1st Mariner mortgage write-downs drive 4Q loss

Continuing to suffer the effects of the mortgage meltdown, First Mariner Bancorp posted yesterday a fourth-quarter loss of $2.7 million.

Pushing the quarter into minus territory were $3.9 million in losses - write-downs of assets in foreclosure and reserves for bad loans - related to mortgages originated by the Baltimore bank's since-closed wholesale division. By adding to its reserves for bad loans, "we think we have anticipated everything," Edwin F. Hale Sr., chairman and chief executive officer, said.


But the write-offs boosted the size of the quarterly loss. "It's worse than what I expected," said Matthew C. Schultheis, a bank analyst at Ferris Baker Watts Inc. Analysts had been expecting a loss of about 30 cents a share, not the 43 cents that was reported.

Schultheis said he found it encouraging that First Mariner reported it had not been forced to repurchase any bad loans in the quarter. "It's not resolving as quickly as shareholders would like, but it is resolving," he said.


The parent of First Mariner Bank lost $10.1 million for the full year, or $1.57 per share, compared with a profit of $1.9 million, or 29 cents a share, in 2006.

First Mariner was founded in 1995 by Hale, owner of the Baltimore Blast pro soccer team and head of Baltimore's tourism board, and has grown into one of the largest independent banks in Maryland.

Its problems have stemmed mostly from "alt-A" loans, a classification between conventional and subprime mortgages. Alt-A borrowers don't have the credit history or income to qualify for conventional mortgages but generally have more resources than those who get subprime loans.

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. The majority of the soured alt-A loans were made in Northern Virginia, where the wholesale lending division was based until being closed in July.

"We believe our exposure to alt-A mortgages is behind us," Hale said yesterday.

He said falling interest rates have increased consumer interest in mortgages. First Mariner closed 238 loans yesterday - all conventional. "These are mortgages that will not be subprime, alt-A or any of that," Hale said.

Analysts are projecting losses in the next quarter as well, and Schultheis said the problems could take two or three more quarters to work out.

The bank is responding in part by trimming expenses. "We have skinnied up our operations to weather this storm," Hale said. He said the bank's employment, once as high as 820, has been reduced by about 165, with about 100 of the eliminated jobs coming from the shutdown of the wholesale mortgage unit.


First Mariner reported having $43.4 million in "nonperforming assets," or bad loans, at year's end - 3.5 percent of the bank's total assets. That's up from just $6.6 million, or 0.5 percent of assets, at the end of 2006. Most of the change occurred because loans previously classified as 90 days delinquent were moved into the nonperforming category.

First Mariner reported an even larger loss in the fourth quarter of 2006, $4 million. Some of that reflected the slide of the real estate market, but much of the 2006 loss stemmed from securities losses and restructuring of borrowing.