10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.

FORM 10-K

(Mark One)
ý	ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.
For the fiscal year ended December 31, 2008.
or
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 (State of incorporation)	52-1834860 (IRS Employer Identification Number)
1501 S. Clinton Street, Baltimore, MD (Address of principal executive offices)	21224 (zip code)
410-342-2600 (Telephone number)

Securities registered under Section 12(b) of the Exchange Act:

Title of Each Class	Name of Each Exchange on which registered
Common Stock, par value $0.05 per share	The Nasdaq Stock Market LLC

Securities registered under Section 12 (g) of the Exchange Act:
None

         Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes o    No ý

         Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o    No ý

         Indicate by check mark whether the registrant (1) has 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

         Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained in this form, and no disclosure will be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer," and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company ý

         Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o    No ý

         The aggregate market value of the voting stock held by non-affiliates of the registrant as of the last business day of the registrant's most recently completed second fiscal quarter was approximately $15.437 million.

         The number of shares of common stock outstanding as of March 20, 2009 is 6,452,631 shares.

         Documents incorporated by reference:

         Proxy Statement—Part III.

FIRST MARINER BANCORP

Annual Report on Form 10-K
December 31, 2008

TABLE OF CONTENTS

		Page
PART I
Item 1	Business	3
Item 1A	Risk Factors	15
Item 1B	Unresolved Staff Comments	25
Item 2	Properties	26
Item 3	Legal Proceedings	30
Item 4	Submission of Matters to a Vote of Security Holders	30
PART II
Item 5	Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	31
Item 6	Selected Financial Data	33
Item 7	Management's Discussion and Analysis of Financial Condition and Results of Operations	34
Item 7A	Quantitative and Qualitative Disclosures About Market Risk	72
Item 8	Financial Statements and Supplementary Data	73
Item 9	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	120
Item 9A	Controls and Procedures	120
Item 9B	Other Information	122
PART III
Item 10	Directors, Executive Officers and Corporate Governance	122
Item 11	Executive Compensation	122
Item 12	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	122
Item 13	Certain Relationships and Related Transactions, and Director Independence	122
Item 14	Principal Accountant Fees and Services	122
PART IV
Item 15	Exhibits and Financial Statement Schedules	123

        This Annual Report of First Mariner Bancorp on Form 10-K contains 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". Statements 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 and its subsidiaries operate; 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-K, 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 mange 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 and other risk factors, see Item 1A of Part I of this report. Except as required by applicable laws, we do not intend to publish updates or revisions of forward-looking statements we make to reflect new information, future events or otherwise.

        Except as expressly provided otherwise, the terms "First Mariner" and "Company" as used in this report refer to First Mariner Bancorp and the terms "we", "us" and "our" refer collectively to First Mariner Bancorp and its consolidated subsidiaries.

PART I

ITEM 1    BUSINESS

General

        First Mariner Bancorp is a bank holding company whose business is conducted primarily through its wholly owned operating subsidiaries: First Mariner Bank (the "Bank"); Mariner Finance, LLC ("Mariner Finance"); and FM Appraisals, LLC ("FM Appraisals"). First Mariner was formed in 1995 and has total assets in excess of $1.307 billion as of December 31, 2008. Our executive offices are located in the Canton area of Baltimore City at 1501 South Clinton Street, Baltimore, Maryland 21224. Our telephone number is (410) 342-2600.

        We maintain the following Internet sites: www.1stmarinerbank.com; www.1stmarinerbancorp.com; www.1stmarinermortgage.com; www.vamortgage.com; and www.marinerfinance.com. Information on these websites is not part of, and is not incorporated herein by reference to, this annual report. Our annual report on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K and amendments to these reports are available, free of charge, in the investor relations section of our Internet site at www.1stmarinerbancorp.com as soon as reasonably practicable after we have filed them with the Securities and Exchange Commission (the "SEC").

        The Bank is our largest operating subsidiary with assets exceeding $1.192 billion as of December 31, 2008. The Bank was formed in 1995 through the merger of several small financial institutions. The Bank's primary market area for its core banking operations, which consist of traditional commercial and consumer lending, as well as retail and commercial deposit operations, is central Maryland, as well as portions of Maryland's eastern shore. First Mariner Bank is an independent community bank, and its deposits are insured by the Federal Deposit Insurance Corporation ("FDIC").

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        The Bank is engaged in the general commercial banking business, with particular attention and emphasis on the needs of individuals and small to mid-sized businesses, and delivers a wide range of financial products and services that are offered by many larger competitors. Products and services include traditional deposit products, a variety of consumer and commercial loans, residential and commercial mortgage and construction loans, money transfer services, nondeposit investment products, and Internet banking and similar services. Most importantly, the Bank provides customers with access to local Bank officers who are empowered to act with flexibility to meet customers' needs in an effort to foster and develop long-term loan and deposit relationships.

        First Mariner Mortgage, a division of the Bank, engages in mortgage-banking activities, providing mortgage loans and associated products to customers and selling most of those mortgage loans into the secondary market. First Mariner Mortgage currently operates offices in Maryland, Delaware, Massachusetts, and North Carolina. First Mariner Mortgage originated $1.149 billion in loans in 2008.

        Next Generation Financial Services ("NGFS"), a division of the Bank, engages in the origination of reverse and conventional mortgage loans, providing these products directly through commission based loan officers throughout the United States. NGFS originates reverse mortgage loans for sale and currently sells all of its volume to Fannie Mae. The Bank does not originate any reverse mortgage loans for its portfolio, but it does retain the servicing rights on reverse mortgage loans sold to Fannie Mae. NGFS is one of the largest originators of reverse mortgage loans in the United States.

        Mariner Finance engages in traditional consumer finance activities, making small direct cash loans to individuals, purchasing installment loan sales contracts from local merchants and retail dealers of consumer goods, lending to individuals via direct mail solicitations, and making a relatively low volume of mortgage loans. Mariner Finance currently operates branches in Maryland, Virginia, New Jersey, Tennessee, Pennsylvania, and Delaware. Mariner Finance had total assets of $103.946 million as of December 31, 2008. A substantial majority of those assets are comprised of loans to customers in Maryland and Delaware.

        FM Appraisals is a residential real estate appraisal preparation and management company that is headquartered in Baltimore City. FM Appraisals offers appraisal services for residential real estate lenders, including appraisal preparation, the compliance oversight of sub-contracted appraisers, appraisal ordering and administration, and appraisal review services. FM Appraisals provides these services to First Mariner Mortgage, NGFS, and Mariner Finance.

        We do not conduct any foreign operations.

        We operate in three business segments—commercial and consumer banking; consumer finance; and mortgage-banking. Financial information related to our operations in these segments for each of the two years ended December 31, 2008 is provided in Note 19 to our Consolidated Financial Statements included in Item 8 of Part II of this report.

Our Business Strategy

        We are currently focused on growing assets and earnings by capitalizing on our broad network of Bank branches, mortgage offices, consumer finance offices, and ATMs.

        To continue asset growth and profitability, our marketing strategy is targeted to:

•

Capitalize on our personal relationship approach that we believe differentiates us from our larger competitors;

•

Provide our customers with access to local executives who make key credit and other decisions;

•

Pursue commercial lending opportunities with small to mid-sized businesses that are underserved by our larger competitors;

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•

Develop innovative financial products and services to generate additional sources of revenue;

•

Cross-sell our products and services to our existing customers to leverage relationships and enhance our profitability;

•

Review our branch performance to evaluate possible consolidations or relocations that may increase our efficiency; and

•

Adhere to rigorous credit standards to maintain good quality assets as we implement our growth strategy.

Financial Services We Provide

        Commercial Banking.    Our commercial loan unit focuses on loan originations from small and mid-sized businesses (generally up to $20.0 million in annual sales) and such loans are usually accompanied by significant related deposits. Our commercial loan products include commercial mortgage loans for the purchase or refinance of commercial properties; residential and commercial real estate construction and development loans; working capital loans and lines of credit; demand, term, and time loans; and equipment, inventory, and accounts receivable financing. We also offer an array of cash management services and deposit products to our commercial customers. Computerized on-line banking and remote deposit are currently available to our commercial customers.

        Retail Banking.    Our retail banking activities emphasize consumer deposit and checking accounts. We offer an extensive range of services to meet the varied needs of our customers from young persons to senior citizens. In addition to traditional products and services, we offer contemporary products and services, such as debit cards, mutual funds, annuities, insurance products, Internet banking, and electronic bill payment services. Our consumer loan products include home equity lines of credit, fixed rate second mortgages, new and used auto loans, new and used boat loans, overdraft protection, and unsecured personal credit lines.

        Mortgage-Banking.    Our mortgage-banking business is structured to provide a source of fee income largely from the process of originating residential mortgage loans for sale on the secondary market, as well as the origination of loans to be held in our loan portfolio. Mortgage-banking products include Federal Housing Administration ("FHA") and the federal Veterans Administration ("VA") loans, conventional and nonconforming first and second mortgages, reverse mortgages, and construction and permanent financing.

        Community Reinvestment Act.    We have a strong commitment to our responsibilities under the federal Community Reinvestment Act ("CRA") and actively search for opportunities to meet the development needs of all members of the communities we serve, including persons of low to moderate income in a manner consistent with safe and sound banking practices. We currently fulfill this commitment by participating in loan programs sponsored or guaranteed by the FHA, the VA, the federally funded American Dream Downpayment Initiative, the Maryland Mortgage Program (CDA), the Federal Home Loan Bank of Atlanta Closing Cost Assistance Program, the Section 8 to Home-Ownership Program, and the Settlement Expense Loan Program.

        Consumer Finance.    We offer a wide variety of consumer finance products through Mariner Finance, which is focused on building market share by offering competitive products and services, delivered by experienced personnel who provide responsive service. Loan sizes are generally smaller on average than those originated by the Bank (approximately $2,800). Mariner Finance currently serves approximately 33,000 customers in Maryland, Delaware, Virginia, New Jersey, Pennsylvania, and Tennessee.

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Our Lending Activities

        Loan Portfolio Composition.    At December 31, 2008, our loan portfolio totaled $978.696 million, representing approximately 74.9% of our total assets of $1.307 billion. The majority of our lending activity is in the Mid-Atlantic region and our loans are generally secured by residential and commercial real estate. At December 31, 2008 over 79% of our total loans were secured by real estate.

        Real Estate Development and Construction Loans.    The Bank provides interim real estate acquisition development, and construction loans to builders, developers, and persons who will ultimately occupy their single-family dwellings. These loans are made within the Federal regulatory guidelines for maximum loan to value ratios. Generally, residential construction loans are made for up to 80% of the appraised value of the property. Residential construction loans are made for over 80% of the appraised value of the property with additional credit enhancements, such as additional collateral and/or private mortgage insurance. Commercial real estate construction loans are generally made for 80% or less of the appraised value of the property. Development loans, made to improve raw land into lots on which structures may be built, are generally made for 75% or less of the appraised value of the property. The Bank's real estate development and construction loan funds are disbursed periodically at pre-specified stages of completion. We carefully monitor these loans with on-site inspections and control of disbursements. The Bank's real estate development and construction loans are typical debt obligations of the borrowers and do not provide for our participation in residual profits or losses of the projects or involve equity positions through partnerships, joint ventures, or other similar structures.

        Loans to individuals for the construction of their primary residences are typically secured by the property under construction, frequently include additional collateral (such as a second mortgage on the borrower's present home), and commonly have maturities of nine to 12 months.

        Loans to residential builders for the construction of residential homes require binding sales contracts on the property and pre-qualification of the prospective buyers for permanent mortgage financing. Development loans are made only to developers with a proven track record. Generally, these loans are extended only when the borrower provides evidence that the lots under development will be sold to builders satisfactory to us.

