First Mariner Reports 2006 Results
31 January 2007
First Mariner Bancorp (Nasdaq: FMAR), parent company of First Mariner Bank and Finance Maryland, LLC, today announced a net loss for the fourth quarter of 2006 of $3.980 million (-$.59 per diluted share) compared to net income for the quarter ended December 31, 2005 of $2.507 million ($.37 per diluted share). For the year ended December 31, 2006, First Mariner reported net income totaling $1.924 million ($.29 per diluted share), decreasing from $7.822 million ($1.20 per diluted share) for the same period last year. First Mariner reported its total assets ended the fourth quarter at $1.262 billion.
Edwin F. Hale, Sr., First Mariner's chairman and chief executive officer, said, "Our results for the fourth quarter were negatively impacted by our previously announced balance sheet restructuring, and significant valuation allowances and secondary marketing reserves related to our mortgage banking activities. Weakness in the residential housing sector has materially impacted our asset quality measures and resulted in slower asset and revenue growth as well. While our results are a reflection of issues facing the banking industry as a whole, they are disappointing and we have taken steps to improve our results in 2007."
Mortgage Banking Update
First Mariner noted its results for the fourth quarter were lower than previously announced estimates (press release of December 22, 2006) as the company continued to experience a higher level of mortgage loan delinquencies, increased volume of loans repurchased under recourse provisions, and potential loan repurchases. Increases in valuation allowances and secondary marketing reserves related to these trends totaled $4.0 million in the fourth quarter and $4.5 million year to date. The valuation and secondary marketing reserves have been established for second mortgages originated by First Mariner Bank, and were deemed appropriate by management due to delinquent status, higher loan to value ratios, and recent softness in regional and national housing prices. Valuation reserves on both existing 90-day delinquent second mortgages, and expected first quarter repurchases totaled $3.133 million. The company has estimated an additional $2.0 million of second mortgages originated in 2006 will be repurchased throughout the remainder of 2007 (based upon recent repurchase experience), and has established a secondary marketing reserve of $1.0 million for the estimated repurchase related to these loans. Period end valuation allowances and reserves of $4.1 million are in addition to the company's allowance for loan losses of $12.4 million.
In establishing the valuation allowance and secondary marketing reserve, management needed to make significant assumptions concerning the ultimate collectibility of loans currently delinquent, and those expected to be repurchased in the future. Additionally, a portion of these reserves are based upon projected volume of repurchases. While these projections were made with the most current data available to management, actual realized losses could differ due to the changes in the borrowers' willingness or ability to resolve the delinquency status, changes in the actual volume of future repurchases, or changes in market values of those loans which are liquidated. Management will update these assumptions continually as greater experience becomes available. Any significant change in these estimates will be reflected in the Company's audited financial statements filed in its Form 10- K, expected to be filed in early March of 2007.
In response to these trends, management began to take steps in the third quarter of 2006 to modify underwriting guidelines and strengthen borrower qualification terms. More recently, management has dramatically reduced its offering of second mortgage products through broker channels.
Investment Portfolio Restructure
Also reflected in the fourth quarter and full year's results was the previously announced restructure of the company's balance sheet, involving the sale of approximately $100 million of investment securities and an equal reduction of short-term borrowings. The restructure resulted in a realized loss of $3.062 million during the quarter, but is expected to have a positive impact on the company's net interest margin and future operating results.
Other Operating Data
Comparing balance sheet data as of December 31, 2006 balances to December 31, 2005, total assets were $1.262 billion, compared to $1.362 billion last year. Loans outstanding increased $15 million (+2%), led by growth in Finance Maryland receivables that grew by $19 million (+40%), increases in residential mortgage loans of $15 million (+37%), bank consumer loans of $5 million (+4%), and commercial loans grew by $7 million (+1%). Residential construction loans decreased by $31 million (-24%). Total mortgage loan originations totaled $332 million for the fourth quarter of 2006, compared to $374 million for the same period of 2005, largely due to softer demand in the mortgage lending division. Deposits totaled $925 million (+6%) compared to $876 million at December 31, 2005. Noninterest bearing checking accounts increased $6 million (+3%), interest bearing checking accounts grew by $3 million (+11%) and money market accounts grew by $62 million (+32%). Certificates of Deposit decreased $9 million (-2%), and savings accounts fell by $11 million (-16%).
