UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C.

 

FORM 10-Q

 

(Mark One)

ý Quarterly report under Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

For the quarter ended June 30, 2003.

 

o Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

 

For the transition period from                                .

 

Commission file number:  0-21815

 

FIRST MARINER BANCORP

(Exact name of registrant as specified in its charter)

 

Maryland

 

 

 

52-1834860

(State of Incorporation)

 

 

 

(I.R.S. Employer Identification Number)

 

 

 

 

 

3301 Boston Street, Baltimore, MD

 

21224

 

410-342-2600

(Address of principal executive offices)

 

(Zip Code)

 

(Telephone Number)

 

Check whether the registrant (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such report, and (2) has been subject to such filing requirements for the past 90 days.

Yes  ý  No  o

 

Check whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act)

Yes o    No ý

 

The number of shares of common stock outstanding as of August 6, 2003 is 5,408,824 shares.

 

 



 

FIRST MARINER BANCORP

INDEX

 

PART I - FINANCIAL INFORMATION

 

 

 

Item 1 -

 

Financial Statements

 

 

 

 

 

Consolidated Statements of Financial Condition at June 30, 2003 (unaudited) and at December 31, 2002

3

 

 

 

 

 

 

Consolidated Statements of Operations for the Three Months and Six Months Ended June 30, 2003 (unaudited) and June 30, 2002 (unaudited)

4

 

 

 

 

 

 

Consolidated Statements of Cash Flow for the Six Months Ended June 30, 2003 (unaudited) and June 30, 2002 (unaudited)

5

 

 

 

 

 

 

Notes to Consolidated Financial Statements (unaudited)

6

 

 

 

 

Item 2 -

Management’s Discussion and Analysis of Financial Condition and Results of Operations

9

 

 

 

 

Item 3 -

Quantitative and Qualitative Disclosures About Market Risk

19

 

 

 

 

Item 4 -

Controls and Procedures

19

 

 

 

 

PART II - OTHER INFORMATION

20

 

 

 

 

Item 1 -

Legal proceedings

20

Item 2 -

Changes in securities and use of proceeds

20

Item 3 -

Defaults upon senior securities

20

Item 4 -

Submission of matters to a vote of security holders

20

Item 5 -

Other information

20

Item 6 -

Exhibits and reports on Form 8-K

20

 

 

 

 

Signatures

21

 

2



 

First Mariner Bancorp and Subsidiaries

Consolidated Statements of Financial Condition

 

(Dollars in thousands, except per share data)

 

June 30,
2003

 

December 31,
2002

 

 

 

(unaudited)

 

 

 

ASSETS

 

 

 

 

 

Cash and due from banks

 

$

57,549

 

$

35,674

 

Federal funds sold and Interest-bearing deposits

 

97,745

 

40,132

 

Available-for-sale securities, at fair value

 

125,393

 

127,810

 

Loans held for sale

 

132,158

 

93,098

 

Loans receivable

 

547,141

 

533,965

 

Allowance for loan losses

 

(8,206

)

(7,188

)

Loans, net

 

538,935

 

526,777

 

Other real estate owned

 

1,902

 

2,247

 

Restricted stock investments

 

3,040

 

3,290

 

Property and equipment, net

 

18,063

 

17,571

 

Accrued interest receivable

 

4,542

 

4,540

 

Deferred income taxes

 

1,553

 

1,619

 

Prepaid expenses and other assets

 

22,471

 

17,434

 

Total assets

 

$

1,003,351

 

$

870,192

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Deposits

 

$

769,195

 

$

668,169

 

Borrowings

 

103,981

 

89,824

 

Repurchase agreements

 

25,000

 

25,000

 

Company-obligated mandatorily redeemable preferred securities of subsidiary trust holding solely debentures of the Company

 

45,950

 

31,450

 

Accrued expenses and other liabilities

 

5,281

 

4,623

 

Total liabilities

 

949,407

 

819,066

 

 

 

 

 

 

 

Stockholders’ equity:

 

 

 

 

 

Common stock, $.05 par value; 20,000,000 shares authorized; 5,408,824 and 5,394,586 shares issued and outstanding, respectively

 

270

 

270

 

Additional paid-in capital

 

48,088

 

47,939

 

Retained earnings

 

3,437

 

955

 

Accumulated other comprehensive income

 

2,149

 

1,962

 

Total stockholders’ equity

 

53,944

 

51,126

 

 

 

 

 

 

 

Total liabilities and stockholders’ equity

 

$

1,003,351

 

$

870,192

 

 

See accompanying notes to the consolidated financial statements

 

3



 

First Mariner Bancorp and Subsidiaries

Consolidated Statements of Operations (Unaudited)

 

 

 

Three Months Ended
June 30,

 

Six Months Ended
June 30,

 

 

 

2003

 

2002

 

2003

 

2002

 

 

 

(dollars in thousands except per share)

 

(dollars in thousands except per share)

 

Interest income:

 

 

 

 

 

 

 

 

 

Loans

 

$

12,053

 

$

10,165

 

$

23,374

 

$

20,246

 

Investments and interest-bearing deposits

 

1,715

 

2,766

 

3,571

 

5,057

 

Total interest income

 

13,768

 

12,931

 

26,945

 

25,303

 

 

 

 

 

 

 

 

 

 

 

Interest expense:

 

 

 

 

 

 

 

 

 

Deposits

 

3,447

 

3,557

 

6,640

 

7,238

 

Borrowed funds and repurchase agreements

 

1,877

 

1,735

 

3,721

 

3,466

 

Total interest expense

 

5,324

 

5,292

 

10,361

 

10,704

 

Net interest income

 

8,444

 

7,639

 

16,584

 

14,599

 

 

 

 

 

 

 

 

 

 

 

Provision for loan losses

 

902

 

335

 

1,452

 

635

 

 

 

 

 

 

 

 

 

 

 

Net interest income after provision for loan losses

 

7,542

 

7,304

 

15,132

 

13,964

 

 

 

 

 

 

 

 

 

 

 

Noninterest income:

 

 

 

 

 

 

 

 

 

Gain on sale of mortgage loans

 

1,339

 

402

 

2,634

 

1,333

 

Other mortgage banking revenue

 

510

 

560

 

941

 

807

 

ATM Fees

 

669

 

530

 

1,253

 

945

 

Service fees on deposits

 

1,668

 

952

 

3,203

 

1,855

 

Gain on sales of investment securities

 

143

 

94

 

189

 

94

 

Income from bank owned life insurance

 

175

 

133

 

370

 

267

 

Other

 

720

 

476

 

1,355

 

889

 

 

 

 

 

 

 

 

 

 

 

Total noninterest income

 

5,224

 

3,147

 

9,945

 

6,190

 

Noninterest expenses:

 

 

 

 

 

 

 

 

 

Salaries and employee benefits

 

5,431

 

4,702

 

10,853

 

9,137

 

Net occupancy

 

1,463

 

1,125

 

2,785

 

2,082

 

Furniture, fixtures and equipment

 

708

 

532

 

1,396

 

1,131

 

Professional services

 

226

 

499

 

539

 

719

 

Advertising

 

289

 

300

 

585

 

550

 

Data processing

 

511

 

427

 

986

 

820

 

Other

 

2,185

 

1,528

 

4,293

 

3,037

 

 

 

 

 

 

 

 

 

 

 

Total noninterest expenses

 

10,813

 

9,113

 

21,437

 

17,476

 

Income before taxes

 

1,953

 

1,338

 

3,640

 

2,678

 

Provision for income taxes

 

625

 

430

 

1,157

 

907

 

Net income

 

$

1,328

 

$

908

 

$

2,483

 

$

1,771

 

Net income per common share:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.25

 

$

0.17

 

$

0.46

 

$

0.33

 

Diluted

 

0.23

 

0.16

 

0.43

 

0.31

 

 

See accompanying notes to the consolidated financial statements.

