------------------------------------------
Total interest expense 7,436 5,432 14,052 10,565
---------------------------------------------------------------------------------------------------------------
Net interest income 5,017 4,394 9,867 8,292
Provision for loan losses 300 230 380 450
Net interest income after provision for loan losses 4,717 4,164 9,487 7,842
Noninterest income:
Gain on sale of loans 469 414 657 854
Service fees on deposits 1,238 879 2,317 1,578
Gain on securities, net 115 86 124 84
Other 513 339 872 695
---------------------------------------------------------------------------------------------------------------
Total noninterest income 2,335 1,718 3,970 3,211
---------------------------------------------------------------------------------------------------------------
Noninterest expenses:
Salaries and employee benefits 3,312 2,758 6,545 5,248
Net occupancy 875 729 1,706 1,414
Furniture, fixtures and equipment 388 306 770 573
Professional services 164 70 260 157
Advertising 250 270 500 444
Data processing 386 300 775 588
Cleaning and maintenance 236 138 437 284
ATM expenses 167 138 308 265
Other 967 780 1,766 1,359
---------------------------------------------------------------------------------------------------------------
Total noninterest expenses 6,745 5,489 13,067 10,332
Income before taxes 307 393 390 721
Provision for income taxes 118 151 150 278
---------------------------------------------------------------------------------------------------------------
Net income $ 189 $ 242 $ 240 $ 443
---------------------------------------------------------------------------------------------------------------
Net income per common share:
Basic $ 0.06 $ 0.08 $ 0.08 $ 0.14
Diluted 0.06 0.07 0.08 0.13
---------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
First Mariner Bancorp and Subsidiaries
Consolidated Statements of Cash Flows (Unaudited)
For the six months ended June 30, 2000 and 1999
<TABLE>
<CAPTION>
Cash flows from operating activities: 2000 1999
---- ----
(dollars in thousands)
<S> <C> <C>
Net income $ 240 $ 443
Adjustments to reconcile net income to net cash
used by operating activities:
Depreciation and amortization 954 726
Amortization of unearned loan fees and costs, net (135) (283)
Amortization of premiums and discounts on loans 14 20
Amortization of premiums and discounts on mortgage-backed securities, net 112 183
Gain on securities (124) (84)
Increase in accrued interest receivable (663) (540)
Provision for loan losses 380 450
Net increase in mortgage loans held-for-sale (14,856) (779)
Net increase (decrease) in accrued expenses and other liabilities 1,268 (1,377)
Decrease in proceeds on loan sales received in advance (14,458) -
Net increase in prepaids and other assets (1,746) (1,264)
Net cash provided by (used in) operating activities (29,014) (2,505)
Cash flows from investing activities:
Loan disbursements, net of principal repayments (53,114) (57,765)
Purchases of property and equipment (2,732) (2,645)
Redemptions (purchases) of Federal Home Loan Bank of Atlanta stock (1,310) (410)
Purchases of available for sale securities (18,942) (17,219)
Sales of available for sale securities 12,653 4,222
Principal repayments of available for sale securities 8,771 17,777
Construction disbursements-other real estate owned (677) (103)
Sales of other real estate owned 335 428
Net cash used in investing activities (55,016) (55,715)
Cash flows from financing activities:
Net increase in deposits 65,239 64,652
Net increase (decrease) in other borrowings (19,242) (2,882)
Proceeds from advances from Federal Home Loan Bank of Atlanta 144,500 48,700
Repayment of advances from Federal Home Loan Bank of Atlanta (122,300) (40,500)
Proceeds from stock issuance, net 118 -
Dividends paid (63) (63)
Net cash provided by financing activities 68,252 69,907
(Decrease) increase in cash and cash equivalents (15,778) 11,687
Cash and cash equivalents at beginning of period 43,836 24,439
Cash and cash equivalents at end of period $ 28,058 $ 36,126
---------------------------------------------------------------------------------------------------------------------------
Supplemental information:
Interest paid on deposits and borrowed funds $ 13,840 $ 9,965
Real estate acquired in satisfaction of loans 575 -
Income taxes paid 441 518
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
5
<PAGE>
FIRST MARINER BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED JUNE 30, 2000 AND 1999
(UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION
The foregoing consolidated financial statements of First Mariner
Bancorp (the "Company") are unaudited; however, in the opinion of management,
all adjustments (comprising only normal recurring accruals) necessary for a fair
presentation of the results of interim periods have been included. These
statements should be read in conjunction with the financial statements and
accompanying notes included in First Mariner Bancorp's Annual Report on Form
10-K for the year ended December 31, 1999. The results shown in this interim
report are not necessarily indicative of results to be expected for the full
year.