-- Total revenue decreased $2.606 million compared with the fourth
quarter of 2005, primarily due to losses realized on security sales of
$3.062 million. Excluding the losses on sales of securities, revenue
increased $456 thousand (+2%). Net interest income decreased by $146
thousand (-1%), while non-interest income (excluding sales of
securities) increased by $602 million (+9%).
-- Average earning assets declined by $28 million, was partially offset
with an increase in the Company's net interest margin and resulted in
relatively flat net interest income levels. Also impacting net
interest income was increased levels of loans placed on non-accrual
status that reduced interest income approximately $100 thousand. First
Mariner's net interest margin for the fourth quarter of 2006 increased
to 3.82% from 3.80% for the same period of 2005 as earning asset
yields increased more than the cost of deposits.
-- The provision for loan losses increased $233 thousand compared to the
same quarter last year, due to a slight increase in net charge-offs,
and an increase in the allowance for credit losses to reflect
increased levels in delinquent loans in the company's commercial loan
portfolio. Net charge-offs increased to $607 thousand compared to
$302 thousand last year. The allowance for loan losses increased to
$12.399 million from $11.743 million at December 31, 2005, and totaled
1.43% of loans outstanding compared to 1.38% last year. Non-performing
assets increased to $6.598 million (0.52% of total assets) from $3.950
million (0.29% of total assets) last year. Most of this increase is
attributable to higher levels of non-performing residential mortgage
loans. Accruing Loans 90 days or more past due increased to $27.272
million (3.15% of total loans) from $860 thousand (0.10% of total
loans) last year. This increase in 90-day delinquent loans is
attributable to increases in both residential and commercial loans
past due. Of the total, $16.278 million (9 loans) are well secured
commercial and commercial real estate loans, $9.845 million are 1st
lien residential real estate loans, and $1.044 million of residential
construction loans.
-- Non-interest income decreased by $2.460 million mainly due to the
realized securities losses of $3.062 million. Service fees on
deposits decreased $162 thousand due to lower levels of overdraft
income. Gains on sales of mortgage loans and other mortgage banking
revenue increased $690 thousand due to higher realized profit margins
on the sales of loans and lower charge-backs for early payoffs.
-- Noninterest expenses increased by $7.260 million. Included in
operating expenses were provisions for valuation allowances and
secondary marketing reserves of $4.000 million. Salaries and benefits
increased by $1.475 million due to increased staffing levels and
higher benefit costs. Occupancy and equipment related costs grew by
$801 thousand due to expansion of consumer finance operations,
additional space occupied during the quarter for the new executive and
administrative offices, and increased amortization of property
improvements. All other noninterest expenses increased $984 thousand
primarily due to costs associated with increased mortgage origination
expenses and write-downs of other real estate owned.
-- Income tax expense for the quarter reflects a one-time benefit from
the elimination of the remaining portion of the valuation allowance
the company had previously booked to reflect the uncertainty of
certain state income tax operating loss carry-forwards. The company
reduced the valuation by $97 thousand during the quarter due to the
likely realization of these loss carry-forwards in the future, which
reduced reported income tax expense.
-- Stockholders' Equity increased by $5.668 million (+8%). Growth in
stockholders' equity reflects the retention of earnings for the twelve
months ($1.9 million), purchases of common stock through the exercise
of options, warrants, and participation in stock purchase plans
totaling $1.3 million. Increases in the market value of securities
classified as available for sale raised stockholders' equity by $2.4
million. First Mariner's book value per share was $12.14 as of
December 31, 2006. Capital Ratios were improved compared to last year
and ended the quarter as follows: Leverage Ratio = 7.7%; Tier 1 risk-
based ratio = 9.9%; Total Capital Ratio = 15.4%. All capital ratios
exceed levels to qualify for "Well Capitalized" status under current
regulatory definitions.