 

4



 

First Mariner Bancorp and Subsidiaries

Consolidated Statements of Cash Flows (Unaudited)

For the six months ended June 30,

 

 

 

2003

 

2002

 

 

 

(dollars in thousands)

 

Cash flows from operating activities:

 

 

 

 

 

Net income

 

$

2,483

 

$

1,771

 

Adjustments to reconcile net income to net cash used by operating activities:

 

 

 

 

 

Depreciation and amortization

 

1,530

 

1,301

 

Amortization of unearned loan fees and costs, net

 

(793

)

(1,031

)

Amortization of premiums and discounts on loans

 

(178

)

2

 

Amortization of premiums and discounts on mortgage-backed securities, net

 

277

 

294

 

Gain on available for sale securities

 

(189

)

(94

)

(Gain) loss on other real estate owned

 

(161

)

5

 

Valuation allowance of other real estate owned

 

45

 

50

 

Increase in accrued interest receivable

 

(2

)

(496

)

Provision for loan losses

 

1,452

 

635

 

Net (increase) decrease in mortgage loans held-for-sale

 

(39,060

)

40,870

 

Net increase (decrease) in accrued expenses and other liabilities

 

658

 

(538

)

Net (increase) decrease in prepaids and other assets

 

(5,037

)

867

 

Net cash (used in) provided by operating activities

 

(38,975

)

43,636

 

Cash flows from investing activities:

 

 

 

 

 

Loan disbursements, net of principal repayments

 

(12,639

)

(30,406

)

Purchases of property and equipment

 

(2,022

)

(2,809

)

Proceeds from redemption of Federal Home Loan Bank of Atlanta stock

 

250

 

 

Purchases of available for sale securities

 

(62,297

)

(71,284

)

Sales of available for sale securities

 

1,194

 

3,492

 

Maturity of available for sale securities

 

31,437

 

500

 

Principal repayments of available for sale securities

 

32,247

 

15,948

 

Construction disbursements-other real estate owned

 

(62

)

(134

)

Proceeds from sales of other real estate owned

 

523

 

408

 

Net cash used in investing activities

 

(11,369

)

(84,285

)

Cash flows from financing activities:

 

 

 

 

 

Net increase in deposits

 

101,026

 

24,361

 

Net increase in other borrowings

 

14,157

 

1,206

 

Proceeds from issuance of preferred securities

 

14,500

 

 

Proceeds from advances from Federal Home Loan Bank of Atlanta

 

17,000

 

 

Repayment of advances from Federal Home Loan Bank of Atlanta

 

(17,000

)

 

Proceeds from stock issuance, net

 

149

 

119

 

Net cash provided by financing activities

 

129,832

 

25,686

 

Increase (decrease) in cash and cash equivalents

 

79,488

 

(14,963

)

Cash and cash equivalents at beginning of period

 

75,806

 

71,382

 

Cash and cash equivalents at end of period

 

$

155,294

 

$

56,419

 

Supplemental information:

 

 

 

 

 

Interest paid on deposits and borrowed funds

 

$

10,325

 

$

10,842

 

Income taxes paid

 

1,659

 

1,384

 

 

See accompanying notes to consolidated financial statements.

 

5



 

FIRST MARINER BANCORP AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2003 AND 2002
(UNAUDITED)

 

NOTE 1 – BASIS OF PRESENTATION

 

The foregoing consolidated financial statements of First Mariner Bancorp (the “Company”) are unaudited; however, in the opinion of management, all adjustments (comprising only normal recurring accruals) necessary for a fair presentation of the results of interim periods have been included.   These statements should be read in conjunction with the financial statements and accompanying notes included in First Mariner Bancorp’s Annual Report on Form 10-K for the year ended December 31, 2002.  The results shown in this interim report are not necessarily indicative of results to be expected for the full year.

 

Consolidation of financial information has resulted in the elimination of all significant intercompany accounts and transactions. Certain reclassifications have been made to amounts previously reported to conform with the classifications made in 2003.

 

NOTE 2 – RECENT ACCOUNTING PRONOUNCEMENTS

 

In January 2003, the Financial Accounting Standard Board (FASB) issued Interpretation No. 46 (FIN46), Consolidation of Variable Interest Entities, which clarifies the application of Accounting Research Bulletin No. 51, Consolidated Financial Statements, relating to consolidation of variable interest entities (VIE).  The provisions of FIN 46 are effective July 1, 2003, for VIE created on or before January 31, 2003, and immediately for VIE created after January 31, 2003.   We are currently assessing the application of FIN 46 as it relates to certain variable interests acquired before January 31, 2003, and any accounting impact will be reported in our third quarter 2003 financial statements.

 

In January 2003, the Emerging Issues Task Force (EITF) of the FASB released Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, which is effective for revenue arrangements entered into on or after July 1, 2003.  This issue addresses certain aspects of the accounting for arrangements under which a company will perform multiple revenue-generating activities.  Specifically, it addresses whether and/or how to separate multiple-deliverable arrangements and how to allocate revenue among those deliverables.  We have determined that the implementation of EITF Issue No. 00-21 will not have a material effect on our financial statements.

 

In April 2003, the FASB issued Statement of Financial Accounting Standards (SFAS) No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities, which is effective for contracts entered into or modified and hedging relationships designated after June 20, 2003.  This Statement amends and clarifies financial accounting and reporting for derivative instruments including certain derivative instruments embedded in other contracts and for hedging activities under SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities.  We have determined that the implementation of this standard will not have a material effect on our financial statements.

 

In May 2003, the FASB issued SFAS No. 150, Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity, which was effective May 31, 2003 for new or modified financial instruments and July 1, 2003 for existing financial instruments.  This standard addresses the classification and measurement of financial instruments with characteristics of both liabilities and equity.  We have determined that the implementation of this standard will not have a material effect on our financial statements.