        The Bank secures development and construction loans with the properties under development or construction and we typically obtain personal guarantees from the principals. Further, to assure that we do not place reliance solely in the value of the underlying property, we consider the financial condition and reputation of the borrower and any guarantors, the amount of the borrowers' equity in the project, independent appraisals, costs estimates, and pre-construction sale information.

        Residential Real Estate Mortgage Loans.    The Bank originates adjustable- and fixed-rate residential mortgage loans, including reverse mortgages. These mortgage loans are generally originated under terms, conditions, and documentation acceptable to the secondary mortgage market. With the current exception of reverse mortgages, the Bank will place some of these loans into our portfolio, although the vast majority are ultimately sold to investors.

        Commercial Real Estate Mortgage Loans.    The Bank originates mortgage loans secured by commercial real estate. These loans are primarily secured by office buildings, retail buildings, warehouses, and general-purpose business space. Although terms may vary, these commercial mortgage loans generally have maturities of 10 years or less. It is our general policy to obtain personal guarantees from the principals of the borrowers and assignments of all leases related to the collateral.

        Commercial Loans.    The Bank originates a variety of loans for business purposes. Less than one percent of all our commercial loans are unsecured. The Bank makes loans to provide working capital to businesses in the form of lines of credit, which may be secured by real estate, accounts receivable, inventory, equipment, or other assets. The financial condition and cash flow of our commercial

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borrowers are closely monitored by the submission of corporate financial statements, personal financial statements, and income tax returns. The frequency of submissions of required financial information depends on the size and complexity of the credit and the collateral that secures our loan. It is our general policy to obtain personal guarantees from the principals of our commercial loan borrowers.

        Consumer Loans.    The Bank and Mariner Finance offer a variety of consumer loans. Consumer loans originated by the Bank are typically secured by residential real estate or personal property, including automobiles and boats. Our home equity loans (closed-end and lines of credit) are typically made up to 70% of the appraised value, less the amount of any existing prior liens on the property and generally have maximum terms of 15 years. The interest rates on our closed-end home equity loans are generally fixed, while interest rates on our home equity lines of credit are variable. Consumer finance products offered through Mariner Finance include loans for the purchase of consumer goods, direct cash lending, loans for seasonal purposes, home improvement loans, first mortgage loans, closed-end second mortgages, and loans originated though direct mail solicitation. Loans made by Mariner Finance are generally for terms less than five years, carry a fixed rate of interest, and are generally secured by consumer goods, including automobiles. Mariner Finance also originates a limited number of closed-end home equity loans.

        See Item 7 of Part II of this report for more detailed information concerning our loan portfolio, the individual portfolio types, and their effect on 2008 operations.

Our Credit Administration Process

        Our lending activities are subject to written policies approved by the Bank's Board of Directors to ensure proper management of credit risk. We make loans that are subject to a well defined credit process that includes credit evaluation of borrowers, risk-rating of credits, establishment of lending limits and application of lending procedures, including the holding of adequate collateral and the maintenance of compensating balances, as well as procedures for on-going identification and management of credit deterioration. We conduct regular portfolio reviews to identify potential under-performing credits, estimate loss exposure, geographic and industry concentrations, and to ascertain compliance with our policies. For significant problem loans, we review and evaluate the financial strengths of our borrower and the guarantor, the related collateral, and the effects of economic conditions.

        Commercial and mortgage loan officers have no individual lending authority. The loan committee of the Bank's Board of Directors is authorized to approve loans up to the Bank's legal lending limit, which approximates $13.6 million as of December 31, 2008. We have established an in-house limit of $5.0 million, which is reviewed periodically by the Board of Directors, and do have loans to a limited number of customers in excess of that amount.

        We generally do not make loans to be held in our loan portfolio outside our market area unless the borrower has an established relationship with us and conducts its principal business operations within our market area. Consequently, we, and our borrowers, are affected by the economic conditions prevailing in our market area. Approximately 84% of our residential real estate development and construction loan portfolio consisted of loans to Maryland customers; an additional 16% consisted of loans to customers in the surrounding states and the District of Columbia; and less than 1% consisted of loans to customers in other states in the country. Approximately 81% of our commercial loan portfolio (commercial, commercial real estate, and commercial construction) consisted of loans to Maryland customers with an additional 13% consisting of loans to customers in the surrounding states and the District of Columbia. Commercial and commercial real estate loans to customers in other states in the country amounted to approximately 6% of our portfolio.

        Mariner Finance's lending activities are subject to written policies approved by our Board of Directors. These loans are subject to a well-defined credit process that includes a credit evaluation of

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the borrower and the adequacy of available collateral. Mariner Finance's loan policy provides various levels of individual lending authority. Mariner Finance purchases installment sales contracts from dealers applying the same criteria. Dealers are subject to pre-approval due diligence and must have a proven track record with management. The majority of Mariner Finance's loans are to customers in Maryland (67.8%) and Delaware (14.3%), with an increasing volume in our newer markets of Virginia, New Jersey, Pennsylvania, and Tennessee.

Market

        We consider our core market area to be the communities within the Baltimore/Washington corridor, particularly Baltimore City and the Maryland counties of Baltimore, Anne Arundel, Harford, and Howard, as well as the eastern shore of Maryland. Lending activities are broader and include areas outside of our core market area such as other Maryland counties, the District of Columbia and certain markets in contiguous states, as well as certain regional and national markets.

Our Competition

        Banking and consumer finance.    We operate in a highly competitive environment, competing for deposits and loans with commercial banks, thrifts, credit unions, mortgage companies, finance companies, Internet-based financial companies, and other financial entities. Our principal competitors include other community commercial banks and larger financial institutions with branches in our market area. Numerous mergers and consolidations involving financial entities in our market area have occurred in recent years, requiring us to compete with banks and finance companies with greater resources. Additionally, certain financial institutions have received various amounts of government financial assistance in recent months, in accordance with legislation passed in late 2008, giving those institutions greater resources with which to compete in our market. See "Supervision and Regulation" later in this section for further information on the recent government legislation.

        The primary factors we face in competing for deposits are interest rates, personalized service, the quality and range of financial services, convenience of office locations, and office hours. Competition for deposits comes primarily from other commercial banks, savings associations, credit unions, money market funds, Internet based banks, and other investment alternatives. The primary factors in competing for loans are interest rates, loan origination fees, the quality and range of lending services, responsiveness, and personalized service. Competition for loans comes primarily from other commercial banks, savings associations, mortgage-banking firms, credit unions, finance companies, and other financial intermediaries. Many of the financial institutions operating in our market area offer certain services such as trust and international banking, which we do not offer, and have greater financial resources or have substantially higher lending limits.

        To compete with other financial services providers, we principally rely upon local promotional activities, personal relationships established by our officers, directors, and employees with our customers, and specialized services tailored to meet our customers' needs. In those instances where we are unable to accommodate a customer's needs, we will arrange for those services to be provided by other financial institutions with which we have a relationship.

        Current banking laws facilitate interstate branching and merger activity among banks. This may result in an even greater degree of competition in the banking industry and we may be brought into competition with institutions with which we do not currently compete. As a result, intense competition in our market area may be expected to continue for the foreseeable future.

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        Mortgage-banking.    Our mortgage-banking division also operates in an extremely competitive environment. In addition to competing with mortgage-banking divisions of other financial institutions, we compete with mortgage-banking firms that are not under the same level of regulation as we are. Without similar regulatory constraints, these lesser regulated firms can be more responsive to customers. Additionally, competition in the mortgage-banking industry comes from the continuing evolution of the secondary mortgage market, the proliferation of mortgage products, increasing interest rate volatility, compounded by homeowners' increasing tendency to refinance their mortgages as the refinance process becomes more efficient and cost effective. These swings in mortgage origination volume have placed significant operational and financial pressures on mortgage lenders.

        To compete effectively in this environment, we maintain a very high level of operational, technological, and managerial expertise, consistently offer a wide selection of mortgage loans through all marketing channels on a regional scale, provide high-quality service, and price our mortgage loans at competitive rates.

        See Item 7 of Part II of this report and Note 19 to the Consolidated Financial Statements, included in Item 8 of Part II of this report, for more detailed information concerning our mortgage-banking operations and its effect on our consolidated financial position and consolidated operations.

Supervision and Regulation

        First Mariner and its subsidiaries are extensively regulated under federal and state law. Generally, these laws and regulations are intended to protect depositors and loan customers, not stockholders. The following is a summary description of certain provisions of certain laws that affect the regulation of bank holding companies, finance companies, and banks. The discussion is qualified in its entirety by reference to applicable laws and regulations. Changes in such laws and regulations may have a material effect on the business and prospects of First Mariner and its subsidiaries.

        Federal Bank Holding Company Regulation and Structure.    First Mariner is a bank holding company within the meaning of the Bank Holding Company Act of 1956, as amended, and, as such, it is subject to regulation, supervision, and examination by the Board of Governors of the Federal Reserve System ("Federal Reserve" or "FRB"). First Mariner is required to file annual and quarterly reports with the Federal Reserve and to provide the Federal Reserve with such additional information as the Federal Reserve may require. The Federal Reserve may conduct examinations of First Mariner and its subsidiaries.

        With certain limited exceptions, First Mariner is required to obtain prior approval from the Federal Reserve before acquiring direct or indirect ownership or control of more than 5% of any voting securities or substantially all of the assets of a bank or bank holding company, or before merging or consolidating with another bank holding company. In acting on applications for such approval, the Federal Reserve must consider various statutory factors, including among others, the effect of the proposed transaction on competition in the relevant geographical and product markets, each party's financial condition and management resources and record of performance under the CRA. Additionally, with certain exceptions, any person proposing to acquire control through direct or indirect ownership of 25% or more of any voting securities of First Mariner is required to give 60 days written notice of the acquisition to the Federal Reserve, which may prohibit the transaction, and to publish notice to the public.

        With prior approval of the Federal Reserve, First Mariner may acquire more than 5% of the assets or outstanding shares of a company engaging in nonbank activities determined by the Federal Reserve to be closely related to the business of banking or of managing or controlling banks. Under current Federal Reserve regulations, such permissible nonbank activities include mortgage-banking, equipment leasing, securities brokerage, and consumer and commercial finance company operations.

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        The Bank is subject to certain quantitative and qualitative restrictions on extensions of credit to First Mariner and its subsidiaries, investments in First Mariner's securities, and the use of First Mariner's securities as collateral for loans to any borrower. These regulations and restrictions may limit our ability to obtain funds from the Bank for our cash needs including funds for the payment of dividends, interest, and operating expenses. Further, a bank holding company and its subsidiaries are prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or sale of property, or furnishing of services. For example, a bank may not generally require a customer to obtain other services from itself or its affiliates, and may not require that a customer promise not to obtain other services from a competitor as a condition to an extension of credit to the customer. The Federal Reserve has ended the anti-tying rules for financial holding companies and their non-banking subsidiaries. Such rules were retained for bank holding companies and banks.

        Under Federal Reserve policy, a bank holding company is expected to act as a source of financial strength to its subsidiary banks and to make capital injections into a troubled subsidiary bank, and the Federal Reserve may charge the bank holding company with engaging in unsafe and unsound practices for failure to commit resources to a subsidiary bank when required. A required capital injection may be called for at a time when the holding company does not have the resources to provide it. In addition, depository institutions insured by the FDIC can be held liable for any losses incurred by, or reasonably anticipated to be incurred by, the FDIC in connection with the default of, or assistance provided to, a commonly controlled FDIC-insured depository institution. Accordingly, in the event that any insured subsidiary of First Mariner causes a loss to the FDIC, other insured subsidiaries could be required to compensate the FDIC by reimbursing it for the estimated amount of such loss. Such cross guaranty liabilities generally are superior in priority to the obligations of the depository institution to its stockholders due solely to their status as stockholders and obligations to other affiliates.