First Mariner Bancorp is a bank holding company with total assets of $1.262 billion. Its wholly owned banking subsidiary, First Mariner Bank, (total assets $1.163 billion) operates 25 full-service bank branches in Baltimore, Anne Arundel, Harford, Howard, Talbot, and Worcester counties in Maryland, and the City of Baltimore. First Mariner Mortgage, a division of First Mariner Bank, operates 11 retail offices in Central Maryland, the Eastern Shore of Maryland, and Northern Virginia. First Mariner Mortgage also operates wholesale lending operations in Northern Virginia, and direct marketing mortgage operations in Baltimore City. Finance Maryland, LLC, (total assets $66 million) is a consumer finance subsidiary that currently operates 16 branches in Baltimore, Carroll, Cecil, Frederick, Harford, Wicomico, and Washington counties in Maryland, four branches in Delaware, as well as a central approval center in Baltimore City. First Mariner Bancorp's common stock is traded on the Nasdaq National Market under the symbol "FMAR." First Mariner's Web site address is http://www.1stMarinerBancorp.com, which includes comprehensive level investor information.
In addition to historical information, this press release contains forward-looking statements that involve risks and uncertainties, such as statements of the Company's plans and expectations regarding efficiencies resulting from new programs and expansion activities, revenue growth, anticipated expenses, profitability of mortgage banking operations, and other 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 the 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 slowdown (which could impact credit quality, adequacy of loan loss reserve and loan growth) and control by and dependency on key personnel, particularly Edwin F. Hale, Sr., Chairman of the Board of Directors and CEO of the Company.
FINANCIAL HIGHLIGHTS (UNAUDITED)
First Mariner Bancorp
(Dollars in thousands, except per share data)
For the three months ended December 31,
2006 2005 $ Change % Change
Summary of Earnings:
Net interest income $11,978 $12,124 (146) -1%
Provision for loan losses 1,009 776 233 30%
Noninterest income 3,881 6,341 (2,460) -39%
Noninterest expense 21,295 14,035 7,260 52%
Income before income taxes (6,445) 3,654 (10,099) -276%
Income tax expense (2,465) 1,147 (3,612) -315%
Net income (3,980) 2,507 (6,487) -259%
Profitability and Productivity:
Return on average assets -1.16% 0.73% - -260%
Return on average equity -19.65% 13.99% - -241%
Net interest margin 3.82% 3.80% - 1%
Net overhead ratio 4.19% 2.23% - 88%
Efficiency ratio 112.55% 76.01% - 48%
Mortgage loan production 331,992 374,056 (42,064) -11%
Average deposits per branch 36,998 35,040 1,957 6%
Per Share Data:
Basic earnings per share $(0.62) $0.41 (1.03) -251%
Diluted earnings per share $(0.59) $0.37 (0.96) -261%
Book value per share $12.14 $11.60 0.54 5%
Number of shares outstanding 6,427,725 6,262,442 165,283 3%
Average basic number of shares 6,437,274 6,251,801 185,473 3%
Average diluted number of
shares 6,700,377 6,623,583 76,794 1%
Summary of Financial Condition:
At Period End:
Assets $1,262,207 $1,362,478 (100,271) -7%
Investment Securities 147,289 276,939 (129,650) -47%
Loans 866,407 851,586 14,821 2%
Deposits 924,939 876,010 48,929 6%
Borrowings and repurchase
agreements 173,442 330,376 (156,934) -48%
