First Mariner lost $3.9 million in 4Q


January 31, 2007|By Paul Adams | Paul Adams,Sun reporter

A brisk mortgage business that boosted First Mariner Bancorp's profits during the real estate boom has turned sour, resulting in increased set-asides for bad loans and contributing to a nearly $4 million fourth-quarter loss, the bank reported yesterday.

The Baltimore-based bank said it lost $3.9 million, or 59 cents per share, compared with a profit of $2.5 million, or 37 cents per share, in the year-earlier quarter. The loss was about double what the company forecast in a December news release. The average forecast of four analysts polled by Thomson Financial was for a loss of 27 cents per share. The company's shares fell 42 cents, or 2.4 percent, to $17.35 in trading yesterday.

"We expect that this is the worst of our report," said Edwin F. Hale Sr., First Mariner's chairman and chief executive.

For the year, the bank reported profit of $1.9 million, or 29 cents per share, compared with profit of $7.8 million, or $1.20 per share, for 2005.

In addition to a rough real estate market, a previously announced balance sheet restructuring aimed at boosting the bank's net interest margin cut profit by $3 million during the quarter, the bank said. The bank sold about $100 million of investment securities and reduced short-term borrowing by an equal amount as part of the restructuring.

The bank boosted its reserve for delinquent mortgages by $4 million as it struggled to deal with the repurchase of loans it made last year, Hale said. He said loans made primarily in Northern Virginia were a source of trouble for the bank as rising interest rates and falling values slammed homeowners and real estate investors.

First Mariner issues mortgages and then sells them to financial firms, which have the option of sending the loans back within 90 days if they are deemed too risky. Hale said the arrangement has worked well for a decade, but the housing downturn resulted in about $14 million in loans made last year being sent back to the bank, and more could be on the way.

"We think the worst will be about $30 million that could potentially come back to us," he said.

The bank said in a statement that it has substantially reduced its offering of second-mortgage products through broker channels and set stricter requirements for loan approvals.

The bank's assets fell slightly to $1.26 billion from $1.36 billion in the year-earlier quarter. Loans outstanding grew $15 million, or 2 percent, during the period. Residential construction loans fell $31 million, or 24 percent, and mortgage loan originations declined to $332 million from $374 million in the year-earlier period. Deposits grew 6 percent to $925 million.

Hale said the bank has set itself up for better results in coming quarters. But he said the year ahead holds continued challenges for banks as the housing market continues to slump and interest rates remain unfavorable.

"We don't expect next year to be a great year for banks - any banks," Hale said. "It will be mediocre at best."

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