        We have entered into agreements with the Federal Reserve Bank of Richmond, FDIC, and the Maryland Banking Commissioner. The material terms of these agreements require us to: (i) formulate a plan for the reduction and collection of adversely classified loans, nonaccrual loans, and delinquent loans and otherwise improve our asset quality; (ii) develop a policy for managing the real estate we acquire by foreclosure or by deed in lieu of foreclosure; (iii) periodically review the adequacy of our allowance for loan and lease losses ("the allowance"); (iv) develop a plan for systematically reducing and monitoring our residential real estate acquisition, development, and construction loan portfolio; (v) develop and implement a profit and budget plan to improve our operating performance; (vi) develop a capital plan to maintain "well capitalized" status; (vii) submit plans to reduce parent company leverage; and (viii) submit plans to improve enterprise-wide risk management and effectiveness of internal audit programs. We have also agreed to provide the Federal Reserve Bank of Richmond advance notice involving significant capital transactions.

        These agreements will subject us to increased regulatory scrutiny and may have an adverse impact on our business operations. Failure to comply with the provisions of these agreements may result in more restrictive actions from our regulators, including more severe and restrictive enforcement actions.

        State Bank Holding Company Regulation.    As a Maryland bank holding company, First Mariner is subject to various restrictions on its activities as set forth in Maryland law, in addition to those restrictions set forth in federal law. Under Maryland law, a bank holding company that desires to acquire a bank or bank holding company that has its principal place of business in Maryland must obtain approval from the Maryland Commissioner of Financial Regulation. Also, a bank holding company and its Maryland chartered bank or trust company cannot directly or indirectly acquire banking or nonbanking subsidiaries or affiliates until the bank or trust company receives the approval of the Maryland Commissioner.

        Federal and State Bank Regulation.    The Bank is a Maryland chartered trust company, with all the powers of a commercial bank regulated and examined by the Maryland Commissioner and the FDIC.

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The FDIC has extensive enforcement authority over the institutions it regulates to prohibit or correct activities that violate law, regulation, or written agreement with the FDIC. Enforcement powers also regulate activities that are deemed to constitute unsafe or unsound practices. Enforcement actions may include the appointment of a conservator or receiver, the issuance of a cease and desist order, the termination of deposit insurance, the imposition of civil money penalties on the institution, its directors, officers, employees, and institution-affiliated parties, the issuance of directives to increase capital, the issuance of formal and informal agreements, the removal of or restrictions on directors, officers, employees, and institution-affiliated parties, and the enforcement of any such mechanisms through restraining orders or other court actions.

        In its lending activities, the maximum legal rate of interest, fees, and charges that a financial institution may charge on a particular loan depends on a variety of factors such as the type of borrower, the purpose of the loan, the amount of the loan, and the date the loan is made. Other laws tie the maximum amount that may be loaned to any one customer and the related interest to a financial institution's capital levels. The Bank is also subject to certain restrictions on extensions of credit to executive officers, directors, principal stockholders, or any related interest of such persons, which generally require that such credit extensions be made on substantially the same terms as are available to third persons dealing with the Bank and not involve more than the normal risk of repayment.

        The CRA requires that, in connection with the examination of financial institutions within their jurisdictions, the FDIC evaluate the record of the financial institution in meeting the credit needs of their communities, including low and moderate income neighborhoods and families, consistent with the safe and sound operation of those banks. These factors are also considered by all regulatory agencies in evaluating mergers, acquisitions, and applications to open a branch or facility.

        Under the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), each federal banking agency is required to prescribe, by regulation, noncapital safety and soundness standards for institutions under its authority. The federal banking agencies, including the FDIC, have adopted standards covering internal controls, information and internal audit systems, loan documentation, credit underwriting, interest rate exposure, asset growth, compensation, fees, and benefits. FDICIA also imposed new capital standards on insured depository institutions. Institutions that fail to meet those standards may be required by the agency to develop a plan acceptable to the agency, specifying the steps that the institution will take to meet the standards. Failure to submit or implement such a plan may subject the institution to regulatory sanctions. Management believes the Bank meets substantially all standards which have been adopted.

        Before establishing new branch offices, the Bank must meet certain minimum capital stock and surplus requirements. With each new branch located outside the municipal area of the Bank's principal banking office, these minimal levels increase by $120,000 to $900,000, based on the population size of the municipal area in which the branch will be located. Prior to establishment of the branch, the Bank must obtain Commissioner and FDIC approval. If establishment of the branch involves the purchase of a bank building or furnishings, the total investment in bank buildings and furnishings cannot exceed, with certain exceptions, 50% of the Bank's unimpaired capital and surplus.

        On October 14, 2008, the FDIC announced the creation of the Temporary Liquidity Guarantee Program (the "TLGP") to decrease the cost of bank funding and, hopefully, normalize lending. This program is comprised of two components. The first component guarantees senior unsecured debt issued between October 14, 2008 and June 30, 2009. The guarantee will remain in effect until June 30, 2012 for such debts that mature beyond June 30, 2009. The second component provides full coverage for noninterest-bearing transaction deposit accounts, IOLTAs, and NOW accounts with interest rates of 0.50 percent or less, regardless of account balance, until December 31, 2009. We elected to participate

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in both programs and expect FDIC premiums to increase in 2009 as a result. We are required to receive regulatory approval prior to issuance of any unsecured debt under the program.

        Financial Services Modernization.    Effective in pertinent part on March 11, 2000, the federal Gramm-Leach-Bliley Act ("GLBA") revises the federal Bank Holding Company Act of 1956 and repeals the affiliation provisions of the federal Glass-Steagall Act of 1933, which, taken together, limited the securities, insurance, and other non-banking activities of any company that controls an FDIC insured financial institution. Under the GLBA, bank holding companies can elect, subject to certain qualifications, to become a "financial holding company." The GLBA provides that a financial holding company may engage in a full range of financial activities, including insurance and securities sales and underwriting activities, real estate development, and, with certain exceptions, merchant banking activities, with new expedited notice procedures. The GLBA also permits certain qualified national banks to form "financial subsidiaries," which have broad authority to engage in all financial activities except insurance underwriting, insurance investments, real estate investment or development, and merchant banking, and expands the potential activities of subsidiaries of state banks, subject to applicable state law. The GLBA may increase the competition we encounter. First Mariner made an election to become a financial holding company in 2002, but withdrew that election in October 2007.

        Deposit Insurance.    The deposits of the Bank are insured to a maximum of $100,000 per depositor through the Deposit Insurance Fund (the "DIF"), which is administered by the FDIC, and the Bank is required to pay quarterly deposit insurance premium assessments to the FDIC. The DIF was created pursuant to the Federal Deposit Insurance Reform Act of 2005, which was signed into law on February 8, 2006. Under this new law, (i) the current $100,000 deposit insurance coverage will be indexed for inflation (with adjustments every five years, commencing January 1, 2011), and (ii) deposit insurance coverage for retirement accounts was increased to $250,000 per participant subject to adjustment for inflation. In addition, the FDIC will be given greater latitude in setting the assessment rates for insured depository institutions which could be used to impose minimum assessments. Effective October 3, 2008, the Emergency Economic Stabilization Act of 2008 (the "EESA") was enacted to temporarily raise the basic limit on federal deposit insurance coverage from $100,000 to $250,000 per depositor. The legislation states that the limit will return to $100,000 after December 31, 2009. The coverage for retirement accounts did not change and remains at $250,000. The Bank paid a total of $887,000 in FDIC premiums during 2008. Further information about deposit insurance premiums is provided in Item 7 of Part II of this report under the heading "Recent Developments".

        Limits on Dividends and Other Payments.    First Mariner's ability to pay dividends is largely dependent upon the receipt of dividends from its banking subsidiary. Both federal and state laws impose restrictions on the ability of the Bank to pay dividends. See "Federal Deposit Insurance Corporation Improvement Act of 1991" below. For a Maryland chartered bank or trust company, dividends may be paid out of undivided profits or, with the prior approval of the Commissioner, from surplus in excess of 100% of required capital stock. If, however, the surplus of a Maryland bank is less than 100% of its required capital stock, cash dividends may not be paid in excess of 90% of net earnings. In addition to these specific restrictions, bank regulatory agencies also have the ability to prohibit proposed dividends by a financial institution which would otherwise be permitted under applicable regulations if the regulatory body determines that such distribution would constitute an unsafe or unsound practice. As noted earlier, First Mariner and its bank subsidiary have entered into agreements with the Federal Reserve Bank of Richmond, FDIC, and the Maryland Banking Commissioner that, among other things, require us to obtain the prior approval of our regulators before paying a dividend or otherwise making a distribution on our stock. In addition, First Mariner elected to defer regularly scheduled quarterly interest payments on its junior subordinated debentures issued in connection with its trust preferred securities offerings. First Mariner is prohibited from paying any dividends or making any other distribution on its common stock for so long as interest payments are being deferred.

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        Capital Requirements.    The Federal Reserve and FDIC have adopted certain risk-based capital guidelines to assist in the assessment of the capital adequacy of a banking organization's operations for both transactions reported on the balance sheet as assets and items, such as letters of credit and recourse arrangements, which are recorded as off balance sheet items. Under these guidelines, nominal dollar amounts of assets and credit equivalent amounts of off balance sheet items are multiplied by one of several risk adjustment percentages, which range from 0% for assets with low credit risk, such as certain U.S. Treasury securities to 100% for assets with relatively high credit risk, such as business loans.

        A banking organization's risk-based capital ratio is obtained by dividing its qualifying capital by its total risk adjusted assets. The regulators measure risk-adjusted assets, which include off balance sheet items, against both total qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2 capital) and Tier 1 capital. "Tier 1," or core capital, includes common equity, perpetual preferred stock (excluding auction rate issues), trust preferred securities (limited to one-third of other Tier 1 components), and minority interest in equity accounts of consolidated subsidiaries (less goodwill and other intangibles), subject to certain exceptions and limitations. "Tier 2," or supplementary capital, includes, among other things, limited-life preferred stock, hybrid capital instruments, mandatory convertible securities and trust preferred securities (above amounts not qualifying as Tier 1 capital), qualifying and subordinated debt, and the allowance for loan and lease losses, subject to certain limitations and less required deductions. The inclusion of elements of Tier 2 capital is subject to certain other requirements and limitations of the federal banking agencies. Banks and bank holding companies, subject to the risk-based capital guidelines are required to maintain a ratio of Tier 1 capital to risk-weighted assets of at least 4% and a ratio of total capital to risk-weighted assets of at least 8%. The appropriate regulatory authority may set higher capital requirements when particular circumstances warrant. In addition to risk-based capital, banks and bank holding companies are required to maintain a minimum amount of Tier 1 capital to quarterly average assets, referred to as the leverage capital ratio, of at least 4%. First Mariner and the Bank maintained capital ratios that exceeded these minimum standards. See Item 7 of Part II of this report for more detailed information concerning capital adequacy.

        Federal banking agencies have adopted regulations specifying that the agencies will include, in their evaluations of a bank's capital adequacy, an assessment of the bank's interest rate risk ("IRR") exposure. The standards for measuring the adequacy and effectiveness of a banking organization's interest rate risk management includes a measurement of board of director and senior management oversight, and a determination of whether a banking organization's procedures for comprehensive risk management are appropriate to the circumstances of the specific banking organization. The Bank utilizes IRR models that are used to measure and monitor IRR. Additionally, the regulatory agencies have been assessing IRR on an informal basis for several years.

        Failure to meet applicable capital guidelines could subject a banking organization to a variety of enforcement actions, including limitations on its ability to pay dividends, the issuance by the applicable regulatory authority of a capital directive to increase capital and, in the case of depository institutions, the termination of deposit insurance by the FDIC, as well as the measures described under "Federal Deposit Insurance Corporation Improvement Act of 1991" below, as applicable to undercapitalized institutions. In addition, future changes in regulations or practices could further reduce the amount of capital recognized for purposes of capital adequacy. Such a change could affect the ability of the Bank to grow and could restrict the amount of profits, if any, available for the payment of dividends to First Mariner.

