First Mariner Bancorp (FMAR) in Baltimore has taken several giant leaps forward in improving its financial condition but it is still has much work to do.
The $1.2 billion-asset company reported Thursday that it earned $5.7 million in the second quarter — its second consecutive profitable quarter after five straight years of losses — thanks to a surge in mortgage lending and improved expense control. The company also said that its total nonperforming loans fell sharply year over year and that it had no loans more than 90 days past due on its books as of June 30.
Still, despite its return to profitability, First Mariner remains deeply troubled. Losses totaling $125 million from 2007 through 2011 drained the holding company of its equity and left the bank unit undercapitalized. First Mariner warned earlier this year that it could fail if it does not raise sufficient capital and since then it has given no indication that it has been able to round up new investors. (It had previously secured a commitment from Priam Capital I LP, a New York hedge fund, to invest $36.4 million on the condition that First Mariner would raise an additional $123.6 million on its own.)
Though the bank's capital ratios have inched up over the last couple of quarters, its chief executive, Mark Keidel, said Thursday that they were still below levels set by regulatory enforcement orders. At June 30, its total-risk based capital ratio was 6.3%, up from 5.7% in the first quarter and 5.5% at Dec. 31.
Keidel declined American Banker's request for an interview, but in a news release Thursday he said that the company is working "diligently to increase capital to levels required in our regulatory agreements."
Justin A. Barr, that president of BankDataWorks.com, said that given the depths of First Mariner's problems, its second-quarter results were "impressive."
"They have turned a significant corner both in terms of resolving their significant nonperforming assets and improving their earnings," he said. "If you look at their ability to significantly decrease nonperforming asset balances over the past three months without taking an earnings hit then that tells me they have taken their medicine to realistic chargeoffs."
Aside from reporting a 15% drop in nonperforming assets, to $56.7 million, First Mariner said it recovered $428,000 in previously charged off loans. In the same quarter last year it charged off more than $5.7 million of loans.
Noninterest expenses fell about 10%, to $14.9 million, as salaries and benefits and equipment expenses declined. Professional fees related to regulatory compliance, loan workouts and efforts related to increasing capital levels slid 43%, to $739,000, from a year earlier.
Meanwhile, First Mariner's noninterest income rose 170%, to $12.8 million, from a year earlier due to high volume of refinancing and mortgage sales activity. The company has been eager to expand its mortgage lending and said earlier this year that it expected to hire dozens of lenders to support its growth in the Washington, D.C., and Baltimore areas.
Barr said First Mariner has the size and reach "to take advantage of the strong mortgage origination environment," but he acknowledged that it could be held back by its capital woes.