Stockholders' equity 78,043 72,375 5,668 8%
Average for the period:
Assets $1,359,809 $1,368,291 (8,482) -1%
Investment Securities 246,869 281,654 (34,785) -12%
Loans 855,543 841,680 13,863 2%
Deposits 909,640 870,535 39,105 4%
Borrowings and repurchase
agreements 359,475 420,687 (61,212) -15%
Stockholders' equity 80,337 71,111 9,226 13%
Capital Ratios:
Leverage 7.7% 7.4% - 4%
Tier 1 Capital to risk weighted
assets 9.9% 9.5% - 4%
Total Capital to risk weighted
assets 15.4% 14.9% - 3%
Asset Quality Statistics and
Ratios:
Net Chargeoffs 607 302 305 101%
Non-performing assets 6,598 3,950 2,648 67%
90 Days or more delinquent
loans 27,272 860 26,412 3071%
Annualized net chargeoffs to
average loans 0.28% 0.14% - 98%
Non-performing assets to total
assets 0.52% 0.29% - 80%
90 Days or more delinquent
loans to total loans 3.15% 0.10% - 3017%
Allowance for loan losses to
total loans 1.43% 1.38% - 4%
FINANCIAL HIGHLIGHTS (UNAUDITED)
First Mariner Bancorp
(Dollars in thousands, except per share data)
For the twelve months ended December 31,
2006 2005 $ Change % Change
Summary of Earnings:
Net interest income $49,266 $47,723 1,543 3%
Provision for loan losses 2,315 3,287 (972) -30%
Noninterest income 23,767 23,015 752 3%
Noninterest expense 69,158 56,340 12,818 23%
Income before income taxes 1,560 11,111 (9,551) -86%
Income tax expense (364) 3,289 (3,653) -111%
Net income 1,924 7,822 (5,898) -75%
Profitability and Productivity:
Return on average assets 0.14% 0.59% - -76%
Return on average equity 2.53% 11.44% - -78%
Net interest margin 3.96% 3.88% - 2%
Net overhead ratio 3.11% 2.50% - 24%
Efficiency ratio 90.91% 79.65% - 14%
Mortgage loan production 1,354,622 1,459,063 (104,441) -7%
Average deposits per branch 36,998 35,040 1,957 6%
Per Share Data:
Basic earnings per share $0.30 $1.28 (0.98) -76%
Diluted earnings per share $0.29 $1.20 (0.91) -76%
Book value per share $12.14 $11.60 0.54 5%
Number of shares outstanding 6,427,725 6,262,442 165,283 3%
Average basic number of shares 6,318,205 6,104,481 213,724 4%
Average diluted number of
shares 6,641,819 6,489,119 152,700 2%
Summary of Financial Condition:
At Period End:
Assets $1,262,207 $1,362,478 (100,271) -7%
Investment Securities 147,289 276,939 (129,650) -47%
Loans 866,407 851,586 14,821 2%
Deposits 924,939 876,010 48,929 6%
Borrowings and repurchase
agreements 173,442 330,376 (156,934) -48%
Stockholders' equity 78,043 72,375 5,668 8%
Average for the period:
Assets $1,361,181 $1,332,822 28,359 2%
Investment Securities 262,968 299,709 (36,741) -12%
Loans 855,218 804,719 50,499 6%
Deposits 886,551 857,837 28,714 3%
Borrowings and repurchase
agreements 389,532 401,529 (11,997) -3%
Stockholders' equity 76,079 68,365 7,714 11%
Capital Ratios:
Leverage 7.7% 7.4% - 4%
Tier 1 Capital to risk weighted
assets 9.9% 9.5% - 4%
Total Capital to risk weighted
assets 15.4% 14.9% - 3%
Asset Quality Statistics and
Ratios:
Net Chargeoffs 1,659 1,124 535 48%
Non-performing assets 6,598 3,950 2,648 67%
90 Days or more delinquent
loans 27,272 860 26,412 3071%
Annualized net chargeoffs to
average loans 0.19% 0.14% - 39%
Non-performing assets to total
assets 0.52% 0.29% - 80%
90 Days or more delinquent
loans to total loans 3.15% 0.10% - 3017%
Allowance for loan losses to
total loans 1.43% 1.38% - 4%
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (UNAUDITED)
First Mariner Bancorp
(Dollars in thousands)