 

NOTE 3 – COMPREHENSIVE INCOME (DOLLARS IN THOUSANDS)

 

 

 

Six months ended
June 30
,

 

 

 

2003

 

2002

 

 

 

(Unaudited)
(dollars in thousands)

 

Net income

 

$

2,483

 

$

1,771

 

Other comprehensive income items:

 

 

 

 

 

Unrealized holding gains arising during the period (net of tax of $117 and $1,171, respectively)

 

303

 

1,911

 

Less:  reclassification adjustment for gains (net of taxes of $73 and $36, respectively) included in net income

 

116

 

58

 

Total other comprehensive income

 

187

 

1,853

 

Total comprehensive income

 

$

2,670

 

$

3,624

 

 

6



 

NOTE 4 – PER SHARE DATA

 

Basic earnings per share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding.  Diluted earnings per share is computed after adjusting the numerator and denominator of the basic earnings per share computation for the effects of all dilutive potential common shares outstanding during the period.  The dilutive effects of options, warrants and their equivalents are computed using the “treasury stock” method.

 

Information relating to the calculation of earnings per common share is summarized as follows:

 

 

 

Three Months Ended

 

Six Months Ended

 

 

 

June 30, 2003

 

June 30, 2002

 

June 30, 2003

 

June 30, 2002

 

 

 

 

 

 

 

 

 

 

 

Net income-basic and diluted

 

$

1,328

 

$

908

 

$

2,483

 

$

1,771

 

Weighted-average shares outstanding-basic

 

5,401,633

 

5,374,066

 

5,398,331

 

5,370,955

 

Dilutive securities-options and warrants

 

464,782

 

318,464

 

426,203

 

258,436

 

Adjusted weighted-average shares outstanding-dilutive

 

5,866,415

 

5,692,530

 

5,824,534

 

5,629,391

 

 

7



 

NOTE 5 - FAIR VALUE ACCOUNTING FOR STOCK PLANS.

 

In December 2002, the Financial Accounting Standards Board (FASB) issued Statement of Financial Account Standards No. 148.  “Accounting for Stock-Based Compensation – Transition and Disclosure” (SFAS No. 148) which amends Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123).  SFAS No. 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based employee compensation and requires disclosure in annual and interim financial statements of the effects of stock-based compensation as reflected below.

 

The Company continues to account for its stock option and employee stock purchase plans under the recognition and measurement principles of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations.  No stock-based employee compensation expense related to the Company’s stock option and stock purchase plans is reflected in net earnings, as all options granted under those plans had an exercise price equal to the market value of the underlying common stock on the date of grant.  The following table illustrates the effect on net earnings and earnings per share if the Company had applied the fair value recognition provisions of SFAS No. 123 to stock-based employee compensation.

 

 

 

For three months ended June 30,

 

(dollars in thousands except per share data)

 

2003

 

2002

 

 

 

 

 

 

 

Net earnings, as reported

 

$

1,328

 

$

908

 

Deduct: Total stock-based employee compensation expense determined using the fair value based method for all awards, net of related tax effects

 

(10

)

(31

)

 

 

 

 

 

 

Pro forma net earnings

 

$

1,318

 

$

877

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

Basic - as reported

 

$

0.25

 

$

0.17

 

Basic - pro forma

 

$

0.24

 

$

0.16

 

Diluted - as reported

 

$

0.23

 

$

0.15

 

Diluted - pro forma

 

$

0.22

 

$

0.15

 

 

 

 

For six months ended June 30,

 

(dollars in thousands except per share data)

 

2003

 

2002

 

 

 

 

 

 

 

Net earnings, as reported

 

$

2,483

 

$

1,771

 

Deduct: Total stock-based employee compensation expense determined using the fair value based method for all awards, net of related tax effects

 

(475

)

(320

)

 

 

 

 

 

 

Pro forma net earnings

 

$

2,008

 

$

1,451

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

Basic - as reported

 

$

0.46

 

$

0.33

 

Basic - pro forma

 

$

0.37

 

$

0.27

 

Diluted - as reported

 

$

0.43

 

$

0.31

 

Diluted - pro forma

 

$

0.34

 

$

0.26

 

 

NOTE 6 – SEGMENT INFORMATION

 

The Company is in the business of providing financial services, and operates in three business segments—commercial and consumer banking, consumer finance and mortgage banking.  Commercial and consumer banking is conducted through First Mariner Bank (the “Bank”) and involves delivering a broad range of financial services, including lending and deposit taking, to individuals and commercial enterprises.  Mortgage banking is conducted through First Mariner Mortgage, a division of the Bank, and involves originating residential single family mortgages for sale in the secondary market and to the Bank.  Consumer finance is conducted through Finance Maryland, and involves originating small direct consumer loans and the purchase of retail installment sales contracts.

 

8



 

For the six month period ended June 30, 2003

 

(dollars in thousands)

 

Commercial and
Consumer Banking

 

Consumer
Finance

 

Mortgage
Banking

 

Total

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

22,596

 

$

1,895

 

$

2,454

 

$

26,945

 

Interest expense

 

8,777

 

273

 

1,311

 

10,361

 

Net interest income

 

13,819

 

1,622

 

1,143

 

16,584

 

Provisions for loan losses

 

900

 

552

 

 

1,452

 

Net interest income after provision for loan losses

 

12,919

 

1,070

 

1,143

 

15,132

 

Other operating income

 

5,796

 

534

 

3,615

 

9,945

 

Other operating expense

 

16,434

 

1,653

 

3,350

 

21,437

 

Net intersegment income

 

54

 

 

(54

)

 

Income before taxes

 

$

2,335

 

$

(49

)

$

1,354

 

$

3,640

 

Total assets

 

$

853,815

 

$

17,378

 

$

132,158

 

$

1,003,351

 

 

For the six month period ended June 30, 2002

 

(dollars in thousands)

 

Commercial and
Consumer Banking

 

Consumer
Finance

 

Mortgage
Banking

 

Total

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

$

24,077

 

$

 

$

1,226

 

$

25,303

 

Interest expense

 

10,234

 

 

470

 

10,704

 

Net interest income

 

13,843

 

 

756

 

14,599

 

Provisions for loan losses

 

635

 

 

 

635

 

Net interest income after provision for loan losses

 

13,208

 

 

756

 

13,964

 

Other operating income

 

4,010

 

 

2,180

 

6,190

 

Other operating expense

 

14,354

 

 

3,122

 

17,476

 

Net intersegment income

 

(335

)

 

335

 

 

Income before taxes

 

$

2,529

 

$

 

$

149

 

$

2,678

 

Total assets

 

$

764,231

 

$

 

$

42,406

 

$

806,637

 

 

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion should be read and reviewed in conjunction with Management’s Discussion and Analysis of Financial Condition and Results of Operations set forth in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002.

 

The Companies

 

The Company is a financial holding company formed in Maryland in 1994 under the name MarylandsBank Corp. that later changed its name to First Mariner Bancorp in May 1995.  The business of the Company is conducted primarily through its wholly-owned subsidiaries, First Mariner Bank (the “Bank”), and Finance Maryland, LLC (“Finance Maryland”).

