First Mariner Bancorp (fka FMARQ)

[Enterprising Investor]

1st Mariner Bancorp Reports Third Quarter 2013 Results (11/08/13)

BALTIMORE, Nov. 8, 2013 /PRNewswire/ -- 1st Mariner Bancorp (OTCBB: FMAR), parent company of 1st Mariner Bank, reported a net loss of $7.4 million for the third quarter of 2013 compared to net income of $7.9 million for the third quarter of 2012. For the nine months ended September 30, 2013, the net loss was $11.2 million compared to net income of $15.4 million for the nine months ended September 30, 2012.

Mark A. Keidel, 1st Mariner's Chief Executive Officer, said, "Our results for the third quarter were materially impacted by the rapid and steep increase in long term treasury rates. Like most in the residential mortgage industry, we experienced declines in production and a significant compression of the margins on sold loans."

Mr. Keidel added, "We have executed on cost cutting initiatives and will make necessary adjustments to remain competitive and improve profitability in the changing mortgage landscape."

Mr. Keidel continued, "Credit quality metrics showed continued improvement from the previous year's levels, however our regulatory capital ratios remain below the levels required by regulatory orders. We continue to explore all opportunities to increase capital to levels required in our regulatory agreements."

Net interest income for the third quarter of 2013 was $6.7 million compared to $8.1 million in the third quarter of 2012. The net interest margin decreased to 2.97% in the third quarter of 2013 compared to 3.01% in the third quarter of 2012. This was due to lower balances of loans and loans held for sale. Average loan balances were $571.6 million and $656.5 million for the quarters ended September 30, 2013 and 2012, respectively. Average loans held for sale were $178.1 million and $320.9 million for the quarters ended September 30, 2013 and 2012, respectively. Interest expense on deposits was $2.4 million for the three months ended September 30, 2013 compared to $2.9 million for the three months ended September 30, 2012. The decrease was due to the low interest rate environment coupled with a decrease in deposits. The average rate paid on deposits decreased to 0.98% for the three months ended September 30, 2013, down from 1.17% for the three months ended September 30, 2012. The average interest rate on borrowings increased to 3.08% for the quarter ended September 30, 2013, up from 2.21% for the quarter ended September 30, 2012. The maturity and repayment of lower rate borrowings in 2013 caused the increase in the average rate of interest on borrowings.

For the nine months ended September 30, 2013, net interest income was $20.2 million compared to $22.9 million for the nine months ended September 30, 2012. The net interest margin was 2.84% for the nine months ended September 30, 2013 versus 3.08% for the same period in 2012. The decrease is due to a decline in loan balances and continued downward pressure on interest rates. Total average loans were $589.3 million and $671.7 million for the nine months ended September 30, 2013 and 2012, respectively. The average yield on those loans was 5.25% and 5.35% for the nine months ended September 30, 2013 and 2012, respectively. As for deposits, the average interest rate paid was 1.05% and 1.27% for the nine months ended September 30, 2013 and 2012, respectively. The average rate paid on borrowings was 3.06% and 2.22% for the nine months ended September 30, 2013 and 2012, respectively. The increase in the rate was due to lower rate advances maturing and being repaid in 2013, leaving a balance of higher coupon borrowings.

The provision for loan losses was zero for the three months ended September 30, 2013 and 2012. Net charge-offs were $676 thousand for the three months ended September 30, 2013 million and $1.4 million for the three months ended September 30, 2012. Costs related to foreclosed properties, including write-downs due to declining appraised values, amounted to $560 thousand for the three months ended September 30, 2013 compared to $1.3 million for the three months ended September 30, 2012. Continued improvements in portfolio credit quality and a stabilizing real estate market in our operating region contributed to the lower levels of credit costs.

For the nine months ended September 30, 2013, the provision for loan losses was $1.3 million compared to $572 thousand for the nine months ended September 30, 2012. Net charge offs for the nine months ended September 30, 2013 were $3.5 million, a 55% increase from the $2.3 million incurred during the nine months ended September 30, 2012. Costs related to foreclosed properties, including write-downs due to declining appraised values, amounted to $4.3 million for the nine months ended September 30, 2013 versus $3.5 million recorded for the nine months ended September 30, 2012. Combined credit- related costs amounted to $5.6 million for the nine months ended September 30, 2013 compared to $4.1 million for the nine months ended September 30, 2012. The increase was due to the strategy to aggressively reduce non-performing assets that was executed in the first half of 2013. As a result, non-performing assets were $39.7 million as of September 30, 2013, a 30% improvement over the $56.6 million of non-performing assets as of September 30, 2012.

Non-interest income was $2.4 million for the three months ended September 30, 2013, which is a significant decrease over the $16.3 million that was reported in the third quarter of 2012. The decrease was due to low mortgage banking revenue as a result of the rapid increase in mortgage interest rates. This caused a significant decline of refinancing activity as well as narrowing margins on loans sold. Gross mortgage banking revenue was $548 thousand for the three months ended September 30, 2013 compared to $15.4 million for the three months ended September 30, 2012. For the three months ended September 30, 2013, gross mortgage loan production volume was $375.7 million compared to $742.2 million for the three months ended September 30, 2012.