        Federal Deposit Insurance Corporation Improvement Act of 1991.    In December 1991, Congress enacted FDICIA, which substantially revised the bank regulatory and funding provisions of the Federal Deposit Insurance Act and made significant revisions to several other federal banking statutes. FDICIA provides for, among other things, (i) publicly available annual financial condition and management

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reports for financial institutions, including audits by independent accountants, (ii) the establishment of uniform accounting standards by federal banking agencies, (iii) the establishment of a "prompt corrective action" system of regulatory supervision and intervention, based on capitalization levels with more scrutiny and restrictions placed on depository institutions with lower levels of capital, (iv) additional grounds for the appointment of a conservator or receiver, and (v) restrictions or prohibitions on accepting brokered deposits, except for institutions which significantly exceed minimum capital requirements. FDICIA also provides for increased funding of the FDIC insurance funds and the implementation of risked-based premiums.

        A central feature of FDICIA is the requirement that the federal banking agencies take "prompt corrective action" with respect to depository institutions that do not meet minimum capital requirements. Pursuant to FDICIA, the federal bank regulatory authorities have adopted regulations setting forth a five-tiered system for measuring the capital adequacy of the depository institutions that they supervise. Under these regulations, a depository institution is classified in one of the following capital categories: "well capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized," and "critically undercapitalized." An institution may be deemed by the regulators to be in a capitalization category that is lower than is indicated by its actual capital position if, among other things, it receives an unsatisfactory examination rating with respect to asset quality, management, earnings, or liquidity.

        FDICIA generally prohibits a depository institution from making any capital distribution (including payment of a cash dividend) or paying any management fees to its holding company if the depository institution would thereafter be undercapitalized. Undercapitalized depository institutions are subject to growth limitations and are required to submit capital restoration plans. If a depository institution fails to submit an acceptable plan, it is treated as if it is significantly undercapitalized. Significantly undercapitalized depository institutions may be subject to a number of other requirements and restrictions including orders to sell sufficient voting stock to become adequately capitalized and requirements to reduce total assets and stop accepting deposits from correspondent banks. Critically undercapitalized institutions are subject to the appointment of a receiver or conservator, generally within 90 days of the date such institution is determined to be critically undercapitalized.

        FDICIA provides the federal banking agencies with significantly expanded powers to take enforcement action against institutions that fail to comply with capital or other standards. Such action may include the termination of deposit insurance by the FDIC or the appointment of a receiver or conservator for the institution. FDICIA also limits the circumstances under which the FDIC is permitted to provide financial assistance to an insured institution before appointment of a conservator or receiver.

        Interstate Banking Legislation.    The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 ("Riegle-Neal") was enacted into law on September 29, 1994. Riegle-Neal authorized federal banking agencies to approve interstate bank merger transactions even if such transactions are prohibited by the laws of a state. An exception to such authorization arises if the home state of one of the banks that is a party to the merger transaction opted out of the merger provisions of Riegle-Neal by adopting a law after the date of the enactment of the Riegle-Neal and prior to June 1, 1997. These laws must apply equally to all out-of-state banks and expressly prohibit merger transactions involving out-of-state banks. Riegle-Neal also permits interstate branch acquisitions if the laws of the state where the branch is located permits interstate branch acquisitions. The interstate merger and branch acquisitions permitted by Riegle-Neal are subject to nationwide and statewide insured deposit limitations as described in Riegle-Neal.

        Riegle-Neal also authorizes the federal banking agencies to approve de novo interstate branching by national and state banks in states which specifically allow for such branching. To our knowledge,

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only two states, Texas and Montana, have opted out of the Riegle-Neal provisions relating to interstate mergers, acquisitions of branches and establishment of de novo branches.

        Privacy Legislation.    Current Federal banking rules limit the ability of banks and other financial institutions to disclose non-public personal financial information about customers to non-affiliated third parties. Under these rules, financial institutions must provide initial notices to customers about their privacy policies that provide a description of the conditions under which they may disclose non-public personal information to non-affiliated third parties and affiliates. Institutions must also provide annual notices to current customers that provide a reasonable method for customers to "opt out" of disclosures to non-affiliated parties. These policies affect how customer information is transmitted through diversified financial companies and conveyed to third parties. We have implemented our privacy policies in accordance with the law.

        USA Patriot Act.    The USA Patriot Act of 2001 significantly increased the anti-money laundering and financial transparency laws to require additional due diligence for financial institutions. The law set standards for verifying customer information at account opening and maintenance of records, and created rules to promote cooperation among financial institutions, regulators, and law enforcement in identifying parties that may be involved in terrorism or money laundering. The law requires financial businesses to report cash transactions in excess of $10,000 to the U.S. Treasury Department, and also requires reporting of suspicious customer activities.

        Federal Securities Laws.    The shares of First Mariner common stock are registered with the SEC under Section 12(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and listed on the NASDAQ Global Select Market. First Mariner is subject to information reporting requirements, proxy solicitation requirements, insider trading restrictions and other requirements of the Exchange Act, including the requirements imposed under the federal Sarbanes-Oxley Act of 2002. Among other things, loans to and other transactions with insiders are subject to restrictions and heightened disclosure, directors and certain committees of the Board must satisfy certain independence requirements, and the Corporation is generally required to comply with certain corporate governance requirements.

Economic Monetary Policies and Economic Controls

        We are affected by monetary policies of regulatory agencies, including the Federal Reserve Board, which regulates the national money supply in order to mitigate recessionary and inflationary pressures. Among the techniques available to the Federal Reserve Board are: engaging in open market transactions in U.S. Government securities, changing the discount rate on bank borrowings, changing reserve requirements against bank deposits, prohibiting the payment of interest on demand deposits, and imposing conditions on time and savings deposits. These techniques are used in varying combinations to influence the overall growth of bank loans, investments, and deposits. Their use may also affect interest rates charged on loans or paid on deposits. The effect of governmental policies on our earnings cannot be predicted. However, our earnings will be impacted by movement in interest rates, as discussed in Item 7A of Part II of this report.

ITEM 1A    RISK FACTORS

        The following factors may impact our business, financial condition, and results of operations and should be considered carefully in evaluating an investment in the Company.

We have had Losses and Low Earnings in Recent Periods

        We incurred a net loss of $15.088 million for the year ended December 31, 2008, and a net loss of $10.063 million for the year ended December 31, 2007. Our management believes that our current

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business plan will be successful and believes we will be able to limit our losses; however, our business plan is subject to current market conditions and its successful implementation is uncertain. There is no assurance that we will be successful in executing our business plan or that even if we successfully implement our business plan, we will be able to curtail our losses now or in the future. If we incur significant operating losses, our stock price may decline, perhaps significantly.

Because the Nature of the Financial Services Business Involves a High Volume of Transactions, the Company Faces Significant Operational Risks

        We operate in many different businesses in diverse markets and rely on the ability of our employees and systems to process a high number of transactions. Operational risk is the risk of loss resulting from our operations, including, but not limited to, the risk of fraud by employees or persons outside of the Company, the execution of unauthorized transactions by employees, errors relating to transaction processing and technology, and catastrophic failures resulting from terrorist acts or natural disasters, breaches of the internal control system, and compliance requirements and business continuation and disaster recovery. This risk of loss also includes the potential legal actions that could arise as a result of an operational deficiency or as a result of noncompliance with applicable regulatory standards, adverse business decisions or their implementation, and customer attrition due to potential negative publicity. We maintain a system of internal controls to mitigate against such occurrences and maintain insurance coverage for such risks that are insurable, but should such an event occur that results in a breakdown in the internal control system, improper operation of systems or improper employee actions, we could suffer financial loss, face regulatory action, and suffer damage to our reputation.

        Additionally, the financial services industry is continually undergoing rapid technological change with frequent introductions of new technology-driven products and services. The effective use of technology increases efficiency and enables financial institutions to better serve customers and to reduce costs. Our future success depends, in part, upon our ability to address the needs of our customers by using technology to provide products and services that will satisfy customer demands, as well as to create additional efficiencies in our operations. Many of our competitors have substantially greater resources to invest in technological improvements. We may not be able to effectively implement new technology-driven products and services or be successful in marketing these products and services to our customers. Failure to successfully keep pace with technological change affecting the financial services industry could have a material adverse impact on our business and, in turn, our financial condition and results of operations.

        Severe weather, natural disasters, acts of war or terrorism, and other adverse external events could have a significant impact on our ability to conduct business. Such events could affect the stability of our deposit base, impair the ability of borrowers to repay outstanding loans, impair the value of collateral securing loans, cause significant property damage, result in loss of revenue and/or cause us to incur additional expenses. Operations in several of our markets could be disrupted by both the evacuation of large portions of the population as well as damage and/or lack of access to our banking and operation facilities. Although we have not experienced such an occurrence to date, severe weather or natural disasters, acts of war or terrorism, or other adverse external events may occur in the future. Although management has established disaster recovery policies and procedures, the occurrence of any such event could have a material adverse effect on our business, which, in turn, could have a material adverse effect on our financial condition and results of operations.

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A Significant Amount of our Business is Concentrated in Real Estate Lending, and Most of this Lending Involves Maryland Real Estate

        Approximately 18% of our loan portfolio is comprised of commercial and consumer real estate development and construction loans, which are secured by the real estate being developed in each case. In addition to the risk that the market values of the real estate securing these loans may deteriorate, these loans are also subject to the development risks that the projects will not be completed in a timely manner, or according to original specifications. Real estate development and construction projects that are not completed in a timely manner, or according to original specifications, are generally less marketable than projects that are fully developed. The loans underlying such projects may be subject to greater losses in the event that the real estate collateral becomes the source of repayment.

        In addition to the financial strength and cash flow characteristics of the borrower in each case, the Bank often secures its loans with real estate collateral. At December 31, 2008, approximately 79% of the Bank's loans have real estate as a primary, secondary, or tertiary component of collateral. The real estate collateral in each case provides an alternate source of repayment in the event of default by the borrower and may deteriorate in value during the time the credit is extended. If we are required to liquidate the collateral securing a loan during a period of reduced real estate values to satisfy the debt, our earnings and capital could be adversely affected.

We Have a High Percentage of Commercial, Commercial Real Estate, and Real Estate Acquisition and Development Loans in Relation to our Total Loans and Total Assets

        Our loan portfolio contains a high percentage of commercial, commercial real estate, and real estate acquisition and development loans in relation to our total loans and total assets. These types of loans typically are larger than residential real estate loans and other commercial loans. Because the loan portfolio contains a number of commercial and commercial real estate loans with relatively large balances, the deterioration of one or a few of these loans may cause a significant increase in nonperforming loans. An increase in nonperforming loans could result, and has resulted, in a loss of earnings from these loans, an increase in the provision for loan losses, or an increase in loan charge-offs, which could have an adverse impact on financial results.

        Current regulatory guidance suggests that institutions whose commercial real estate loans exceed certain percentages of capital should implement heightened risk management practices appropriate to their concentration risk and may be required to maintain higher capital ratios than institutions with lower concentrations in commercial real estate lending. Based on our commercial real estate concentration as of December 31, 2008, we may be subject to further supervisory analysis during future examinations. Although we continuously evaluate our concentration and risk management strategies, we cannot guarantee that any risk management practices we implement will be effective to prevent losses relating to our commercial real estate portfolio. Management cannot predict the extent to which this guidance will impact our operations or capital requirements.