 

The Bank is an independent community bank engaged in the general commercial banking business with particular emphasis on the needs of individuals and small to mid-sized businesses.  The Bank emphasizes access to local management as well as personal attention and professional service to its customers while delivering a range of financial products. The Bank, which is headquartered in Baltimore City, serves the central region of the State of Maryland as well as portions of Maryland’s Eastern Shore through 22 full service branches and 207 Automated Teller Machines.

 

9



 

In July 2002, First Mariner Bancorp formed Finance Maryland, LLC, a consumer finance company headquartered at 3301 Boston Street Baltimore, Maryland.  Finance Maryland engages in traditional consumer finance activities, sourcing small consumer loans through direct cash lending at branch locations, loan solicitations via direct mail, and the purchasing of installment loan contracts from various retailers.   At June 30, 2003, Finance Maryland had loans outstanding of $16.1 million and 8 branch locations.

 

The Company’s executive offices are located at 3301 Boston Street, Baltimore, Maryland 21224 and its telephone number is (410) 342 - 2600.

 

Financial Condition

 

The Company’s total assets were $1.003 billion at June 30, 2003, compared to $870.192 million at December 31, 2002, increasing $133.159 million or 15.3% for the first six months of 2003.  Earning assets increased $107.182 million or 13.4% to $905.477 million from $798.295 million.  Short-term overnight investments increased $57.613 million, which was driven by deposit growth of $101.026 million and decreases in investment securities of $2.417 million. Loans outstanding have increased $13.176 million or 2.5% and loans held for sale increased by $39.060 million or 42.0% to $132.158 million.  Borrowings increased $14.157 million or 47.5% due to increased level of short-term customer repurchase agreements. Stockholders’ equity increased by $2.818 million or 5.5%, driven by retention of earnings.

 

Investment securities decreased by $2.417 million, primarily due to principal payments received on mortgage-backed securities during the first six months of 2003.  Historically low market interest rates continue to encourage refinancing activity which has accelerated principal repayment on these types of securities.  The investment portfolio composition is as follows:

 

 

 

June 30,
2003

 

December 31,
2002

 

 

 

 

 

 

 

Investment securities—available for sale:

 

 

 

 

 

Mortgage-backed securities

 

$

55,871

 

$

73,842

 

Trust preferred securities

 

26,998

 

26,399

 

US Government agency bonds

 

27,142

 

12,159

 

US Treasury securities

 

1,010

 

1,015

 

Equity securities

 

3,007

 

2,824

 

Foreign Government Bonds

 

1,350

 

850

 

Other investment securities

 

10,015

 

10,721

 

Total investment securities—available-for-sale

 

$

125,393

 

$

127,810

 

 

Total loans increased $13.176 million during the first six months of 2003.  Significant growth was realized in the Company’s commercial loan portfolio which increased $9.605 million or 16.9% and consumer loan portfolio which grew by $11.092 million or 18.2%  The total loan portfolio was comprised of the following:

 

10



 

 

 

June 30,
2003

 

December 31,
2002

 

 

 

(in thousands)

 

 

 

 

 

 

 

Loans:

 

 

 

 

 

Commercial Loans and Lines of Credit

 

$

66,365

 

$

56,760

 

Commercial/Residential Construction

 

34,480

 

31,878

 

Commercial Mortgages

 

215,926

 

202,994

 

Residential Construction-Consumer

 

119,120

 

135,189

 

Residential Mortgages

 

39,079

 

46,065

 

Consumer

 

72,171

 

61,079

 

Total Loans

 

$

547,141

 

$

533,965

 

 

Credit Risk Management

 

The first six months provision for loan losses in 2003 was $1.452 million compared to $635,000 for the same period ended June 30, 2002. This increase reflected higher levels of net charge-offs and an increase in the allowance for loan losses as a percentage of total loans.  The allowance for loan losses increased 14.2%, and totaled $8.206 million at June 30, 2003 compared to $7.188 million at December 31, 2002.  As of June 30, 2003 the allowance for loan losses is 1.50% of outstanding loans as compared to 1.35% at December 31, 2002.  During the first six months of 2003, net chargeoffs increased to $434,000 compared to $99,000 during the same period of 2002, reflecting higher chargeoffs of consumer loans and customer overdrafts.

 

The Company attempts to manage the risk characteristics of its loan portfolio through various control processes, such as credit evaluation of borrowers, establishment of lending limits and application of lending procedures, including the holding of adequate collateral and the maintenance of compensating balances.  However, the Bank seeks to rely primarily on the cash flow of its borrowers as the principal source of repayment.  Although credit policies are designed to minimize risk, management recognizes that loan losses will occur and the amount of these losses will fluctuate depending on the risk characteristics of the loan portfolio as well as general and regional economic conditions.

 

Activity in the allowance for loan losses is as follows:

 

11



 

Allowance for Loan Losses

 

Six Months Ended June 30,

 

(Dollars in thousands)

 

2003

 

2002

 

Allowance for loan losses, beginning of year

 

$

7,188

 

$

5,524

 

 

 

 

 

 

 

Loans charged off:

 

 

 

 

 

Commercial

 

 

 

Commercial/Residential Construction

 

 

(65

)

Commercial Mortgages

 

 

 

Residential Construction-Consumer

 

(29

)

 

Residential Mortgages

 

(1

)

 

Consumer

 

(431

)

(51

)

Total loans charged off

 

(461

)

(116

)

 

 

 

 

 

 

Recoveries

 

 

 

 

 

Commercial

 

 

 

Commercial/Residential Construction

 

 

 

Commercial Mortgages

 

 

 

Residential Construction-Consumer

 

 

 

Residential Mortgages

 

1

 

 

Consumer

 

26

 

17

 

Total recoveries

 

27

 

17

 

 

 

 

 

 

 

Net chargeoffs

 

(434

)

(99

)

 

 

 

 

 

 

Provision for loan losses

 

1,452

 

635

 

 

 

 

 

 

 

Allowance for loan losses, end of year

 

$

8,206

 

$

6,060

 

 

 

 

 

 

 

Loans (net of premiums and discounts)

 

 

 

 

 

Period-end balance

 

547,141

 

500,002

 

Average balance during period

 

539,352

 

473,087

 

Allowance as percentage of period-end loan balance

 

1.50

%

1.21

%

 

 

 

 

 

 

Percent of average loans:

 

 

 

 

 

Provision for loan losses (annualized)

 

0.54

%

0.27

%

Net chargeoffs (annualized)

 

0.16

%

0.04

%

 

Non-performing assets (the total of nonaccruing loans and other real estate owned), expressed as a percentage of total assets, increased to 0.45% at June 30, 2003, up from 0.41% at December 31, 2002, and 0.41% at June 30, 2002, due to an increase in loans placed on nonaccruing status during the year.   Loans past due 90 days or more and still accruing totaled $9.688 million compared to $9.346 million at December 31, 2002 and $6.495 million as of June 30, 2002.   Residential Construction-Consumer loans totaled $6.226 million of the total 90 day delinquency as of June 30, 2003.  While there has been a significant increase in loans past due 90 days or more, the increases are in well secured residential real estate loans.  Management continues to pursue aggressive collection efforts and does not anticipate any material losses on these loans.