Consolidation of financial information has resulted in the elimination
of all significant intercompany accounts and transactions.
NOTE 2 - COMPREHENSIVE INCOME (DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
Six months ended
June 30,
2000 1999
(Unaudited)
(dollars in thousands)
<S> <C> <C>
Net income $ 240 $ 443
Other comprehensive income items:
Unrealized holding losses arising during the period
(net of tax (benefit) of $(187) and $(2,019), respectively) (305) (3,290)
Less: reclassification adjustment for gains (net of taxes of
$48 and $32, respectively) included in net income 76 52
Total other comprehensive income (loss) (381) (3,342)
---------------------------------------------------------------------------------------------------
Total comprehensive income (loss) $ (141) $(2,899)
===================================================================================================
</TABLE>
6
<PAGE>
NOTE 3 - PER SHARE DATA
Basic earnings per share is computed by dividing income available to
common shareholders by the weighted-average number of common shares outstanding.
Diluted earnings per share is computed after adjusting the numerator and
denominator of the basic earnings per share computation for the effects of all
dilutive potential common shares outstanding during the period. The dilutive
effects of options, warrants and their equivalents are computed using the
"treasury stock" method.
Information relating to the calculation of earnings per common share is
summarized as follows:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, 2000 June 30, 1999 June 30, 2000 June 30, 1999
<S> <C> <C> <C> <C>
Net income-basic and diluted $ 188,593 $ 241,619 $ 239,662 $ 443,156
-----------------------------------------------------------------
Weighted-average shares outstanding 3,175,988 3,166,813 3,171,451 3,166,813
Dilutive securities-options and warrants -- 225,773 -- 257,192
-----------------------------------------------------------------
Adjusted weighted-average shares-dilutive 3,175,988 3,392,586 3,171,451 3,424,005
-----------------------------------------------------------------
</TABLE>
NOTE 4 - SEGMENT INFORMATION
The Company is in the business of providing financial services, and
operates in two business segments -commercial and consumer banking and mortgage
banking. Commercial and consumer banking is conducted through the Bank and
involves delivering a broad range of financial products and services, including
lending and deposit taking, to individuals and commercial enterprises. Mortgage
banking is conducted through First Mariner Mortgage Corporation, a subsidiary of
the Bank, and involves originating residential single family mortgages for sale
in the secondary market and to the Bank.
<TABLE>
<CAPTION>
For the quarter ended June 30, 2000
(dollars in thousands)
<S> <C> <C>
Total revenue:
Commercial and consumer banking $ 6,207 (1)
Mortgage banking 1,312
Less related party transactions (167) (3)
------------
Net mortgage banking 1,145 (2)
------------
Consolidated revenue $ 7,352
============
Income (loss) before income taxes:
Commercial and consumer banking $ 257
Mortgage banking 217
Less related party transactions (167) (3)
------------
Net mortgage banking 50 (2)
------------
Consolidated income before income taxes $ 307
============
</TABLE>
(1) Includes net interest income of $5,017.
(2) Includes net interest income of $306.
(3) Management's policy for the mortgage banking segment is to
7
<PAGE>
recognize a value for loans sold to the Bank at market prices
determined on a loan by loan basis.
<TABLE>
<CAPTION>
For the six month period ended June 30, 2000
(dollars in thousands)
<S> <C> <C>
Total revenue:
Commercial and consumer banking $ 11,989 (1)
Mortgage banking 2,239
Less related party transactions (391) (3)
----------
Net mortgage banking 1,848 (2)
---------
Consolidated revenue $ 13,837
=========
Income (loss) before income taxes:
Commercial and consumer banking $ 817
Mortgage banking (36)
Less related party transactions (391) (3)
----------
Net mortgage banking (427)(2)
---------
Consolidated income before income taxes $ 390
=========
Identifiable assets:
Commercial and consumer banking $646,647
Mortgage banking 24,346
---------
Consolidated total assets $670,993
=========
</TABLE>
(1) Includes net interest income of $9,867.