For the nine months ended September 30, 2013, non-interest income was $24.3 million, which is a 38% decrease over the $39.5 million recorded in the nine months ended September 30, 2012. The decrease was due to lower mortgage banking revenue as a result of the increase in mortgage rates in 2013. Additionally, the margins on loans sold narrowed in 2013. For the nine months ended September 30, 2013, the gross revenue from mortgage banking activities was $15.7 million, a significant decrease from the $35.5 million that was recorded in the nine months ended September 30, 2012.

Non-interest expenses were $16.7 million for the three months ended September 30, 2013 compared to $16.4 million for the three months ended September 30, 2012. Professional fees related to regulatory compliance, loan workouts, and efforts related to increasing capital levels decreased to $656 thousand for the three months ended September 30, 2013 versus $973 thousand for the three months ended September 30, 2012. Costs related to foreclosed properties, including write-downs due to declining appraised values, decreased to $560 thousand for the three months ended September 30, 2013 compared to $1.3 million for the three months ended September 30, 2012. Amounts paid for FDIC insurance premiums remain high with $1.0 million incurred in both three month periods ended September 30, 2013 and 2012. Data processing costs were $1.1 million for the three months ended September 30, 2013, compared to $403 thousand for the three months ended September 30, 2012. The increase was due to the expiration of the existing contract with the Company's service provider in 2012 and the conversion to a new core processing system in the fourth quarter of 2012.

For the nine months ended September 30, 2013, non-interest expenses were $54.6 million, which is a 16.9% increase over the $46.7 million recorded in the nine months ended September 30, 2012. The increase was due to increases in salaries & benefits, professional fees, advertising & marketing, and costs related to foreclosed properties. Salaries and benefits totaled $19.8 million for the nine months ended September 30, 2013 versus $17.4 million for the nine months ended September 30, 2012. This increase was primarily due to higher staffing and compensation costs in mortgage banking. Costs related to foreclosed properties, including write-downs due to declining appraised values, amounted to $4.3 million for the nine months ended September 30, 2013 versus $3.5 million recorded for the nine months ended September 30, 2012. The increase was attributable to the aggressive disposal of non-performing assets in the first half of 2013. FDIC insurance premiums remain high with $3.4 million incurred in the nine months ended September 30, 2013 and $3.1 million incurred in the nine months ended September 30, 2012. Corporate insurance expense was $2.4 million for the nine months ended September 30, 2013 compared to $1.6 million for the nine months ended September 30, 2012. The increase was due to higher renewal premiums that became effective in August 2012.

Comparing balance sheet data as of September 30, 2013 and 2012, total assets decreased 16% to $1.08 billion, from the prior year's $1.29 billion. The decrease is due to a $242.9 million decrease in loans held for sale and a $80.3 million decrease in portfolio loans. The decrease in loans held for sale is the result of the increase in mortgage rates that slowed refinancing activity. The decrease in portfolio loans is the result of payoffs and slow commercial loan production.

•Average earning assets were $887.7 million for the third quarter of 2013, which was a $168.4 million decrease over the third quarter 2012 balance of $1.06 billion. The decrease was due to lower average loans held for sale.

•Total loans outstanding were $560.3 million as of September 30, 2013, down 13% from the $643.5 million reported as of September 30, 2012. This was due to loan maturities, loan sales, and reduced portfolio loan production.

•Total loans held for sale were $128.6 million as of September 30, 2013, down 65% over the $371.6 million held for sale as of September 30, 2012. The decrease was due to lower mortgage division production as a result of higher mortgage rates.

•The allowance for loan losses as of September 30, 2013 was $9.2 million, a decrease of 24% over the prior year's $12.1 million. The allowance for loan losses as a percentage of total loans was 1.64% as of September 30, 2013, compared to 1.88% as of September 30, 2012. The decrease was due to improving asset quality.

•Total deposits decreased 13% from $1.11 billion as of September 30, 2012 to $981.3 million as of September 30, 2013. Money market and NOW accounts increased $20.9 million, from $151.4 million as of September 30, 2012 to $172.3 million as of September 30, 2013. Savings accounts increased $6.7 million from $55.9 million as of September 30, 2012 to $62.6 million as of September 30, 2013. Certificates of deposit were $648.4 million as of September 30, 2013, representing a decrease of $150.2 million, or 23%, from the $798.6 million as of September 30, 2012.

•As of September 30, 2013, 1st Mariner Bank's capital ratios were as follows: Total Risk Based Capital 7.2%; Tier 1 Risk Based Capital 5.9%; and Leverage 3.6%.

1st Mariner Bancorp is a bank holding company with total assets of $1.1 billion. Its wholly owned banking subsidiary, 1st Mariner Bank, operates 19 full service bank branches in Baltimore, Anne Arundel, Harford, Howard, Talbot, and Carroll counties in Maryland, and the City of Baltimore. 1st Mariner Mortgage, a division of 1st Mariner Bank, operates retail offices in Central Maryland, the Eastern Shore of Maryland, and portions of Northern Virginia. 1st Mariner also operates direct marketing mortgage operations in Baltimore. 1st Mariner Bancorp's common stock is quoted on the OTC Bulletin Board under the symbol "FMAR". 1st Mariner's Website address is www.1stMarinerBancorp.com, which includes comprehensive level investor information.

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