Mortgage-Banking Activities Generate a Significant Portion of our Noninterest Income

        A significant portion of our business involves making residential mortgage loans through our mortgage division, which accounted for approximately 47% and 30% of our noninterest income for the years ended December 31, 2008 and 2007, respectively. Real estate loan origination activity, including refinancings, is generally greater during periods of low or declining interest rates and favorable economic conditions, which had been favorably affected by relatively lower market interest rates during the past three years. However, we did experience a deterioration in market conditions during 2007 and 2008 and continued adverse changes in market conditions could have an adverse impact on our earnings through lower origination volumes.

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We Face Interest Rate Risk on our Loans Held for Sale Portfolio

        We are exposed to interest rate risk in both our pipeline of mortgage originations (loans that have yet to close with the borrower) and in our warehouse loans (those loans that have closed with the borrower but have yet to be funded by investors). We have managed this interest rate risk through hedging strategies. We hedge a portion of our mortgage loan pipeline and warehouse utilizing forward sales of mortgage-backed securities for loans to be sold under mandatory delivery contracts. We expect that these derivative financial instruments (forward sales of mortgage-backed securities) will experience changes in fair value opposite to the change in fair value of the derivative loan commitments and our warehouse. However, the process of selling loans and use of forward sales of mortgage-backed securities to hedge interest rate risk associated with customer interest rate lock commitments involves greater risk than selling loans on an individual basis through best efforts forward delivery commitments. Hedging interest rate risk requires management to estimate the expected "fallout" (rate lock commitments with customers that do not complete the loan process). Additionally, the fair value of the hedge may not correlate precisely with the change in fair value of the rate lock commitments with the customer due to changes in market conditions, such as demand for loan products, or prices paid for differing types of loan products. Variances from management's estimates for customer fallout or market changes making the forward sale of mortgage-backed securities non-effective may result in higher volatility in our profits from selling mortgage loans originated for sale. We engage an experienced third party to assist us in managing our activities in hedging and marketing sales strategy.

We Face Credit Risk Related to our Residential Mortgage Production Activities

        We face credit risk related to our residential mortgage production activities. Credit risk is the potential for financial loss resulting from the failure of a borrower or an institution to honor its contractual obligations to us, including the risk that an investor will fail to honor its obligation under mandatory delivery contracts. We manage mortgage credit risk principally by selling substantially all of the mortgage loans that we produce, limiting credit recourse to the Bank in those transactions, and by retaining high credit quality mortgages in our loan portfolio. We also limit our risk of loss on mortgage loan sales by establishing limits on activity to any one investor and by entering into contractual relationships with only those financial institutions that are approved by our Secondary Marketing Committee. The period of time between closing on a loan commitment with the borrower and funding by the investor ranges from between 15 and 90 days.

We Face Risk Related to Covenants in our Loan Sales Agreements with Investors

        Our sales agreements with investors who buy our loans generally contain covenants which may require us to repurchase loans under certain provisions, including delinquencies, or return premiums paid by these investors should the loan be paid off early. Any loans we are required to repurchase may be considered impaired loans, with the potential for charge-offs and/or loss provision charges. The addition of these repurchased loans to our portfolio could adversely affect our earnings and asset quality ratios.

        There may be certain loans in our portfolio that were originated for sale, but for various reasons, are unable to be sold. These loans are transferred to our loan portfolio at fair market value. Any deterioration in value of the loan during the period held in the portfolio is charged to the allowance.

We May Experience Loan Losses in Excess of the Allowance

        The risk of credit losses on loans varies with, among other things, general economic conditions, the type of loan being made, the creditworthiness of the borrower over the term of the loan and, in the case of a collateralized loan, the value and marketability of the collateral for the loan. Management maintains an allowance for loan losses based upon, among other things, historical loss experience in the

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loan portfolios, the levels and trends in past-due and nonaccrual loans, the status of nonaccrual loans and other loans identified as having the potential for further deterioration, credit risk and industry concentrations, trends in loan volume, the effects of any changes in lending policies and procedures or underwriting standards, and a continuing evaluation of the economic environment.

        Based upon such factors, management makes various assumptions and judgments about the ultimate collectibility of the loan portfolio and provides an allowance for loan losses based upon a percentage of the outstanding balances and for specific loans when their ultimate collectibility is considered questionable. If management's assumptions and judgments prove to be incorrect and the allowance for loan losses is inadequate to absorb future losses, or if regulatory authorities require the Bank or Mariner Finance to increase the allowance for loan losses as a part of their examination process, our earnings and capital could be significantly and adversely affected.

        As of December 31, 2008, the allowance for loan losses was $16.777 million, which represented 1.71% of outstanding loans, net of unearned income. At such date, we had nonaccruing loans totaling $38.763 million. Management actively administers its nonaccruing loans in an effort to minimize credit losses. Although management believes that its allowance for loan losses is adequate, there can be no assurance that the allowance will prove sufficient to cover future loan losses. Further, although management uses the best information available to make determinations with respect to the allowance for loan losses, future adjustments may be necessary if economic conditions differ substantially from the assumptions used or adverse developments arise with respect to nonperforming or performing loans. Material additions to the allowance for loan losses would result in a decrease in net income and capital, and could have and have had a material adverse effect on us.

The Market Value of Our Securities May Decline

        As of December 31, 2008, we had classified 76% of our securities as available for sale pursuant to Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 115, Accounting for Certain Investments in Debt and Equity Securities. SFAS No. 115 requires that unrealized gains and losses in the estimated value of the available-for-sale portfolio be "marked to market" and reflected as a separate item in stockholders' equity (net of tax) as accumulated other comprehensive income. The remaining investment securities are classified as trading in accordance with SFAS No. 115 and are stated at fair value with changes in value reflected in income.

        There can be no assurance that future market performance of our securities portfolio will enable us to realize income from sales of securities. Stockholders' equity will continue to reflect the unrealized gains and losses (net of tax) of these securities. There can be no assurance that the market value of our securities portfolio will not decline, causing a corresponding decline in stockholders' equity.

        The Bank is a member of the Federal Home Loan Bank of Atlanta ("FHLB"). A member of the FHLB system is required to purchase stock issued by the relevant FHLB bank based on how much it borrows from the FHLB and the quality of the collateral pledged to secure that borrowing. Accordingly, we maintain investments in stock issued by the FHLB of Atlanta. In recent months, the banking industry has become concerned about the financial strength of the banks in the FHLB system, and some FHLB banks have stopped paying dividends on and redeeming FHLB stock. On January 30, 2009, the FHLB of Atlanta announced that it was deferring the declaration of a dividend on its stock for the quarter ended December 31, 2008 until it completes its year-end analysis of other-than-temporary impairment ("OTTI") which is critical to its net income determination. The FHLB of Atlanta stated that it anticipates a decision regarding the dividend to be made in March 2009. Accordingly, there can be no guaranty that the FHLB of Atlanta will declare future dividends. Moreover, accounting guidance indicates that an investor in FHLB stock should recognize impairment if it concludes that it is not probable that it will ultimately recover the par value of its shares. The decision of whether impairment exists is a matter of judgment that should reflect the investor's view of

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an FHLB's long-term performance, which includes factors such as its operating performance, the severity and duration of declines in the market value of its net assets related to its capital stock amount, its commitment to make payments required by law or regulation and the level of such payments in relation to its operating performance, the impact of legislation and regulatory changes on the FHLB, and accordingly, on the members of the FHLB and its liquidity and funding position. After evaluating all of these considerations, we believe the par value of our FHLB stock will be recovered, but future evaluations of the above mentioned factors could result in the Bank recognizing an impairment charge.

        Management believes that several factors will affect the market values of our securities portfolio. These include, but are not limited to, changes in interest rates or expectations of changes, the degree of volatility in the securities markets, inflation rates or expectations of inflation and the slope of the interest rate yield curve (the yield curve refers to the differences between shorter-term and longer-term interest rates; a positively sloped yield curve means shorter-term rates are lower than longer-term rates). Also, the passage of time will affect the market values of our investment securities, in that the closer they are to maturing, the closer the market price should be to par value. These and other factors may impact specific categories of the portfolio differently, and management cannot predict the effect these factors may have on any specific category.

Our Regulatory Expenses will Likely Increase Due to the Enactment of the Emergency Economic Stabilization Act and Related Government Programs

        Among other things, the EESA included a provision to increase the amount of deposits insured by FDIC to $250,000. The TLGP provides, until December 31, 2009, unlimited deposit insurance on funds in noninterest-bearing transaction deposit accounts and certain IOLTAs and NOW accounts not otherwise covered by the existing deposit insurance limit of $250,000, as well as a 100% guarantee of the newly issued senior debt of all FDIC-insured institutions and their holding companies issued between October 14, 2008 and June 30, 2009. All eligible institutions will be covered under the TLGP for the first 30 days without incurring any costs. After the initial period, participating institutions will be assessed a charge of 10 basis points per annum for the additional insured deposits and a charge of 75 basis points per annum for guaranteed senior unsecured debt. We elected to participate in both portions of the TLGP, so we expect to incur additional regulatory fees associated with our participation.

Customer Concern about Deposit Insurance May Cause a Decrease in Deposits Held at the Bank

        With recent increased concerns about bank failures, customers increasingly are concerned about the extent to which their deposits are insured by the FDIC. Customers may withdraw deposits from the Bank in an effort to ensure that the amount they have on deposit with us is fully insured. Decreases in deposits may adversely affect our funding costs and net income.

Our Funding Sources May Prove Insufficient to Replace Deposits and Support our Future Growth

        We rely on customer deposits, advances from the FHLB, and lines of credit at other financial institutions to fund our operations. Although we have historically been able to replace maturing deposits and advances if desired, no assurance can be given that we would be able to replace such funds in the future if our financial condition or the financial condition of the FHLB or market conditions were to change. Our financial flexibility will be severely constrained and/or our cost of funds will increase if we are unable to maintain our access to funding or if financing necessary to accommodate future growth is not available at favorable interest rates. Finally, if we are required to rely more heavily on more expensive funding sources to support future growth, our revenues may not increase proportionately to cover our costs. In this case, our profitability would be adversely affected.

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We Currently Hold a Significant Amount of Bank Owned Life Insurance

        We currently hold a significant amount of Bank Owned Life Insurance ("BOLI") on key employees and executives that have cash surrender values of $36.436 million as of December 31, 2008. The eventual repayment of the cash surrender value is subject to the ability of various insurance companies to pay benefits in the event of the death of an insured employee, or return the cash surrender value to us in the event of our need for liquidity. We continuously monitor the financial strength of the various insurance companies with whom we carry policies. However, there is no assurance that one or more of these companies will not experience a decline in financial strength which could impair its ability to pay benefits or return our cash surrender value. Additionally, should we need to liquidate these policies for liquidity needs, we would be subject to taxation on the increase in cash surrender value as well as penalties for early termination of the insurance contracts. These events would have a negative impact on our earnings.

We Currently Have a Significant Amount of Deferred Tax Assets

        We currently have a significant amount of deferred tax assets ($26.057 million) as of December 31, 2008. The analysis of the realization of deferred tax assets requires making various forecasts and assumptions, including future flows of taxable income. Actual results may differ from forecasts and assumptions, which could cause a write down of our deferred tax assets and have a negative impact on our financial condition and results of operations.

Economic Conditions and Monetary Policy will Impact our Earnings and Financial Condition

        Our operating results will depend to a great extent upon the rate differentials between the yields earned on our loans, securities and other earning assets and the rates paid on our deposits and other interest-bearing liabilities. These rate differentials are highly sensitive to many factors beyond our control, including general economic conditions and the policies of various governmental and regulatory authorities, in particular the Federal Reserve Board. The makeup of our loan and deposit portfolios, in particular, determines our sensitivity to these factors. At December 31, 2008, we had a one year cumulative interest sensitivity gap of $(59.830) million. See Item 7A of Part II of this report.