(2) Includes net interest income of $575.
(3) Management's policy for the mortgage banking segment is to
recognize a value for loans sold to the Bank at market prices
determined on a loan by loan basis.
<TABLE>
<CAPTION>
For the quarter ended June 30, 1999
(dollars in thousands)
<S> <C> <C>
Total revenue:
Commercial and consumer banking $ 5,324
Mortgage banking 1,224
Less related party transactions (436)
----------
Net mortgage banking 788
---------
Consolidated revenue $ 6,112
=========
Income (loss) before income taxes:
Commercial and consumer banking $ 700
Mortgage banking 129
Less related party transactions (436)
----------
Net mortgage banking (307)
---------
Consolidated income before income taxes $ 393
=========
</TABLE>
(1) Includes net interest income of $4,464.
8
<PAGE>
(2) Includes net interest income of $125.
(3) Management's policy for the mortgage banking segment is to
recognize a value for loans sold to the Bank at market prices
determined on a loan by loan basis.
<TABLE>
<CAPTION>
For the six month period ended June 30, 1999
(dollars in thousands)
Total revenue:
<S> <C> <C>
Commercial and consumer banking $ 10,019
Mortgage banking 2,381
Less related party transactions (897)
----------
Net mortgage banking 1,484
---------
Consolidated revenue $ 11,503
=========
Income (loss) before income taxes:
Commercial and consumer banking $ 1,336
Mortgage banking 282
Less related party transactions (897)
----------
Net mortgage banking (615)
---------
Consolidated income before income taxes $ 721
=========
Identifiable assets:
Commercial and consumer banking $ 537,792
Mortgage banking 25,326
---------
Consolidated total assets $ 563,118
=========
</TABLE>
(1) Includes net interest income of $8,292.
(2) Includes net interest income of $195.
(3) Management's policy for the mortgage banking segment is to
recognize a value for loans sold to the Bank at market prices
determined on a loan by loan basis.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion should be read and reviewed in conjunction
with Management's Discussion and Analysis of Financial Condition and Results of
Operations set forth in the Company's Annual Report on Form 10-K for the year
ended December 31, 1999.
In addition to historical information, this Form 10-Q contains
forward-looking statements that involve risks and uncertainties, such as
statements of the Company's plans and expectations regarding the Year 2000 and
other matters, and unknown outcomes. The Company's actual results could differ
materially from management's expectations. Factors that could contribute to
those differences include, but are not limited to, changes in regulations
applicable to the Company's business, successful implementation of Company's
branch expansion strategy, its concentration in real estate lending, increased
competition, changes in technology, particularly internet banking, impact of
interest rates, possibility of economic recession or slow down (which could
impact credit quality, adequacy of loan loss reserve and loan growth)
9
<PAGE>
and control by and dependency on key personnel, particularly Edwin F. Hale, Sr.,
chairman of the board of directors and CEO of the Company.
THE COMPANY
The Company is a bank holding company formed in Maryland in 1994 under
the name MarylandsBank Corporation that later changed its name to First Mariner
Bancorp in May 1995. The business of the Company is conducted primarily through
its wholly-owned Subsidiary First Mariner Bank (the "Bank"), whose deposits are
insured by the Federal Deposit Insurance Corporation ("FDIC"). The Bank, which
is headquartered in Baltimore City, serves the central region of the State of
Maryland through 25 full service branches and 41 Automated Teller Machines.
The Bank is an independent community bank engaged in the general
commercial banking business with particular emphasis on the needs of individuals
and small to mid-sized businesses. The Bank emphasizes personal attention and
professional service to its customers while delivering a range of traditional
and contemporary financial products.
The Company's executive offices are located at 1801 South Clinton
Street, Baltimore, Maryland 21224 and its telephone number is (410) 342 - 2600.