 

12



 

Nonperforming Assets
(Dollars in thousands)

 

June 30,
2003

 

December 31,
2002

 

June 30,
2002

 

Nonaccruing loans

 

$

2,607

 

$

1,278

 

$

826

 

Real estate acquired by foreclosure

 

1,902

 

2,247

 

2,452

 

 

 

 

 

 

 

 

 

Total non-performing assets

 

$

4,509

 

$

3,525

 

$

3,278

 

 

 

 

 

 

 

 

 

Loans past-due 90 days or more and accruing

 

$

9,688

 

$

9,346

 

$

6,495

 

 

At June 30, 2003, the allowance for loan losses represented 182.0% of nonperforming assets compared to 203.9% at December 31, 2002 and 184.9% at June 30, 2002.  Management believes the allowance for loan losses at June 30, 2003 is adequate.

 

Deposits

 

Deposits totaled $769.195 million as of June 30, 2003, increasing $101.026 million or 15.1% from the December 31, 2002 balance of $668.169 million.  The increase in deposits is attributable to management’s growth strategy, which includes significant marketing, promotion and cross selling of existing customers into additional products.  The mix of deposits has not significantly changed during 2003.

 

 

 

June 30, 2003

 

December 31, 2002

 

 

 

Balance

 

Percent of
Total

 

Balance

 

Percent of
Total

 

 

 

 

 

 

 

 

 

 

 

NOW & money market savings deposits

 

$

234,826

 

30.5

%

$

216,889

 

32.5

%

Regular savings deposits

 

55,990

 

7.3

%

47,853

 

7.2

%

Time deposits

 

346,317

 

45.0

%

285,778

 

42.7

%

Total interest-bearing deposits

 

637,133

 

82.8

%

550,520

 

82.4

%

Noninterest-bearing demand deposits

 

132,062

 

17.2

%

117,649

 

17.6

%

Total deposits

 

$

769,195

 

100.0

%

$

668,169

 

100.0

%

 

13



 

Results of Operations

 

Net Income.  For the six months ended June 30, 2003, net income totaled $2.483 million compared to $1.771 million for the six month period ended June 30, 2002.  Basic earnings per share for the first six months of 2003 totaled $.46 compared to $.33 per share for the same period of 2002.  Diluted earnings per share totaled $.43 for the first six months of 2003 compared to the first six months of 2002 of $.31.  Increased net income for the first six months of 2003 was attributable to increases in revenue (net interest income and non interest income) of $5.740 million,  partially offset by an increase in noninterest expense of $3.961 million.

 

Second quarter 2003 net income was $1.328 million compared to earnings of $908,000 for the second quarter of 2002.  Basic earnings per share for the quarter increased to $.25 from $.17 for the second quarter of 2002, while diluted earnings per share increased to $.23 from $.16.  The increase in earnings was due to an increase in revenue of $2.882 million, partially offset by an increase in noninterest expenses of $1.700 million.

 

Net Interest Income.  Net interest income for the first six months of 2003 totaled $16.584 million, an increase of 13.6% over $14.599 million for the first six months of 2002. The net interest margin for the six month period was 4.04% compared to 4.03% for the comparable period of 2002, while average earning assets increased by $107.192 million or 13.4%.

 

Total interest income increased by $1.642 million due to growth in average earning assets.  Average loans outstanding increased by $66.265 million while average investment securities decreased by $28.351 million and average loans held for sale increased $53.729 million. Yields on earning assets for the period decreased to 6.61% from 7.00% due to a decline in market interest rates. Interest expense decreased by $343,000.  Average interest bearing liabilities increased by $84.646 million. Average interest bearing deposits increased by $68.489 million and average borrowings increased by $16.157 million.  Yields on interest bearing liabilities decreased to 2.93% from 3.44% for the same period in 2002, also as a result of the decline in general interest rates.

 

Second quarter net interest income was $8.444 million in 2003, an increase of 10.5% over $7.639 million for the second quarter of 2002.  The net interest margin for the three month period was 3.95% compared to 4.15% for the comparable period of 2002. Interest income increased $837,000.   Average loans outstanding for the second quarter increased by $69.169 million.   Average loans held for sale increased $74.783 million and average interest bearing deposits grew by $22.117 million.  Yields on earning assets for the period decreased to 6.48% from 7.06%.  Interest expense increased by $32,000 and average interest bearing liabilities increased by $108.634 million, as average interest bearing deposits increased by $90.863 million and average borrowings increased by $17.771 million.  Rates paid on interest bearing liabilities for the quarter ended June 30, 2003 decreased to 2.88% from 3.36% for the same period in 2002 as a result of the decline in general interest rates, and a higher mix of deposits in the overall funding sources.

 

14



 

 

 

For the six months ended June 30,

 

 

 

2003

 

2002

 

 

 

Average
Balance

 

Yield/
Rate

 

Average
Balance

 

Yield/
Rate

 

Assets:

 

 

 

 

 

 

 

 

 

Loans

 

 

 

 

 

 

 

 

 

Commercial Loans and LOC

 

$

64,568

 

6.37

%

$

49,896

 

7.99

%

Comm/Res Construction

 

34,520

 

6.81

%

35,838

 

7.01

%

Commercial Mortgages

 

208,101

 

7.39

%

168,481

 

8.04

%

Residential Constr - Cons

 

122,627

 

7.92

%

121,426

 

8.94

%

Residential Mortgages

 

42,703

 

7.79

%

50,022

 

8.20

%

Consumer

 

66,833

 

10.31

%

47,424

 

6.33

%

Total Loans

 

539,352

 

7.75

%

473,087

 

8.03

%

 

 

 

 

 

 

 

 

 

 

Loans held for sale

 

96,382

 

5.06

%

42,653

 

5.74

%

Available for sale securities, at fair value

 

115,957

 

5.44

%

144,308

 

6.27

%

Interest bearing deposits

 

57,820

 

1.13

%

55,208

 

1.53

%

Restricted stock investments, at cost

 

3,446

 

4.32

%

4,000

 

5.45

%

 

 

 

 

 

 

 

 

 

 

Total earning assets

 

812,957

 

6.61

%

719,256

 

7.00

%

 

 

 

 

 

 

 

 

 

 

Allowance for loan losses

 

(7,515

)

 

 

(5,768

)

 

 

Cash and other non earning assets

 

75,274

 

 

 

53,839

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Assets

 

$

880,716

 

 

 

$

767.327

 

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities and Stockholders’ Equity

 

 

 

 

 

 

 

 

 

Interest bearing deposits

 