        Like other depository institutions, the Bank is affected by the monetary policies implemented by the Federal Reserve Board and other federal entities. A primary instrument of monetary policy employed by the Federal Reserve Board is the restriction or expansion of the money supply through open market operations, including the purchase and sale of government securities and the adjustment of reserve requirements. These actions may at times result in significant fluctuations in interest rates, which could have adverse effects on our operations. In particular, our ability to make loans, attract deposits and realize gains on the sale of residential mortgage loans, as well as public demand for loans, could be adversely affected. See Item 1 of Part I of this report under the caption—"Business—Economic Monetary Policies and Economic Controls".

        The current state of the economy and the capital markets increases the possibility of adverse effects on our financial position and results of operations. Continued economic adversity could impair our loan customers' financial positions and operating results and affect their ability to repay loans, which could, in turn, harm our operating results. Additionally, the capital market deterioration could adversely affect our own securities portfolio and our operating results. Continued adversity in the capital markets could impact our ability to raise capital and reduce our volume of new investments.

First Mariner's Ability to Pay Cash Dividends is Limited

        Holders of shares of First Mariner common stock are entitled to dividends if declared by First Mariner's Board of directors out of funds legally available for that purpose. In general, future dividend policy is subject to the discretion of the Board of Directors and will depend upon a number of factors,

21

including the future earnings, capital requirements, regulatory constraints, and First Mariner's financial condition, as well as that of the Bank and Mariner Finance.

        Although the Board of Directors has declared cash dividends in the past, it has discontinued such payments to conserve cash and capital resources, and does not intend to declare cash dividends until current earnings are sufficient to generate adequate internal capital to support growth. Our current ability to pay dividends is largely dependent upon the receipt of dividends from the Bank. Both federal and state laws impose restrictions on the ability of the Bank to pay dividends. Federal law prohibits the payment of a dividend by an insured depository institution if the depository institution is considered "undercapitalized" or if the payment of the dividend would make the institution "undercapitalized." For a Maryland commercial bank, dividends may be paid out of undivided profits or, with the prior approval of the Maryland Commissioner, from surplus in excess of 100% of required capital stock. If, however, the surplus of a Maryland bank is less than 100% of its required capital stock, then cash dividends may not be paid in excess of 90% of net earnings.

        First Mariner's ability to pay dividends is further subject to its ability to make payments of interest under junior subordinated debentures due through 2035 held by our statutory trusts Mariner Capital Trust II, III, IV, V, VI, VII, and VIII (collectively, "the Trusts"). These payments are necessary to fund the distributions that the Trusts each must pay to holders of its trust preferred securities (collectively, the "Mariner Trust Preferred Securities"). The terms of debentures permit First Mariner to defer interest payments for up to 20 quarterly periods. Such a deferral is not an event of default, but the interest continues to accrue and First Mariner is prohibited from paying any dividends on its common stock for so long as interest is deferred. First Mariner is also prohibited from paying any dividends on its common stock if it is in default under the debentures. On December 22, 2008, First Mariner announced its election to defer interest payments on the debentures relating to the Trust Preferred Securities beginning with the January 7, 2009 payment. This deferment does not constitute an event of default on the securities; however, the cumulative interest on these securities must be paid prior to the declaration of any stock dividends.

        Finally, First Mariner and the Bank have entered into regulatory agreements with our regulators which, among other things, require us to seek prior regulatory approval before the Bank pays dividends to First Mariner and/or before First Mariner pays dividends on its common stock.

Our Management Controls a Significant Percentage of First Mariner's Common Stock

        At December 31, 2008, our directors and executive officers beneficially owned approximately 2,010,787 shares of First Mariner common stock (amount includes shares that could be acquired pursuant to immediately exercisable stock options), or 28% of our outstanding shares of common stock plus exercisable options. Edwin F. Hale, Sr., who is our Chairman, Chief Executive Officer, and largest stockholder, beneficially owns 1,457,316 shares of common stock (with options), or 20% of our outstanding shares of common stock plus exercisable options as of December 31, 2008. Because of the large percentage of stock held by our directors and executive officers, these persons could influence the outcome of any matter submitted to a vote of our stockholders.

First Mariner's Common Stock is Not Heavily Traded

        The average daily trading volume of shares of First Mariner common stock on The NASDAQ Global Select Market for the previous three months was approximately 17,000 shares. Thus, First Mariner common stock is not heavily traded and can be more volatile than stock trading in an active public market. Factors such as our financial results, the introduction of new products and services by us or our competitors, and various factors affecting the banking industry generally may have a significant impact on the market price of First Mariner common stock. We cannot predict the extent to which an active public market for the common stock will develop or be sustained. In recent years and months,

22

the stock market has experienced a high level of price and volume volatility, and market prices for the stock of many companies have experienced wide price fluctuations that have not necessarily been related to their operating performance. Therefore, First Mariner stockholders may not be able to trade large blocks of shares at the volumes, prices, or times that they desire.

First Mariner Common Stock is Not Insured

        Investments in the shares of First Mariner common stock are not deposits and are not insured against loss by the government.

We Operate in a Competitive Market

        We operate in a competitive environment, competing for deposits, loans and customers with commercial banks, thrifts, finance companies, and other financial entities. Competition for deposits comes primarily from other commercial banks, savings associations, credit unions, money market, Internet-based deposit intermediaries, mutual funds, and other investment alternatives. Competition for loans comes primarily from other commercial banks, savings associations, mortgage-banking firms, consumer finance companies, credit unions, and other financial intermediaries. Many of the financial intermediaries operating in our market area offer certain services, such as trust, investment, and international banking services, which we do not offer. In addition, companies with a larger capitalization and financial intermediaries not subject to regulatory restrictions have larger lending limits, and are thereby able to serve the needs of larger customers.

        Under GLBA, a bank holding company can elect, subject to certain qualifications, to become a "financial holding company". GLBA provides that a financial holding company may engage in a full range of financial activities, including insurance and securities sales and underwriting activities, and real estate development, with new expedited notice procedures. First Mariner Bancorp operated as a financial holding company since 2002, but recently withdrew that election. The termination of this financial holding company status may increase the competition we face in our market areas from bank holding companies that are also or may in the future become financial holding companies and from other entities that engage, or in the future may engage, in activities in which bank holding companies that are not also financial holding companies may not engage.

        Finally, our continued growth and profitability will depend upon our ability to attract and retain skilled managerial, marketing, and technical personnel. Competition for qualified personnel in the banking industry is intense, and there can be no assurance that we will be successful in attracting and retaining such personnel.

The FDIC Will Likely Require the Bank to Pay Restitution and a Penalty During 2009 and to Implement and Enhance Certain Controls

        The FDIC is currently investigating whether the Bank engaged in discriminatory lending practices in 2005, 2006 and/or 2007 and in deceptive lending practices in 2006 and 2007. We anticipate that the FDIC will require the Bank to pay restitution to certain borrowers and pay a civil money penalty. In addition, we anticipate that the FDIC will require the Bank to implement and enhance certain policies and procedures related to the Bank's lending practices and hire an independent consultant to assist with these matters, which will increase our compliance costs and other expenses. We expect that these requirements will be finalized during 2009, but no assurance can be given as to when this matter will be resolved.

Our Lending Activities Subject us to the Risk of Environmental Liabilities

        A significant portion of our loan portfolio is secured by real property. During the ordinary course of business, we may foreclose on and take title to properties securing certain loans. In doing so, there

23

is a risk that hazardous or toxic substances could be found on these properties. If hazardous or toxic substances are found, we may be liable for remediation costs, as well as for personal injury and property damage. Environmental laws may require us to incur substantial expenses and may materially reduce the affected property's value or limit our ability to use or sell the affected property. In addition, future laws or more stringent interpretations or enforcement policies with respect to existing laws may increase our exposure to environmental liability. Although we have policies and procedures to perform an environmental review before initiating any foreclosure action on real property, these reviews may not be sufficient to detect all potential environmental hazards. The remediation costs and any other financial liabilities associated with an environmental hazard could have a material adverse effect on our financial condition and results of operations.

Contracts With Our Officers May Discourage a Takeover or Adversely Affect Our Takeover Value

        We have entered into change in control agreements with nine of our officers. These agreements provide for a payment to each officer of a multiple (ranging from 1 to 2.99) of his or her salary and bonus upon the occurrence of either a change in control that results in the loss of employment or a significant change in his or her employment. Thus, we may be required to make significant payments in the event that the rights under these agreements are triggered by a change in control. As a result, these contracts may discourage a takeover, or adversely affect the consideration payable to stockholders in the event of a takeover.

Our Articles of Incorporation and Bylaws and Maryland Law May Discourage a Corporate Takeover

        Our Amended and Restated Articles of Incorporation ("Articles") and Amended and Restated Bylaws ("Bylaws") contain certain provisions designed to enhance the ability of the Board of Directors to deal with attempts to acquire control of the Company. These provisions provide for the classification of our Board of Directors into three classes; directors of each class serve for staggered three year periods. The Articles also provide for supermajority voting provisions for the approval of certain business combinations.

        Maryland law also contains anti-takeover provisions that apply to First Mariner. The Maryland Business Combination Act generally prohibits, subject to certain limited exceptions, corporations from being involved in any "business combination" (defined as a variety of transactions, including a merger, consolidation, share exchange, asset transfer or issuance or reclassification of equity securities) with any "interested shareholder" for a period of five years following the most recent date on which the interested shareholder became an interested shareholder. An interested shareholder is defined generally as a person who is the beneficial owner of 10% or more of the voting power of the outstanding voting stock of the corporation after the date on which the corporation had 100 or more beneficial owners of its stock or who is an affiliate or associate of the corporation and was the beneficial owner, directly or indirectly, of 10% percent or more of the voting power of the then outstanding stock of the corporation at any time within the two-year period immediately prior to the date in question and after the date on which the corporation had 100 or more beneficial owners of its stock. The Maryland Control Share Acquisition Act applies to acquisitions of "control shares", which, subject to certain exceptions, are shares the acquisition of which entitle the holder, directly or indirectly, to exercise or direct the exercise of the voting power of shares of stock of the corporation in the election of directors within any of the following ranges of voting power: one-tenth or more, but less than one-third of all voting power; one-third or more, but less than a majority of all voting power or a majority or more of all voting power. Control shares have limited voting rights.

        Although these provisions do not preclude a takeover, they may have the effect of discouraging a future takeover attempt which would not be approved by First Mariner's Board of Directors, but pursuant to which stockholders might receive a substantial premium for their shares over then-current market prices. As a result, stockholders who might desire to participate in such a transaction might not

24

have the opportunity to do so. Such provisions will also render the removal of our Board of Directors and of management more difficult and, therefore, may serve to perpetuate current management. Further, such provisions could potentially adversely affect the market price of First Mariner's common stock.

We Operate under Regulatory Agreements with the Federal Reserve Bank of Richmond, FDIC, and the Maryland Banking Commissioner

        We have entered into agreements with the Federal Reserve Bank of Richmond, FDIC, and the Maryland Banking Commissioner. The material terms of these agreements require us to: (i) formulate a plan for the reduction and collection of adversely classified loans, nonaccrual loans, and delinquent loans and otherwise improve our asset quality; (ii) develop a policy for managing the real estate we acquire by foreclosure or by deed in lieu of foreclosure; (iii) periodically review the adequacy of our allowance for loan and lease losses; (iv) develop a plan for systematically reducing and monitoring our residential real estate acquisition, development, and construction loan portfolio; (v) develop and implement a profit and budget plan to improve our operating performance; (vi) develop a capital plan to maintain "well capitalized" status; (vii) submit plans to reduce parent company leverage; and (viii) submit plans to improve enterprise-wide risk management and effectiveness of internal audit programs. We have also agreed to provide the Federal Reserve Bank of Richmond advance notice involving significant capital transactions.