FINANCIAL CONDITION
The Company's total assets were $670,993,000 at June 30, 2000, compared
to $616,072,000 at December 31, 1999, increasing $54,921,000 or 8.9% for the
first six months of 2000. Earning assets increased $50,526,000 or 8.8% to
$626,959,000 from $576,433,000, primarily due to increases in loans outstanding
of $53,237,000.
Total loans receivable increased $53,237,000 or 16.2% to $382,765,000
for the first six months of 2000. The majority of the increase was real estate
secured loans. Mortgage loans held for sale increased $14,856,000 from
$26,299,000 at December 31, 1999 to $41,155,000 at June 30, 2000. First Mariner
Mortgage Corporation originated $205,275,000 of residential mortgages during the
first six months of 2000 in comparison to approximately $182,933,000 during the
first six months of 1999. Increased loan demand and additions to the loan
production staff were the significant factor in the growth in residential
mortgages.
10
<PAGE>
The loan portfolio was comprised of the following (dollars in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
-------------- --------------
Amount Amount
------ ------
Type of Loans
-------------
<S> <C> <C>
Commercial $ 73,095 $ 67,917
Commercial real estate and construction (1) 171,012 141,169
Residential real estate 101,523 85,874
Consumer 37,760 35,101
-------------- --------------
Total loans 383,390 330,061
-------------- --------------
Unamortized loan premiums 43 47
Unearned income and costs, net 668 580
-------------- --------------
Loans receivable $ 382,765 $ 329,528
============== ==============
</TABLE>
(1) Net of undisbursed principal
CREDIT RISK MANAGEMENT
The second quarter provision for loan losses in 2000 was $300,000
resulting in a year-to-date provision for loan losses of $380,000 which compares
to $450,000 for the six month period ended June 30, 1999. The allowance for loan
losses stands at $3,704,000 at June 30, 2000 compared to $3,322,000 at December
31, 1999. As of June 30, 2000 the allowance for loan losses is 0.97% of
outstanding loans as compared to 1.01% at December 31, 1999. The allowance for
loan losses as a percentage of non-residential real estate loans was 1.32% at
June 30, 2000 as compared to 1.36% at December 31, 1999.
Activity in the allowance for loan losses is as follows:
<TABLE>
<CAPTION>
Allowance for Loan Losses
(Dollars in thousands) Six Months Ended June 30,
-------------------------
2000 1999
---- ----
<S> <C> <C>
Allowance for loan losses, beginning of year $ 3,322 $ 2,676
Loans charged off:
Commercial - -
Real estate - -
Consumer (3) (6)
Total loans charged off (3) (6)
Recoveries
Commercial - -
Real estate - -
Consumer 5 2
-------------------------------------------------------------------------------------------------
Total recoveries 5 2
</TABLE>
11
<PAGE>
<TABLE>
<S> <C> <C>
Net chargeoffs 2 (4)
Provision for loan losses 380 450
Allowance for loan losses, end of year $ 3,704 $ 3,122
=============================
Loans (net of premiums and discounts)
Period-end balance 382,765 300,749
Average balance during period 375,505 270,292
Allowance as percentage of period-end loan balance 0.97% 1.04%
Percent of average loans:
Provision for loan losses 0.21% 0.34%
Net chargeoffs (0.00%) 0.00%
</TABLE>
12
<PAGE>
Non-performing assets, expressed as a percentage of total assets,
decreased to 0.85% at June 30, 2000 from 0.91% at December 31, 1999, reflecting
the decrease in loans on nonaccrual basis of $199,000 and the increase in
assets. The increase in other real owned for the period was due to the
foreclosure of residential real estate properties during the quarter.
<TABLE>
<CAPTION>
June 30, December 31, June 30,
-----------------------------------------------
2000 1999 1999
---- ---- ----
<S> <C> <C> <C>
Loans on nonaccrual basis $ 4,030 $ 4,229 $ 1,090
Real estate acquired by foreclosure
1,702 1,360 1,308
-----------------------------------------------
Total non-performing assets $ 5,732 $ 5,589 $ 2,398
===============================================
Loans past-due 90 days or more and accruing $ 2,505 $ 2,062 $ 541
===============================================
</TABLE>
At June 30, 2000, the allowance for loan losses represented 91.9% of
nonaccruing loans compared to 78.6% at December 31, 1999. Management believes
the allowance for loan losses at June 30, 2000 is adequate.