As of December 31,
2006 2005 $ Change % Change
Assets:
Cash and due from banks $36,734 $40,157 (3,423) -9%
Interest-bearing deposits 6,235 5,678 557 10%
Available-for-sale investment
securities, at fair value 147,289 276,939 (129,650) -47%
Loans held for sale 94,371 92,351 2,020 2%
Loans receivable 866,407 851,586 14,821 2%
Allowance for loan losses (12,399) (11,743) (656) 6%
Loans, net 854,008 839,843 14,165 2%
Other real estate owned 2,440 931 1,509 162%
Restricted stock investments, at
cost 6,449 13,647 (7,198) -53%
Property and equipment 49,062 40,402 8,660 21%
Accrued interest receivable 10,578 8,037 2,541 32%
Deferred income taxes 6,823 5,940 883 15%
Bank owned life insurance 33,492 27,375 6,117 22%
Prepaid expenses and other
assets 14,726 11,178 3,548 32%
Total Assets $1,262,207 $1,362,478 (100,271) -7%
Liabilities and Stockholders' Equity:
Liabilities:
Deposits $924,939 $876,010 48,929 6%
Borrowings 173,442 330,376 (156,934) -48%
Repurchase agreements - - -
Junior subordinated deferrable
interest debentures 73,724 73,724 - 0%
Accrued expenses and other
liabilities 12,059 9,993 2,066 21%
Total Liabilities 1,184,164 1,290,103 (105,939) -8%
Stockholders' Equity
Common Stock 321 313 8 3%
Additional paid-in-capital 56,486 55,193 1,293 2%
Retained earnings 22,109 20,185 1,924 10%
Stock based comp equity 51 - 51 100%
Accumulated other comprehensive
loss (924) (3,316) 2,392 -72%
Total Stockholders Equity 78,043 72,375 5,668 8%
Total Liabilities and
Stockholders' Equity $1,262,207 $1,362,478 (100,271) -7%
CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
First Mariner Bancorp
(Dollars in thousands)
For the three For the twelve
months ended months ended
December 31, December 31,
2006 2005 2006 2005
Interest Income:
Investments and interest-bearing
deposits $3,247 $3,531 $13,594 $13,924
Loans 21,220 18,528 82,154 68,136
Total Interest Income 24,467 22,059 95,748 82,060
Interest Expense:
Deposits 6,892 4,833 23,920 16,729
Borrowings and repurchase agreements 5,597 5,102 22,562 17,608
Total Interest Expense 12,489 9,935 46,482 34,337
Net Interest Income Before Provision
for Loan Losses 11,978 12,124 49,266 47,723
Provision for Loan Losses 1,009 776 2,315 3,287
Net Interest Income After Provision for
Loan Losses 10,969 11,348 46,951 44,436
Noninterest Income:
Service fees on deposits 1,685 1,847 6,887 7,185
ATM Fees 766 814 3,161 3,135
Gains on sales of mortgage loans 2,110 1,420 7,614 5,018
Other mortgage banking revenue 617 573 2,892 2,289
Loss on sales of investment
securities, net (3,062) - (3,036) -
Commissions on sales of nondeposit
investment products 225 130 638 531
Commissions on sales of other
insurance products 725 839 2,671 2,512
Income from bank owned life insurance 384 261 1,117 1,031
Other 431 457 1,823 1,314
Total Noninterest Income 3,881 6,341 23,767 23,015
Noninterest Expense:
Salaries and employee benefits 9,367 7,892 34,990 30,909
Occupancy 2,251 1,512 8,012 6,104
Furniture, fixtures and equipment 823 761 3,162 3,057
Advertising 260 262 1,341 1,352
Data Processing 464 477 1,811 2,006
Professional services 292 159 958 1,021
Valuation allowance and secondary
marketing reserve 4,000 - 4,450 -
Other 3,838 2,972 14,434 11,891
Total Noninterest Expense 21,295 14,035 69,158 56,340
Income Before Income Taxes (6,445) 3,654 1,560 11,111
Income Tax Expense (2,465) 1,147 (364) 3,289
