Edwin F. Hale Sr., chairman and chief executive of First Mariner Bancorp, told shareholders at the company's annual meeting yesterday that the 6-year-old bank is curtailing its growth plans to focus on improving its earnings.
Company officials said the Baltimore-based bank came under regulatory scrutiny last year after it showed weakening capital and earnings levels - a consequence of rapid expansion that began in 1998.
The company slowed its pace of branch office openings last year and won't open any this year, and it even plans some consolidations as it downshifts to conserve capital and build profit.
First Mariner now has 25 branch offices and 11 mortgage offices.
The Federal Reserve Bank of Richmond, the Federal Deposit Insurance Corp. and the State Banking Commission asked First Mariner to submit plans on how it will raise earnings and capital levels to keep pace with its future growth, according to the company's annual report.
The bank's capital ratio - a key indicator of a bank's ability to absorb losses - dropped to 10.2 percent in 2000, down from 12.1 percent in 1999.
A bank with a capital ratio below 10 percent is not considered well-capitalized.
Company officials downplayed the attention from the regulators after a shareholder asked about it at the meeting.
"The first five years was to create market share," said Chief Operating Officer Joseph Cicero.
"The next five years will be to improve earnings ... [Regulators] want us to improve our earnings so we don't have to go looking for capital."
There are signs that the change in strategy is working - First Mariner had the best first quarter in its brief history, reporting earnings of $312,000 for the period ending March 31.
"There's been a lot of hard work put into this, and it's starting to pay off right now," Hale said.
"We stayed down in our number of branches, and we expect we'll stay flat or even decrease this year."
John Maas, 47, the shareholder who raised the regulatory-involvement issue at the meeting, said afterward: "I understand their argument, but it sounds like the dot-com argument - and look what has happened to them.
"Management has indicated that their performance has been affected by large investment and infrastructure [expenses]. The problem with that, in order to take on additional assets requires certain capital levels to maintain, and I just don't know how they can do it. I'm concerned about the agreement with the regulators."
Bert Ely, a bank and monetary policy analyst based in Alexandria, Va., said he thinks it's appropiate that First Mariner now slow down, catch its breath and focus on earnings.
"I don't think depositors should be alarmed by [the regulatory involvement], and shareholders should take comfort in it because there is some outside regulatory oversight coming into play here," Ely said.
Shares of First Mariner, which trade on the Nasdaq stock market, fell 15 cents to $7.10 yesterday.