First Mariner Bancorp said yesterday it trimmed its second-quarter loss to $469,000, inching closer to the recovery its founder and chief executive has been promising since the bank's housing-related losses began to mount last year.
Edwin F. Hale, whose personal fortune is closely linked to the bank's turnaround, said First Mariner's profits continue to be pulled down by losses on bad real estate and construction loans - the same book of business that is eroding profits of major banks nationwide.
Baltimore-based First Mariner's loss for the quarter that ended June 30 amounts to 7 cents per share, down significantly from the loss of $3.9 million, or 60 cents per share, that it reported in the year-earlier quarter. The bank lost $10.1 million in all of 2007 - mostly from bad housing loans in its now-shuttered wholesale mortgage division. Its shares fell 13 cents, or 5.2 percent, to $2.36 per share in trading yesterday. The shares hit a 52-week high of $12.15 last July.
Hale noted that the bank's core business is showing signs of improvement, with revenue up $3 million from the year-earlier quarter, and loans outstanding up $98 million, or 12 percent.
But the continuing trouble for First Mariner and dozens of other banks nationwide lies in the number of housing and construction loans in default - or near default - as a result of the real estate slump.
The bank said so-called "nonperforming" assets increased to $48.7 million, or nearly 3.8 percent of total loans, compared with $31.8 million, or 2.6 percent of the total in the year-earlier quarter. Loans 90 days past due increased to $16.5 million, or 1.8 percent of the total, from $15.4 million, or 1.8 percent of the total, a year ago.
Hale said that he is concerned about the level of delinquencies but that the bank has seen some improvement since the end of the quarter. The bank, which has more than two dozen branches, mostly in the Baltimore metro area, has taken steps to improve loan quality.
"I'm not going to be happy until we get back to profitability," he said.
Hale said he is concerned that growing fears of a wider crisis in the financial industry might hamper the bank's recovery. Consumer anxiety was stoked by news last week that California-based IndyMac had failed, forcing a takeover by the Federal Deposit Insurance Corp. Police had to control crowds outside some branches Tuesday as angry customers lined up to withdraw funds.
The news on IndyMac preceded the Bush administration's announcement over the weekend that it will implement a plan to shore up Freddie Mac and Fannie Mae in the wake of concerns on Wall Street that the nation's two largest mortgage lenders were at risk of insolvency. The two companies guarantee more than $5 trillion in mortgages, accounting for about half the nation's total. Also this week, several banks - including Wachovia and M&T Bank - have seen their shares hammered after reporting poor earnings.
"With Fannie Mae and Freddie Mac, and the halo effect from IndyMac going out of business - we're looking at this from moment to moment," Hale said. "I'm thinking that we're going to be watching how the general market goes along, and hopefully we're not going to be pulled down by the bad circumstances of other banks bigger than us."
First Mariner reported that it remains "well capitalized" by regulatory standards. Banks are required by regulators to maintain a minimum ratio of capital to total assets, adjusting for the risk of those assets. Regulators use the core capital ratio to measure a bank's ability to absorb losses from bad loans. First Mariner reported yesterday that its core capital ratio at the end of the quarter was 7.6 percent, down from the previous quarter but still in safe territory.
The bank's troubles last year stem mostly from its business writing "alt-A" loans, which target borrowers who can't qualify for conventional mortgages but generally have better finances than those who receive subprime loans. The bank packaged the loans and sold them in bulk to Wall Street firms. When borrowers started to miss payments, First Mariner was required to repurchase the bad loans under a "buyer's remorse" clause.
That business was shut down, and the bank has since refocused its mortgage business on writing high-quality loans.