 

 

 

 

 

 

 

 

NOW deposits

 

60,943

 

0.54

%

38,214

 

0.79

%

Savings deposits

 

52,113

 

0.75

%

41,743

 

1.00

%

Money market deposits

 

147,243

 

1.04

%

168,541

 

1.45

%

Time deposits

 

309,792

 

3.60

%

253,104

 

4.52

%

Total interest bearing deposits

 

570,091

 

2.35

%

501,602

 

2.91

%

 

 

 

 

 

 

 

 

 

 

Borrowings

 

142,258

 

5.27

%

126,101

 

5.55

%

 

 

 

 

 

 

 

 

 

 

Total interest bearing liabilities

 

712,349

 

2.93

%

627,703

 

3.44

%

 

 

 

 

 

 

 

 

 

 

Noninterest bearing demand deposits

 

111,010

 

 

 

91,302

 

 

 

Other liabilities

 

3,742

 

 

 

2,885

 

 

 

Stockholders Equity

 

53,615

 

 

 

45,437

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Liabilities and Stockholders’ Equity

 

$

880,716

 

 

 

$

767,327

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Interest Spread

 

 

 

3.68

%

 

 

3.59

%

 

 

 

 

 

 

 

 

 

 

Net Interest Margin

 

 

 

4.04

%

 

 

4.03

%

 

15



 

Noninterest Income —Noninterest income increased $3.755 million or 60.7% for the six months ended June 30, 2003 to $9.945 million from $6.190 million for the same period of 2002, reflecting higher levels of revenue in all major categories. Deposit service charges rose $1.348 million or 72.7% as compared to the six months ending June 30, 2002 due to the increased number of deposit accounts and fees generated by the Bank’s Cash Advantage product which was introduced in December 2002.  ATM fees increased by $308,000 or 32.6% as a result of increased volume of ATM and debit card transactions.  As of June 30, 2003, the Bank has 23 ATM locations that it owns and operates and 184 ATM’s through the third party agreements.  Mortgage banking income and gain on sale of mortgage loans increased by $1.435 million or 67% due to increased volume of mortgage loans originated and sold into the secondary market.  The volume of mortgage loans sold during the first six months of 2003 increased 86%.   Other sources of noninterest income increased by $466,000 or 52.4% due to higher sales of insurance products, and income from bank owned life insurance increased $103,000.

 

 

 

For six months ended June 30,

 

 

 

2003

 

2002

 

(Dollars in thousands)

 

Amount

 

Amount

 

Gain on sale of mortgage loans

 

$

2,634

 

$

1,333

 

Service fees on deposits

 

3,203

 

1,855

 

ATM fees

 

1,253

 

945

 

Gain on sales of investment securities, net

 

189

 

94

 

Other mortgage banking revenue

 

941

 

807

 

Income from bank owned life insurance

 

370

 

267

 

Other operating income

 

1,355

 

889

 

Total noninterest income

 

$

9,945

 

$

6,190

 

 

For the second quarter of 2003, noninterest income increased $2.077 million or 66.0% to $5.224 million compared to $3.147 million for the same quarter of 2002, reflecting higher levels of revenue in most major categories.  Deposit service charges rose $716,000 or 75.2% as compared to the same quarter of 2002.  Gain of sale of mortgage originations rose $937,000 or 233.1% due to increased volume of mortgage originations and sales of mortgages.  Mortgages sold into the secondary market increased 125% and pricing spreads increased during the quarter.

 

Noninterest expenses - For the six months ended June 30, 2003 noninterest expenses increased $3.961 million or 22.7% to $21.437 million compared to $17.476 million for the same period of 2002.  The increase in expenses includes costs associated with the newly formed finance company which added approximately $1.650 million to the growth in noninterest expenses. Increased salary and employee benefits expenses of $1.716 million relate to additional personnel costs for new positions due to an increase in the number of loans and deposits, higher commissions paid on mortgage loan originations, and staffing hired for the newly formed consumer finance company.  Occupancy expenses increased $703,000 due to new offices of Finance Maryland, increased space occupied by administrative areas and higher utility costs.

 

For the second quarter of 2003, noninterest expenses increased $1.700 million or 18.7% to $10.813 million, compared to $9.113 million for the same quarter of 2002.   Increases in salary and employee benefits expenses related to the increased personnel costs for the consumer finance company, as well as higher mortgage commissions paid on mortgage loan originations.  Increases in furniture and fixtures expenses as well as net occupancy is related to increased number of mortgage branches and consumer finance offices.

 

16



 

 

 

For six months ended June 30,

 

Noninterest expense

 

2003

 

2002

 

(Dollars in thousands)

 

Amount

 

Amount

 

Salaries and employee benefits

 

$

10,853

 

$

9,137

 

Net occupancy

 

2,785

 

2,082

 

Furniture, fixtures and equipment

 

1,396

 

1,131

 

Professional services

 

539

 

719

 

Advertising

 

585

 

550

 

Data processing

 

986

 

820

 

Service and maintenance

 

676

 

482

 

Office supplies

 

346

 

272

 

ATM servicing expenses

 

444

 

410

 

Printing

 

331

 

187

 

Corporate insurance

 

104

 

101

 

OREO expense

 

(142

)

(24

FDIC Premiums

 

53

 

134

 

Consulting fees

 

110

 

93

 

Marketing/promotion

 

405

 

218

 

Courier/postage

 

565

 

263

 

Security

 

96

 

44

 

Other

 

1,305

 

857

 

Total noninterest expense

 

$

21,437

 

$

17,476

 

 

Income Taxes- The Company recorded income tax expense of $1.157 million on income before taxes of $3.640 million, resulting in an effective tax rate of 31.8% for the six month period ended June 30, 2003 in comparison to income tax expense of $907,000 on income before taxes of $2.678 million, resulting in an effective tax rate of 33.9% for the six month period ended June 30, 2002.  The decrease in the effective tax rate reflects higher levels of tax exempt interest income for state income tax purposes, as well as increased income from Bank Owned Life Insurance which is exempt from both federal and state income taxes.

 

The Company recorded income tax expense of $625,000 on income before taxes of $1.953 million, resulting in an effective tax rate of 32.0% for the three month period ended June 30, 2003 in comparison to income tax expense of $430,000 on income before taxes of $1.338 million, resulting in an effective tax rate of 32.1% for the three month period ended June 30, 2002.  The decrease in the effective tax rate reflects higher levels of tax exempt interest income for state income tax purposes, as well as increased income from Bank Owned Life Insurance which is exempt from both federal and state income taxes.

 

Liquidity and Capital Resources

 

Stockholders’ equity increased $2.818 million in the first six months of 2003 to $53.944 million from $51.126 million as of December 31, 2002.   Contributing to the increased stockholders’ equity is the retention of net income of $2.483 million for the first six months of 2003 and $149,000 of proceeds from the sale of stock under the company stock purchase plan and exercise of options.  Other comprehensive income increased by $187,000 due to the increase in market values of securities classified as available for sale.