        These agreements will subject us to increased regulatory scrutiny and may have an adverse impact on our business operations. Failure to comply with the provisions of these agreements may result in more restrictive actions from our regulators, including more secure and restrictive enforcement actions.

We may be Adversely Affected by Other Recent Legislation

        As discussed above, the GLBA repealed restrictions on banks affiliating with securities firms and it also permitted bank holding companies that become financial holding companies to engage in additional financial activities, including insurance and securities underwriting and agency activities, merchant banking, and insurance company portfolio investment activities that are currently not permitted for bank holding companies. First Mariner is not currently a financial holding company. This law may increase the competition we face from larger banks and other companies, including bank holding companies that have elected to become financial holding companies. It is not possible to predict the full effect that this law will have on us.

        The Sarbanes-Oxley Act of 2002 requires management of publicly traded companies to perform an annual assessment of their internal controls over financial reporting and to report on whether the system is effective as of the end of the company's fiscal year. Disclosure of significant deficiencies or material weaknesses in internal controls could cause an unfavorable impact to stockholder value by affecting the market value of First Mariner common stock.

        The Patriot Act requires certain financial institutions, such as the Bank, to maintain and prepare additional records and reports that are designed to assist the government's efforts to combat terrorism. This law includes sweeping anti-money laundering and financial transparency laws and required additional regulations, including, among other things, standards for verifying client identification when opening an account and rules to promote cooperation among financial institutions, regulators and law enforcement entities in identifying parties that may be involved in terrorism or money laundering. If we fail to comply with this law, we could be exposed to adverse publicity as well as fines and penalties assessed by regulatory agencies.

ITEM 1B    UNRESOLVED STAFF COMMENTS

        None.

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ITEM 2    PROPERTIES

        We lease our executive offices located at 1501 South Clinton Street, Baltimore, Maryland. This location also houses a headquarters satellite branch office. We occupy approximately 84,000 square feet at this location, which is adjacent to our former headquarters building.

        We own our former headquarters branch office located at 3301 Boston Street, Baltimore, Maryland. This location houses drive-up banking and customer parking facilities, as well as other administration offices.

26

        We operate retail bank branches at the following locations:*

Maryland:

Annapolis(2)
161 A Jennifer Road
Annapolis, MD 21401

Arbutus(2)
3720 Washington Blvd., Suite 100
Baltimore, MD 21227

Bel Air(3)
12 A Bel Air South Parkway
Bel Air, MD 21015

Canton/Headquarters(1)
3301 Boston Street
Baltimore, MD 21224

Canton Tower(2)(4)
1501 South Clinton Street
Baltimore, MD 21224

Carroll Island(2)
176 Carroll Island Road
Baltimore, MD 21220

Cockeysville(3)
9840 York Road
Cockeysville, MD 21030

Columbia(2)
8835 Centre Park Drive, Suite 100
Columbia, MD 21045

Downtown Baltimore(2)
300 N. Charles Street
Balitmore, MD 21201

Dundalk(2)
7860 Wise Avenue
Baltimore, MD 21222

Easton(1)
8662 Alicia Drive
Easton, MD 21601

Ellicott City(3)
10065 Baltimore National Pike
Ellicott City, MD 21042

Glen Burnie(3)
305 South Crain Highway
Glen Burnie, MD 21061

Hickory(3)
1403 Conowingo Road
Belair, MD 21014

Loch Raven(1)
1641 East Joppa Road
Baltimore, MD 21286

Lutherville/Timonium(2)
1738 York Road
Lutherville, MD 21093

Odenton(1)
1600 Annapolis Road
Odenton, MD 21113

Owings Mills(3)
4800 Painters Mill Road
Owings Mills, MD 21117

Perry Hall(1)
8843 Bel Air Road
Perry Hall, MD 21236

Pikesville(1)
1013 Reisterstown Road
Baltimore, MD 21208

Pikesville Drive-Thru(2)(4)
1100 Reisterstown Road
Baltimore, MD 21208

Severna Park(2)
366A Gov Ritchie Highway
Severna Park, MD 21146

Westminster(1)
1010 Baltimore Boulevard
Westminster, MD 21157

White Marsh(1)
10101 Philadelphia Road
White Marsh, MD 21237

Woodlawn(3)
7007 Security Boulveard
Baltimore, MD 21244

Pennsylvania:

Shrewsbury(2)
Market Square Shopping Center
549 South Main Street
Shrewsbury, PA 17361

*

For our branch hours and remote ATM locations, please refer to our website at www.1stmarinerbank.com.

(1)

Company owns branch

(2)

Company leases branch

(3)

Company owns branch, but leases related land

(4)

Office is a satellite branch

        For more information on our lease commitments and costs see Note 9 of the Notes to Consolidated Financial Statements, included in Item 8 of Part II of this report.

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        We operate mortgage offices at the following locations:

Maryland:

Annapolis(2)
2661 Riva Road
Annapolis, MD 21401

Canton/Headquarters(1)
3301 Boston Street
Baltimore, MD 21224

Cambridge(2)
108 Dorchester Avenue
Cambridge, MD 21613

Eldersburg(2)
10065 Baltimore National Pike
Ellicott City, MD 21042

Ellicott City(3)
10065 Baltimore National Pike
Ellicott City, MD 21042

Rockville(2)
15722 Crabbs Branch Way
Rockville, MD 20855

Severna Park(2)
838 Ritchie Highway
Severna Park, MD 21146

Waldorf(2)
3200 Crain Hwy, Units 102 & 103
Waldorf, MD 20603

White Marsh(1)
10101 Philadelphia Road
White Marsh, MD 21237

North Carolina:

VA Mortgage(2)
203 Wolf Creek Professional Center
Havelock, NC 28532

Delaware:

Bethany Beach(2)
35550 Marketplace Unit 3
Bethany Beach, DE 19930

Seaford(2)
604 North Porter Street
Seaford, DE 19973

Massachusetts:

Andover(2)
206 Andover Street
Andover, MA 01810

Metro Boston(2)
160 Gould Street, Ste 102
Needham, MA 02494

(1)

Company owns office

(2)

Company leases office

(3)

Company owns office, but leases related land

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        We operate consumer finance offices at the following locations which are leased by Mariner Finance:

Maryland:

Bel Air
225 Briarhill Place, Suite I-1
Bel Air, MD 21015

Bowie
3440 Crain Highway
Bowie, Md 20716

Canton/Headquarters/Central Approval
3301 Boston Street
Baltimore, MD 21224

Cumberland
1050 West Industrial Blvd.,
Unit 7
Cumberland, MD 21502

Dundalk
1770 Merritt Boulevard
Baltimore, MD 21222

Easton
8223-17 Elliott Road
Easton, MD 21601

Essex
511A Eastern Boulevard
Essex, MD 21221

Frederick
454 Prospect Boulevard
Frederick, MD 21702

Germantown
19705 North Frederick Road
Suite A1-B
Germantown, MD 20876

Glen Burnie
7400 Ritchie Highway, Suite E
Glen Burnie, Md 21061

Hagerstown
1423 Dual Highway
Hagerstown, MD 21740

Laurel
3421 Fort Meade Road
Laurel, MD 20707

North East
113 North East Plaza
North East, MD 21901

Overlea
7682 Belair Road
Baltimore, MD 21236

Randallstown
3537 Brenbrook Drive
Randallstown, MD 21133

Salisbury
319 B Civic Avenue
Salisbury, MD 21804

Waldorf
2084 Crain Highway
Waldorf, MD 20610

Westminster
625-I Baltimore Boulevard
Westminster, MD 21157

Woodlawn
6666 Security Blvd., Suite 16
Baltimore, MD 21207

Delaware:

Bear
1831 Pulaski Highway
Bear, DE 19701

Dover
222 South Dupont Hwy,
Suite 101
Dover, DE 19901

Milford
975A Dupont Boulevard
Milford, DE 19963

Seaford
1026 West Stein Highway
Seaford, DE 19973

New Jersey:

Hamilton
2465 South Broad Street
Unit F-6
Hamilton, NJ 08610

Turnersville
5851 Ft. 42 Plaza 42 Suite 16
Turnersville, NJ 08012

Vineland
3650 East Landis Avenue
Vineland, NJ 08361

Virginia:

Chester
12654 Jefferson Davis Highway
Chester, VA 23831

Mechanicsville
7445 Lee Davis Road, Suite 106
Mechanicsville, VA 23111

Winchester
2213 Papermill Road
Winchester, VA 22601

Woodbridge
1979 Daniel Stuart Square
Woodbridge, VA 22191

Tennessee:

Cookeville
921 South Willow Avenue Ste E
Cookeville, TN 38501

Lawrenceburg
221 East Gaines Street
Lawrenceburg, TN 38464

Madison
2121 Gallatin Pike North
Madison, TN 37115

Mt. Juliet
14821 Lebanon Road
Old Hickory, TN 37138

Murfreesboro
2805 Old Fort Parkway Suite K
Murfreesboro, TN 37128

Nashville
4907 Nolensville Road
Nashville, TN 37211

Smyrna
639 President Place
Smyrna, TN 37167

Pennsylvania:

Harrisburg
3872 Union Deposit Road
Harrisburg, PA 17109

Wyomissing
840 N. Park Road
Wyomissing, PA 19610

York
2528 Eastern Boulevard
York PA 17402

        The Bank's branches range in total size from 2,000 to 4,000 square feet; mortgage offices generally range in size from 1,200 to 2,000 square feet; and Mariner Finance's offices range in size from 800 to 1,600 square feet. We believe that all of our locations are suitable and adequate to conduct business and support growth in customer and transaction volume.

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ITEM 3    LEGAL PROCEEDINGS

        The FDIC is investigating the Bank to determine whether the Bank overcharged certain borrowers in 2005, 2006, and 2007 in violation of the federal Equal Credit Opportunity Act and the federal Fair Housing Act and whether its marketing and disclosure materials used in 2006 and 2007 with respect to certain loans were misleading in violation of federal trade practices laws. In connection with this investigation, we anticipate that the FDIC will require the Bank to pay restitution to impacted borrowers and pay a civil money penalty. We have set aside $1.040 million for restitution and the penalty, although no assurance can be given that this amount will ultimately prove to be the final amount we are required to pay. We expect that this matter will be finalized during 2009.

        We are party to other legal actions that are routine and incidental to our business. In management's opinion, the outcome of these matters, individually or in the aggregate, will not have a material effect on our results of operations or financial position.

ITEM 4    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

        None.

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PART II

ITEM 5    MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market for Common Stock

        First Mariner's common stock trades on The NASDAQ Global Select Market under the symbol "FMAR." Currently, there are approximately 2,900 holders of First Mariner common stock. The table below sets forth for the periods indicated the low and high market prices of the common stock as reported on The NASDAQ Global Select Market. On March 20, 2009, the closing sales price of First Mariner common stock was $0.78 per share.

		Low		High
2008 Quarter ended:
	Fourth quarter	$	0.50	$	2.50
	Third quarter		0.22		3.95
	Second quarter		3.11		5.99
	First quarter		5.06		8.05
2007 Quarter ended:
	Fourth quarter	$	4.89	$	10.40
	Third quarter		7.95		13.05
	Second quarter		12.00		15.20
	First quarter		15.00		18.61

        First Mariner did not pay a cash dividend in 2008 or 2007. For a discussion of the limitations on First Mariner's ability to pay dividends, see Item 1 of Part I of this report under the heading "Supervision and Regulation" and Item 1A of Part I of this report under the heading "First Mariner's Ability to Pay Cash Dividends is Limited".

Equity Compensation Plan Information

        The following table sets forth the securities authorized for issuance under the Company's equity compensation plans as of December 31, 2008:

Plan category	(A) Number of securities to be issued upon exercise of outstanding options, warrants and rights		(B) Weighted-average exercise price of outstanding options, warrants and rights		(C) Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (A))
Equity compensation plans approved by security holders		850,919	$	12.09		—
Equity compensation plans not approved by security holders		—		—		—
Total		850,919	$	12.09		—

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Issuer Purchases of Equity Securities

        None.