DEPOSITS
Deposits were $433,990,000 as of June 30, 2000, increasing $65,239,000
or 17.7% from the December 31, 1999 balance of $368,751,000. The increase in
deposits is attributable to management's growth strategy, which includes
significant marketing and promotion and the development of a branching network.
RESULTS OF OPERATIONS
NET INCOME. Second quarter, 2000 net income was $189,000 compared to
earnings of $242,000 for the second quarter of 1999. The reduction in earnings
was primarily associated with the expansion of the Bank's mortgage banking
subsidiary, First Mariner Mortgage Corporation (FMMC) and the Bank's branch
locations. FMMC now has ten mortgage banking offices in Maryland and Virginia
while the Bank currently has 25 branch locations.
NET INTEREST INCOME. Second quarter net interest income before
provision for loan losses was $5,017,000 in 2000, an increase of 14.2% over
$4,394,000 for the second quarter of 1999, reflecting primarily an increase of
$95,489,000 in average earning assets. The increase in average earning assets
consisted primarily of an increase of $83,943,000 in average loans. The net
interest margin was 3.38% for the first six months of 2000 as compared to 3.40%
for the comparable period of 1999.
NONINTEREST INCOME AND EXPENSES - Noninterest income increased $617,000
or 35.9% for the second quarter of 2000 to $2,335,000 from $1,718,000 for the
second quarter of 1999. The principal reason for the increase was an increase in
deposit related fees.
Deposit service charges rose 40.8% as compared to the quarter ending
June 30, 1999 which is primarily due to the increased number of deposit
accounts. The number of deposit accounts increased approximately 37% to over
50,000 accounts. These increases are the result of continuing marketing and
promotion of the retail banking products.
The gain on the sales of securities was $115,000 for the quarter ending
June 30, 2000 compared to a gain of $86,000 for the quarter ending June 30,
1999. For the six month period ended June 30, 2000 gains were $124,0000 as
compared to $84,000 for the period ended June 30, 1999.
Second quarter noninterest expense increased $1,256,000 or 22.9% to
$6,745,000 in 2000 from $5,489,000 in the second quarter of 1999. Increases in
almost all categories of expense were incurred to
13
<PAGE>
support the substantially increased asset base and the expanding branch network
including increases in personnel.
INCOME TAXES- The Company recorded income tax expense of $150,000
on income before taxes of $390,000, resulting in an effective tax rate of 38.62%
for the six month period ended June 30, 2000.
LIQUIDITY AND CAPITAL RESOURCES
Stockholders' equity decreased $86,000 in the first six months of 2000
to $21,777,000 from $21,863,000 as of December 31, 1999. The change is due to
the decrease in accumulated other comprehensive income which decreased $381,000
resulting from the decline in net unrealized holding gains on certain
investments. This decrease was partially offset by net income of $240,000 for
the first six months of 2000.
The first cash dividend for the Company was paid on May 31, 1999, a
second quarter dividend was paid on August 31, 1999 and a third quarter dividend
was paid on November 30, 1999. A cash dividend was paid on February 29, 2000 for
the fourth quarter of 1999. The Company's Board of directors suspended the cash
dividend for 2000 in order to retain capital to fund the continued strong asset
growth and does not intend to reinstitute a cash dividend until earnings are
sufficient to generate adequate internal capital to support growth.
Banking regulatory authorities have implemented strict capital
guidelines directly related to the credit risk associated with an institution's
assets. Banks and bank holding companies are required to maintain capital levels
based on their "risk adjusted" assets so that categories of assets with higher
"defined" credit risks will require more capital support than assets with lower
risk. Additionally, capital must be maintained to support certain off-balance
sheet instruments.