 

In June 2003, the Company issued $14,500,000 (14,500 shares $1,000 par value) Preferred Securities due in July of 2033.  These securities bear interest at a fixed annual rate of 5.66% until July 7, 2008, then convert to a floating rate of LIBOR plus 3.25% reset quarterly until maturity.  A portion of these preferred securities may qualify for inclusion in Tier 1 capital under current capital guidelines and any amount not qualifying as tier 1capital is included in Total capital.  The securities are callable at their par value beginning in July 2008.

 

Banking regulatory authorities have implemented strict capital guidelines directly related to the credit risk associated with an institution’s assets.  Banks and bank holding companies are required to maintain capital levels based on their “risk adjusted” assets so that categories of assets with higher “defined” credit risks will require more capital support than assets with lower risk.  Additionally, capital must be maintained to support certain off-balance sheet instruments.

 

The Company and the Bank have exceeded its capital adequacy requirements to date.  The Company regularly monitors its capital adequacy ratios to assure that the Bank exceeds its regulatory capital requirements.  The regulatory capital ratios are listed below:

 

17



 

 

 

At June 30,

 

 

 

2003

 

2002

 

 

 

(unaudited)

 

Regulatory capital ratios

 

 

 

 

 

Leverage

 

 

 

 

 

Consolidated

 

7.5

%

8.0

%

The Bank

 

7.2

%

7.4

%

Tier 1 capital to risk weighted assets

 

 

 

 

 

Consolidated

 

9.8

%

10.7

%

The Bank

 

9.4

%

9.8

%

Total capital to risk weighted assets

 

 

 

 

 

Consolidated

 

15.0

%

12.7

%

The Bank

 

10.5

%

10.8

%

 

Liquidity describes the ability of the Company and the Bank to meet the financial obligations that arise out of the ordinary course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of the Bank’s customers and to fund current and planned expenditures. Liquidity is derived from increased customer deposits, the maturity distribution of the investment portfolio, loan repayment and income from earning assets.  The Bank’s principal sources of short-term liquidity are cash and cash equivalents, (which are cash on hand or amounts due from financial institutions, federal funds sold, money market mutual funds, and interest bearing deposits) and available for sale securities.  The levels of such assets are dependent on the Bank’s operating, financing and investing activities at any given time and are influenced by anticipated deposit flows and loan growth.  Cash and cash equivalents totaled $155.294 million at June 30, 2003 compared to $75.806 million as of December 31, 2002.  The Company’s loan to deposit ratio stood at 71.1% as of June 30, 2003 and 79.9% at December 31, 2002.

 

Longer-term liability needs can be obtained through advances from the Federal Home Loan Bank (FHLB) or term repurchases agreements and other credit facilities.  The Bank maintains lines of credit totaling $370.503 million with a remaining borrowing capability of $43.165 million based upon qualifying assets not currently pledged.

 

FORWARD-LOOKING STATEMENTS

 

This Quarterly Report filed on Form 10-Q may contain forward-looking statements within the meaning of The Private Securities Litigation Reform Act of 1995.  Readers of this report should be aware of the speculative nature of “forward-looking statements.”  Statement that are not historical in nature, including the words “anticipate,” “estimate,” “should,” expect,” “believe,” “intend,” and similar expressions, are based on current expectations, estimates and projections about (among other things) the industry and the markets in which the Company operates, they are not guarantees of future performance.  Whether actual results will conform to expectations and predictions is subject to known and unknown risks and uncertainties, including risks and uncertainties discussed in this Form 10-Q, general economic, market, or business conditions; changes in interest rates, deposit flow, the cost of funds, and demand for loan products and financial services; changes in our competitive position or competitive actions by other companies; changes in the quality or composition of loan and investment portfolios; the ability to manage growth; changes in laws or regulations or policies of federal and state regulators and agencies; and other circumstances beyond the Company’s control.  Consequently, all of the forward-looking statements made in this document are qualified by these cautionary statements, and there can be no assurance that the actual results anticipated will be realized, or if substantially realized, will have the expected consequences on the Company’s business or operations.  For a more complete discussion of these risk factors, see “Risk Factors” filed as Exhibit 99 to the Company’s Form 10-K for the year ended December 31, 2002.  Except as required by applicable laws, we do not intend to publish updates or revisions of any forward-looking statements we make to reflect new information, future events or otherwise

 

18



 

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Results of operations for financial institutions, including the Company, may be materially and adversely affected by changes in prevailing economic conditions, including declines in real estate values, rapid changes in interest rates and the monetary and fiscal policies of the federal government.  The profitability of the Company is in part a function of the spread between the interest rates earned on assets and the interest rates paid on deposits and other interest-bearing liabilities (net interest income), including advances from Federal Home Loan Bank of Atlanta (“FHLB”) and other borrowings.  Interest rate risk arises from mismatches (i.e., the interest sensitivity gap) between the dollar amount of repricing or maturing assets and liabilities and is measured in terms of the ratio of the interest rate sensitivity gap to total assets.  More assets repricing or maturing than liabilities over a given time period is considered asset-sensitive and is reflected as a positive gap, and more liabilities repricing or maturing than assets over a given time period is considered liability-sensitive and is reflected as negative gap.  An asset-sensitive position (i.e., a positive gap) will generally enhance earnings in a rising interest rate environment and will negatively impact earnings in a falling interest rate environment, while a liability-sensitive position (i.e., a negative gap) will generally enhance earnings in a falling interest rate environment and negatively impact earnings in a rising interest rate environment.  Fluctuations in interest rates are not predictable or controllable.  The Company has attempted to structure its asset and liability management strategies to mitigate the impact on net interest income of changes in market interest rates.  However, there can be no assurance that the Company will be able to manage interest rate risk so as to avoid significant adverse effects on net interest income.  At June 30, 2003, the Company had a one year cumulative positive gap of approximately $265 million.

 

In addition to the use of interest rate sensitivity reports, the Company tests its interest rate sensitivity through the deployment of a simulation analysis.  Earnings simulation models are used to estimate what effect specific interest rate changes would have the Company’s net interest income and net income.  Derivative financial instruments, such as interest rate caps, are included in the analysis. Changes in prepayments have been included where changes in behavior patterns are assumed to be significant to the simulation, particularly mortgage related assets. Call features on certain securities and borrowings are based on their call probability in view of the projected rate change.  At June 30, 2003, the Company’s estimated earnings sensitivity profile reflected a minimal sensitivity to interest rate changes.  Based on an assumed increase of 200 basis points over a one year period, the Company’s net interest income would increase by 3% if rates were to increase and decrease by 6% if rates were to decline.

 

ITEM 4.  CONTROLS AND PROCEDURES

 

(a) Evaluation of disclosure controls and procedures.   The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed under the Securities Exchange Act of 1934, such as this Quarterly Report, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), as appropriate, to allow for timely decisions regarding required disclosure.  A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs.  These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake.  Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.  The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, control may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.

