First Mariner Bancorp reported a worse-than-expected $3.3 million first-quarter loss yesterday, but said it is close to turning the corner after a year of bad news stemming from the declining housing market and a slew of bad loans.
The results came as the Baltimore-based bank increased its provision for bad loans to a record level and continued to write down the value of mortgages originated by its since-closed wholesale division. The loss amounts to 52 cents per share, compared with a profit of $100,000, or 2 cents per share, in the year-earlier quarter. The average analyst estimate was for a loss of about 40 cents per share, according to Thomson Financial.
"I really thought there would be a turnaround quicker than this," said Edwin F. Hale Sr., the bank's chairman and chief executive. "We were anticipating maybe cutting our losses this quarter, and it didn't happen."
Despite a difficult environment, First Mariner said it increased assets 2 percent to $1.3 billion during the first quarter. Hale said it remains well-capitalized but is capable of raising additional capital, if needed.
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 "total capital to risk" ratio to measure a bank's ability to absorb losses from bad loans and other problems.
First Mariner reported that its total capital ratio was 14.2 percent, the same as it reported at the end of last year, but down from 15.7 percent in the year-earlier quarter. Despite that decline, the bank said it continues to exceed levels needed to qualify as "well capitalized" as defined by regulators.
The bank's troubles coincide with large write-downs at scores of other financial institutions.
Baltimore-based Provident Bankshares Corp. said last week that it is cutting by two-thirds its dividend to shareholders and raising $115 million from investors to shore up its balance sheet. Wachovia Corp. and Washington Mutual Inc. each posted losses resulting from falling housing values on the West Coast.
First Mariner, which Hale started in 1995 and built into one of Maryland's largest independent banks, reported a $10.1 million loss for all of last year.
David B. Scharf, an analyst with FTN Midwest Securities, said it would be tough for First Mariner to report positive earnings for the next three to four quarters. The company's shares closed down 26 cents, or 5.3 percent, to $4.48 per share in trading yesterday. The shares have lost about two-thirds of their value during the past year.
"The fundamentals of the company continue to be worse than I have expected for the last four quarters now," said Scharf, who does not own First Mariner shares.
The bank's troubles stem primarily from its business writing "alt-A" loans, which target borrowers who do not have the credit history or income to qualify for conventional mortgages but generally have better finances than those who get subprime loans. First Mariner packaged the loans and sold them in bulk to Wall Street firms. The biggest buyer was Bear Stearns Cos., which collapsed in the mortgage meltdown last month and had to be bailed out by JP Morgan Chase.
When borrowers started to miss payments on its alt-A mortgages, First Mariner was required to repurchase the loans under a "buyer's remorse" clause. The bank said its first-quarter losses stemming from the loans totaled $2.6 million before taxes, a decrease from the $3.9 million it reported in the fourth quarter. The bank said it has not had to repurchase any additional alt-A mortgages for the past two quarters.
First Mariner shuttered its wholesale mortgage division last summer, cutting more than 100 employees. It is pursuing claims against some of the people with whom it did business, including some of the independent mortgage brokers who offered alt-A loans. Hale said those efforts are bearing fruit.
"We think it's going to be significant enough that it's going to really help us," he said.
The bank increased its allowance for bad loans to $13.8 million, which Hale said was a record. The provision for bad loans was $11.9 million in the year-earlier quarter. Nonperforming assets - or bad loans - grew to $40.2 million, or 3.1 percent of total assets, compared with $21.8 million, or 1.7 percent of assets, in the year-earlier quarter. The bank reported having $43.4 million in bad loans at the end of last year, equating to 3.5 percent of its total assets.
The bank showed growth in its mortgage lending to borrowers with strong credit. Mortgage loan originations grew to $415 million during the quarter, compared with $249 million for the corresponding period last year. Deposits grew 3 percent year-over-year to $942 million, the bank said.