First Mariner Bancorp's troubles deepened yesterday when the Baltimore bank reported a nearly $4 million quarterly loss stemming from an avalanche of bad home loans and a declining real estate market.
The wholesale mortgage operation, which extended many of the problem loans, has been closed. And the bank has cut about 100 employees, primarily in the wholesale business. Now, with losses from the loans mounting, the bank is paring back expansion plans.
First Mariner has been caught up in the spread of the subprime meltdown to so-called Alternative-A loans, in which borrowers have slightly better credit histories but have been increasingly defaulting and going into foreclosure. The subprime crisis, which housing advocates blame on lenders extending unaffordable loans, has rocked the real estate and stock markets.
Mariner Chief Executive Officer Edwin F. Hale Sr. said the bank hit "bedrock" during the three months that ended in June, and he expects operating results to improve in the next quarter. The bank barely made money in the first three months of this year, after a $4 million loss in the fourth quarter.
Hale started First Mariner 12 years ago, and it has grown into one of the largest independent banks in Maryland, with dozens of branches and offices in Maryland, Delaware, Pennsylvania and Virginia. That growth has mirrored Hale's rising profile as owner of the Baltimore Blast professional soccer team and head of the city's tourism board.
"This has had a dampening effect on us moving ahead," Hale said in an interview. "We're still going to grow but not at the pace we had before."
First Mariner has racked up $50 million in problem loans in the second quarter, in which borrowers are delinquent or in default, an increase from $40 million in the first quarter. In addition to losses related to the loans, First Mariner said yesterday that it had to mark down the value of real estate that has been foreclosed upon and is awaiting sale.
The bank's $3.9 million loss in the second quarter translated to 59 cents per share. It was a reversal from the second quarter of 2006, when the bank posted a profit of $2.2 million, or 33 cents per share. Assets were down 10 percent from the year before to $1.3 billion in the most recent quarter, while deposits were up slightly to $904 million.
First Mariner stock dropped 6 percent yesterday on the Nasdaq stock market in the less than two hours of trading after it released its earnings report. It closed the day at $9.97. The shares have plunged more than 45 percent so far this year.
The wholesale mortgage operation was a relatively new business for First Mariner. It opened in Fairfax, Va., in 2005 when the housing boom had been under way for several years. The office dealt with independent mortgage brokers who made loans across several states.
The loans were usually mortgages that required little or no documentation of the applicant's income and finances, also called "liar loans." Many were second mortgages, which borrowers take out when buying a home because they can't afford the standard 20 percent down payment.
First Mariner would package those loans and sell them in bulk to Wall Street firms, primarily to Bear Stearns Cos. But when borrowers began to miss payments, First Mariner was required to buy back the loans under "buyer's remorse" clauses. Meanwhile, the housing market slowed, making refinancing difficult and forcing many homeowners into foreclosure.
Joseph A. Cicero, First Mariner's chief operating officer, said the mortgages complied with underwriting standards set by Bear Stearns. Half of the loans that have been repurchased are for single-family homes in Northern Virginia.
A Bear Stearns official could not be reached for comment.
'Buy them back'
Matthew C. Schultheis, an analyst with Ferris Baker Watts who covers First Mariner, said he has been concerned with the bank's credit-quality issues. "They can say it's Bear Stearns' underwriting standards because Bear Stearns bought these things," he said, "but First Mariner still made the loans, and they are still on the hook to buy them back."