Net Income $(3,980) $2,507 $1,924 $7,822
CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES (UNAUDITED)
First Mariner Bancorp
(Dollars in thousands)
For the three months ended December 31,
2006 2005
Average Yield/ Average Yield/
Balance Rate Balance Rate
Assets:
Loans
Commercial Loans and LOC $70,710 7.27% $69,964 5.57%
Comm/Res Construction 135,257 8.94% 106,414 8.16%
Commercial Mortgages 319,211 7.22% 344,508 6.83%
Residential Constr - Cons 100,797 8.35% 129,029 7.10%
Residential Mortgages 53,332 6.35% 39,712 6.23%
Consumer 176,236 13.42% 152,053 12.04%
Total Loans 855,543 8.85% 841,680 7.85%
Loans held for sale 102,917 7.52% 110,125 6.41%
Available for sale securities,
at fair value 246,869 4.70% 281,654 4.62%
Interest bearing deposits 14,005 5.19% 10,736 3.95%
Restricted stock investments, at
cost 10,960 5.91% 14,563 4.62%
Total earning assets 1,230,294 7.85% 1,258,758 6.93%
Allowance for loan losses (12,066) (11,417)
Cash and other non earning
assets 141,581 120,950
Total Assets $1,359,809 $1,368,291
Liabilities and Stockholders'
Equity:
Interest bearing deposits
NOW deposits 10,321 0.22% 12,668 0.21%
Savings deposits 60,758 0.31% 70,382 0.30%
Money market deposits 260,753 3.66% 202,094 2.20%
Time deposits 398,815 4.41% 406,529 3.56%
Total interest bearing deposits 730,647 3.75% 691,673 2.77%
Borrowings 359,475 6.18% 420,687 4.81%
Total interest bearing
liabilities 1,090,122 4.55% 1,112,360 3.54%
Noninterest bearing demand
deposits 178,993 178,862
Other liabilities 10,357 5,958
Stockholders' Equity 80,337 71,111
Total Liabilities and
Stockholders' Equity $1,359,809 $1,368,291
Net Interest Spread 3.30% 3.39%
Net Interest Margin 3.82% 3.80%
CONSOLIDATED AVERAGE BALANCES, YIELDS AND RATES (UNAUDITED)
First Mariner Bancorp
(Dollars in thousands)
For the twelve months ended December 31,
2006 2005
Average Yield/ Average Yield/
Balance Rate Balance Rate
Assets:
Loans
Commercial Loans and LOC $70,238 6.84% $68,035 5.57%
Comm/Res Construction 123,187 8.90% 88,634 7.88%
Commercial Mortgages 335,584 7.32% 331,975 6.90%
Residential Constr - Cons 113,053 7.94% 130,535 7.08%
Residential Mortgages 46,308 5.90% 41,798 5.98%
Consumer 166,848 13.33% 143,742 11.49%
Total Loans 855,218 8.69% 804,719 7.70%
Loans held for sale 101,841 7.73% 102,321 6.05%
Available for sale securities,
at fair value 262,968 4.70% 299,709 4.36%
Interest bearing deposits 10,969 4.83% 9,428 3.01%
Restricted stock investments, at
cost 12,316 5.68% 13,997 4.10%
Total earning assets 1,243,312 7.70% 1,230,174 6.67%
Allowance for loan losses (12,000) (10,470)
Cash and other non earning
assets 129,869 113,118
Total Assets $1,361,181 $1,332,822
Liabilities and Stockholders'
Equity:
Interest bearing deposits
NOW deposits 10,945 0.22% 13,065 0.20%
Savings deposits 67,165 0.31% 71,790 0.30%
Money market deposits 241,039 3.26% 203,222 1.58%
Time deposits 388,192 4.08% 395,645 3.35%
Total interest bearing deposits 707,341 3.38% 683,722 2.45%
Borrowings 389,532 5.79% 401,529 4.39%
Total interest bearing
liabilities 1,096,873 4.24% 1,085,251 3.16%
Noninterest bearing demand
deposits 179,210 174,115
Other liabilities 9,019 5,091
Stockholders' Equity 76,079 68,365
Total Liabilities and
Stockholders' Equity $1,361,181 $1,332,822
Net Interest Spread 3.46% 3.51%
Net Interest Margin 3.96% 3.88%
Source: prnewswire
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