The Bank has exceeded its capital adequacy requirements to date. The
Company regularly monitors its capital adequacy ratios to assure that the Bank
exceeds its regulatory capital requirements. The regulatory capital ratios are
listed below:
<TABLE>
<CAPTION>
At June 30,
--------------------------------
(unaudited)
2000 1999
<S> <C> <C>
Regulatory capital ratios
Leverage
Consolidated 6.0% 7.3%
The Bank 6.2% 7.1%
Tier 1 capital to risk weighted assets
Consolidated 9.4% 11.5%
The Bank 9.7% 11.8%
Total capital to risk weighted assets
Consolidated 13.1% 16.0%
The Bank 10.6% 12.8%
</TABLE>
The Bank's principal sources of liquidity are cash and cash
equivalents, which are cash on hand, amounts due from financial institutions,
federal funds sold, stock investments, money market mutual funds, interest
bearing deposit and available-for-sale securities. The levels of such assets are
dependent on the Bank's operating, financing and investment activities at any
given time and are influenced by anticipated deposit flows and loan growth.
14
<PAGE>
RECENT ACCOUNTING DEVELOPMENTS
In June 1998, the Financial Accounting Standards Board issued SFAS No.
133, "ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES" ("SFAS No.
133"). SFAS No. 133 established accounting and reporting standards for
derivative instruments, including certain derivative instruments embedded in
other contracts (collectively referred to as derivatives) and for hedging
activities. It requires that an entity recognize all derivatives as either
assets or liabilities in the statement of financial condition and measure those
instruments at fair value. In June 1999, the FASB issued SFAS No. 137,
"ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES - DEFERRAL OF THE
EFFECTIVE DATE OF FASB STATEMENT NO. 133" ("SFAS No. 137"). Pursuant to SFAS No.
137, the revised effective date of SFAS No. 133 is for all fiscal quarters of
all fiscal years beginning after June 15, 2000. Earlier application is
encouraged. Upon application, hedging relationships must be designated anew and
documented and recognized in accordance with the transition pursuant to the
provisions of SFAS Nos. 133 and 137. While the Company has not completed its
analysis of SFAS Nos. 133 and 137 and has not made a decision regarding timing
of adoption, management does not believe that adoption will have a material
effect on the financial position or results of operations since the Bank is not
currently using derivative instruments.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Results of operations for financial institutions, including the
Company, may be materially and adversely affected by changes in prevailing
economic conditions, including declines in real estate values, rapid changes in
interest rates and the monetary and fiscal policies of the federal government.
The profitability of the Company is in part a function of the spread between the
interest rates earned on assets and the interest rates paid on deposits and
other interest-bearing liabilities (net interest income), including advances
from Federal Home Loan Bank of Atlanta ("FHLB") and other borrowings. Interest
rate risk arises from mismatches (i.e., the interest sensitivity gap) between
the dollar amount of repricing or maturing assets and liabilities and is
measured in terms of the ratio of the interest rate sensitivity gap to total
assets. More assets repricing or maturing than liabilities over a given time
period is considered asset-sensitive and is reflected as a positive gap, and
more liabilities repricing or maturing than assets over a give time period is
considered liability-sensitive and is reflected as negative gap. An
asset-sensitive position (i.e., a positive gap) will generally enhance earnings
in a rising interest rate environment and will negatively impact earnings in a
falling interest rate environment, while a liability-sensitive position (i.e., a
negative gap) will generally enhance earnings in a falling interest rate
environment and negatively impact earnings in a rising interest rate
environment. Fluctuations in interest rates are not predictable or controllable.
The Company has attempted to structure its asset and liability management
strategies to mitigate the impact on net interest income of changes in market
interest rates. However, there can be no assurance that the Company will be able
to manage interest rate risk so as to avoid significant adverse effects on net
interest income. At June 30, 2000, the Company had a one year cumulative
negative gap of approximately $197 million.
15
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PART II - Other Information
Item 1 - Legal proceedings - None
Item 2 - Changes in securities and use of proceeds - None
Item 3 - Defaults on senior securities - None
Item 4 - Submission of matters to a vote of security holders-None
Item 5 - Other information - None
Item 6 - Exhibits and reports on Form 8-K
a. Exhibits-27 Financial Data Schedule filed electronically herein
b. Reports on Form 8-K
16
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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: 8/11/00 By: /s/ Edwin F. Hale Sr.
------------------- ----------------------
Edwin F. Hale Sr.
Chairman and Chief Executive Officer
Date: 8/11/00 By: /s/ Joseph A. Cicero
------------------ --------------------------------
Joseph A. Cicero
President
17