 

An evaluation of the effectiveness of these disclosure controls, as of the end of the period covered by this Quarterly Report on Form 10-Q, was carried out under the supervision and with the participation of the Company’s management, including the CEO and CFO.  Based on that evaluation, the Company’s management, including the CEO and CFO, has concluded that the Company’s disclosure controls and procedures are effective.

 

(b) Changes in internal control over financial reporting.  There were no significant changes in our internal control over financial reporting or in other factors during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II - Other Information

 

Item 1 -

Legal proceedings - Neither the Company or its subsidiaries is a party to, nor is any of their property the subject of, any material pending legal proceedings incidental to the business of the Company other than those arising in the ordinary course of business. In the opinion of management no such proceeding will have a material adverse effect on the financial position or results of operations of the Company.

Item 2 -

Changes in securities and use of proceeds - None

Item 3 -

Defaults upon senior securities - None

Item 4 -

Submission of matters to a vote of security holders-The information required by Item 4 with respect to the Company’s Annual Meeting of Stockholders held on May 6, 2003 is included in Item 4 of the Company’s quarterly report on Form 10Q for the quarter ended March 31, 2003.

Item 5 -

Other information - None

Item 6 -

Exhibits and reports on Form 8-K

 

(a)

Exhibits Required to be filed by Item 601 of Regulation S-K

 

 

See Exhibit Index following signatures

 

(b)

Reports on Form 8-K

 

 

Form 8-K filed on June 30, 2003

 

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SIGNATURES

 

Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

 

FIRST MARINER BANCORP

 

 

 

 

 

 

 

 

 

 

 

 

Date:

August 14, 2003

 

 

By:

/s/ Edwin F. Hale Sr.

 

 

 

 

 

Edwin F. Hale Sr.

 

 

 

 

Chairman and Chief Executive Officer

 

 

 

 

 

 

 

 

 

 

 

 

Date:

August 14, 2003

 

 

By:

/s/ Mark A. Keidel

 

 

 

 

 

Mark A. Keidel

 

 

 

 

Chief Financial Officer

 

21



 

EXHIBIT INDEX

 

3.1

 

Amended and Restated Articles of Incorporation of First Mariner Bancorp (Incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form SB-2, as amended, file no. 333-16011 (the “1996 Registration Statement”))

 

 

 

3.2

 

Amended and Restated Bylaws of First Mariner Bancorp (Incorporated by reference to Exhibit 3.2 of the Company’s Form 10-Q for the quarter ended September 30, 2002)

 

 

 

10.1

 

1996 Stock Option Plan of First Mariner Bancorp (Incorporated by reference to Exhibit 10.1 of the Registration Statement)

 

 

 

10.2

 

Employment Agreement dated May 1, 1995 between First Mariner Bancorp and First Mariner Bank and George H. Mantakos (Incorporated by reference to Exhibit 10.2 of the 1996 Registration Statement)

 

 

 

10.3

 

Lease Agreement dated March 1, 1996 between First Mariner Bank and Mars Super Markets, Inc. (Incorporated by reference to Exhibit 10.3 of the 1996 Registration Statement)

 

 

 

10.4

 

Lease Agreement dated November 1, 1997 between Edwin F. Hale, Sr. and First Mariner Bank (Incorporated by reference to Exhibit 10.4 of Pre-Effective Amendment Number 1 to Form S-1, file no. 333-53789-01)

 

 

 

10.5

 

1998 Stock Option Plan of First Mariner Bancorp (Incorporated by reference to Exhibit 10.5 of Pre-Effective Amendment Number 1 to Form S-1, file no. 333- 53789-01)

 

 

 

10.6

 

Employee Stock Purchase Plan of First Mariner Bancorp (Incorporated by reference to Exhibit 10.6 of Pre-Effective Amendment Number 1 to Form S-1, file no. 333-53789-01)

 

 

 

10.7

 

Lease Agreement dated as of June 1, 1998 between Building #2, L.L.C. and First Mariner Bank (Incorporated by reference to Exhibit 10.7 of Pre-Effective Amendment Number 1 to Form S-1, file no. 333-53789-01)

 

 

 

10.8

 

Lease Agreement dated June 18, 2002 between Hale Properties, LLC and First Mariner Bank (Incorporated by reference to Exhibit 10.8 to the Company’s Form 10-Q for the quarter ended June 30, 2002.)

 

 

 

10.9

 

First Mariner Bancorp 2002 Stock Option Plan (Incorporated by reference to Attachment A to the Company’s Definitive Proxy Statement filed on 4/5/02)

 

 

 

10.10

 

Lease Agreement dated as of March 1, 2003 between Building No. 2 LLC and First Mariner Bank (Incorporated by reference to Exhibit 10.10 to the Company’s Form 10-Q for the quarter ended March 31, 2003.)

 

 

 

10.11

 

Lease Agreement dated March 1, 2003 between Canton Crossing LLC and First Mariner Bank (Incorporated by reference to Exhibit 10.11 to the Company’s Form 10-Q for the quarter ended March 31, 2003.)

 

 

 

10.12

 

Change of Control Agreement dated April 2, 2003 between First Mariner Bancorp and Edwin F. Hale, Sr. (Incorporated by reference to Exhibit 10.12 to the Company’s Form 10-Q for the quarter ended March 31, 2003.)

 

 

 

10.13

 

Change of Control Agreement dated April 2, 2003 between First Mariner Bancorp and Joseph A. Cicero (Incorporated by reference to Exhibit 10.13 to the Company’s Form 10-Q for the quarter ended March 31, 2003.)

 

 

 

10.14

 

Change of Control Agreement dated April 2, 2003 between First Mariner Bancorp and George H. Mantakos (Incorporated by reference to Exhibit 10.14 to the Company’s Form 10-Q for the quarter ended March 31, 2003.)

 

 

 

10.15

 

Change of Control Agreement dated April 2, 2003 between First Mariner Bancorp and Mark A. Keidel (Incorporated by reference to Exhibit 10.15 to the Company’s Form 10-Q for the quarter ended March 31, 2003.)

 

 

 

10.16

 

Change of Control Agreement dated April 2, 2003 between First Mariner Bancorp and Dennis E. Finnegan (Incorporated by reference to Exhibit 10.16 to the Company’s Form 10-Q for the quarter ended March 31, 2003.)

 

 

 

10.17

 

Change of Control Agreement dated April 2, 2003 between First Mariner Bancorp and Brett J. Carter (Incorporated by reference to Exhibit 10.17 to the Company’s Form 10-Q for the quarter ended March 31, 2003.)

 

 

 

31

 

Certifications of Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended, filed herewith

 

22



 

32

 

Certifications pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, furnished herewith.

 

 

 

99

 

Risk Factors (incorporated by reference to Exhibit 99 to the Company’s Form 10-K for the year ended December 31, 2002.)

 

23