Performance Graph

        The following graph compares the performance of the Company's Common Stock, with the performance of a broad market index and a nationally-recognized industry standard assuming in each case both an initial $100 investment on December 31, 2003 and reinvestment of dividends as of the end of the Company's last five fiscal years. The Company has selected the Nasdaq Market Index as the relevant broad market index because prices for the Company's Common Stock are quoted on Nasdaq National Market. Additionally, the Company has selected the Nasdaq Bank Index as the relevant industry standard because such index consists of financial institutions which the Company believes generally possess assets, liabilities, and operations more similar to the Company than other publicly-available indices. However, given the short history of the Company's operations and its rapid growth, the Company believes no truly appropriate comparative index exists.

	Period Ending
	12/31/2003		12/31/2004		12/31/2005		12/31/2006		12/31/2007		12/31/2008
First Mariner Bancorp	$	100	$	94.41	$	94.09	$	99.73	$	30.48	$	3.87
NASDAQ Bank Index		100		110.99		106.18		117.87		91.85		69.88
NASDAQ Market Index		100		108.59		110.08		120.56		132.39		78.72

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ITEM 6    SELECTED FINANCIAL DATA

		2008			2007			2006			2005			2004
		(dollars in thousands, except per share data)
Consolidated Statement of Operations Data:
Net interest income		$	46,046		$	44,680		$	49,266		$	47,723		$	42,441
Provision for loan losses			14,783			8,915			2,315			3,287			2,243
Noninterest income			21,004			24,100			23,767			23,015			19,190
Noninterest expense			79,867			78,238			69,159			56,340			50,926
Income tax (benefit) expense			(12,512	)		(8,310	)		(365	)		3,289			2,361
Net (loss) income			(15,088	)		(10,063	)		1,924			7,822			6,101
Consolidated Statement of Financial Condition Data:
Total assets		$	1,307,497		$	1,246,822		$	1,263,290		$	1,362,478		$	1,250,531
Loans receivable, net			961,919			842,131			854,060			839,843			736,566
Deposits			950,233			904,953			924,938			876,010			825,417
Long-term borrowings			177,868			155,130			132,557			131,000			134,369
Junior subordinated deferrable interest debentures			73,724			73,724			73,724			73,724			58,249
Stockholders' equity			46,015			64,570			78,629			72,375			64,314
Per Share Data:
Number of shares of common stock outstanding at year end			6,452,631			6,351,611			6,427,725			6,262,442			5,826,011
Net (loss) income per common share:
	Basic	$	(2.36	)	$	(1.57	)	$	0.30		$	1.28		$	1.06
	Diluted		(2.36	)		(1.57	)		0.29			1.20			0.96
Cash dividends declared			—			—			—			—			—
Performance and Capital Ratios:
Return on average assets			(1.19	)%		(0.81	)%		0.14	%		0.59	%		0.54	%
Return on average equity			(24.37	)%		(13.83	)%		2.53	%		11.44	%		10.11	%
Net interest margin			4.11	%		4.07	%		3.96	%		3.88	%		4.06	%
Average equity to average assets			4.86	%		5.85	%		5.59	%		5.13	%		5.36	%
Year-end Tier 1 leverage ratio			4	%		7	%		8	%		7	%		7	%
Tier 1 capital to risk-weighted assets			5	%		8	%		10	%		10	%		9	%
Total capital to risk-weighted assets			10	%		14	%		16	%		15	%		14	%
Asset Quality Ratios:
Nonperforming assets to total assets			4.42	%		3.48	%		0.52	%		0.29	%		0.38	%
Allowance for loan losses at year-end to:
	Total loans, net of unearned income		1.71	%		1.50	%		1.43	%		1.38	%		1.28	%
	Nonperforming assets and 90 day past-due loans		24.88	%		27.57	%		36.61	%		244.14	%		150.84	%
Net charge-offs to average total loans, net of unearned income			1.22	%		1.01	%		0.19	%		0.14	%		0.21	%

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ITEM 7    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The Company

        The Company is a bank holding company incorporated under the laws of Maryland and registered under the federal Bank Holding Company Act of 1956, as amended. The Company's business is conducted primarily through its wholly owned subsidiaries: First Mariner Bank; Mariner Finance, LLC; and FM Appraisals, LLC. The Company had over 1,100 employees (approximately 975 full-time equivalent employees) as of December 31, 2008.

        The Bank, which is the largest operating subsidiary of the Company with assets exceeding $1.192 billion as of December 31, 2008, is engaged in the general commercial banking business, with particular attention and emphasis on the needs of individuals and small to mid-sized businesses, and delivers a wide range of financial products and services that are offered by many larger competitors. The Bank's primary market area for its core banking operations, which consist of traditional commercial and consumer lending, as well as retail and commercial deposit operations, is central Maryland as well as portions of Maryland's eastern shore. The Bank also has one branch in Pennsylvania. Products and services of the Bank include traditional deposit products, a variety of consumer and commercial loans, residential and commercial mortgage and construction loans, wire transfer services, nondeposit investment products, and Internet banking and similar services. Most importantly, the Bank provides customers with access to local Bank officers who are empowered to act with flexibility to meet customers' needs in an effort to foster and develop long-term loan and deposit relationships. The Bank is an independent community bank and its deposits are insured by the FDIC.

        First Mariner Mortgage, a division of the Bank, engages in mortgage-banking activities, providing mortgages and associated products to customers and selling most of those mortgages into the secondary market. First Mariner Mortgage has offices in Maryland, Delaware, Massachusetts, and North Carolina.

        NGFS, a division of the Bank, engages in the origination of reverse and conventional mortgages, providing these products directly through commission based loan officers throughout the United States. NGFS originates reverse mortgages for sale to Fannie Mae and other private investors. The Bank does not originate any reverse mortgages for its portfolio and currently sells all of its reverse mortgage originations into the secondary market. The Bank retains the servicing rights on reverse mortgages sold to Fannie Mae. NGFS is one of the largest originators of reverse mortgages in the United States.

        Mariner Finance engages in traditional consumer finance activities, making small direct cash loans to individuals, the purchase of installment loan sales contracts from local merchants and retail dealers of consumer goods, and loans to individuals via direct mail solicitations, as well as a low volume of mortgage loans. Mariner Finance currently operates branches in Maryland, Delaware, Virginia, New Jersey, Pennsylvania, and Tennessee. Mariner Finance had total assets of $103.946 million as of December 31, 2008.

        FM Appraisals is a residential real estate appraisal preparation and management company that is headquartered in Baltimore City. FM Appraisals offers appraisal services for residential real estate lenders, including appraisal preparation, the compliance oversight of sub-contracted appraisers, appraisal ordering and administration, and appraisal review services. FM Appraisals provides these services to First Mariner Mortgage, NGFS, and Mariner Finance.

Recent Developments

        The FDIC is investigating the Bank to determine whether the Bank overcharged certain borrowers in 2005, 2006, and 2007 in violation of the federal Equal Opportunity Act and the federal Fair Housing Act and whether its marketing and disclosure materials used in 2006 and 2007 with respect to certain loans were misleading in violation of federal trade practices laws. In connection with this investigation,

34

we anticipate that the FDIC will require the Bank to pay restitution to impacted borrowers and pay a civil money penalty. We have set aside $1.040 million for restitution and the penalty although no assurance can be given that this amount will ultimately prove to be the final amount we are required to pay. We expect this matter will be finalized during 2009. Further information is provided in Item 1A of Part I of this report under the heading "The FDIC Will Likely Require the Bank to Pay Restitution and a Penalty During 2009 and to Implement and Enhance Certain Controls" and in Item 3 of Part I of this report.

        On February 27, 2009, the FDIC announced a proposed rule outlining its plan to implement an emergency special assessment of 20 basis points on all insured depository institutions in order to restore the DIF to an acceptable level. The assessment, which would be payable on September 30, 2009, would be in addition to a planned increase in premiums and a change in the way regular premiums are assessed which the FDIC also approved on February 27, 2009. In addition, the proposed rule provides that, after June 30, 2009, if the reserve ratio of the DIF is estimated to fall to a level that that the FDIC believes would adversely affect public confidence or to a level which is close to or less than zero at the end of a calendar quarter, then an additional emergency special assessment of up to 10 basis points may be imposed on all insured depository institutions. If this rule is adopted as proposed, it will significantly increase the Bank's FDIC premiums in 2009.

        Pursuant to EESA, which was signed into law on October 3, 2008, the U.S. Department of Treasury ("U.S. Treasury") has the authority to, among other things, purchase up to $700 billion of mortgages, mortgage-backed securities, and certain other financial instruments from financial institutions for the purpose of stabilizing and providing liquidity to the U.S. financial markets. On October 14, 2008, the U.S Treasury announced the Troubled Asset Relief Program ("TARP") Capital Purchase Program ("CPP"). The CPP made an initial amount of $250 billion of capital available to U.S. financial institutions from the $700 billion authorized by EESA in the form of preferred stock investments by the U.S. Treasury. On January 15, 2009, an additional $350 billion of funds were released to the Treasury for availability to financial institutions under the CPP. The terms of the CPP differ depending on whether the participating institution is publicly-traded. For institutions like First Mariner that are publicly-traded, the general terms of the CPP are as follows:

•

the participating institution will issue preferred stock to the U.S. Treasury ("Treasury Preferred Stock") that pays a quarterly cumulative preferred dividend of 5% per annum on the liquidation amount of the stock for the first five years, and then 9% per annum thereafter;

•

the U.S. Treasury will receive a warrant entitling it to buy shares of the participating institution's common stock equivalent in value to 15% of the Treasury Preferred Stock;

•

the Treasury Preferred Stock may not be redeemed for a period of three years, except with proceeds from high-quality private capital;

•

the consent of the U.S. Treasury is required to increase cash dividends on common stock or any stock repurchases, with limited exceptions, during the first three years, unless the Treasury Preferred Stock has been redeemed or transferred to third parties; and

•

participating institutions must adopt the U.S. Treasury's standards for executive compensation and corporate governance for the period during which the U.S. Treasury holds the equity issued under the TARP.

        On February 17, 2009, President Obama signed the American Recovery and Reinvestment Act of 2009 (the "Recovery Act") into law. Among other things, the Recovery Act imposes additional executive compensation restrictions on institutions that participate in the CPP for so long as any TARP assistance remains outstanding. Among these restrictions is a prohibition against making most severance payments to "senior executive officers", which term includes the principal executive officer, the principal accounting officer, and, generally, the three next most highly compensated executive officers

35

of the institution, and to the next five most highly compensated employees. The restrictions also limit the type, timing and amount of bonuses, retention awards and incentive compensation that may be paid to the institution's five most highly compensated employees.

        Although First Mariner has applied with the U.S. Treasury to participate in the CPP, it has not yet done so. If First Mariner does participate, certain of our executive officers and employees would be subject to the foregoing compensation restrictions and First Mariner would be obligated to make quarterly dividend payments on its outstanding Treasury Preferred Securities. The terms of the Treasury Preferred Stock provide that the holders thereof are entitled to elect two directors to an institution's board of directors if it fails to make six quarterly dividend payments on the Treasury Preferred Stock. As noted elsewhere in this report, First Mariner elected in December 2008 to defer payments of interest under its junior subordinated debentures issued to the Trusts. The terms of the debentures prohibit First Mariner from paying dividends on any equity securities, which would include the Treasury Preferred Stock. Accordingly, if First Mariner participates in the CPP, it might choose, assuming its regulators consented, to resume interest payments under its debentures.

        As discussed above, the FDIC recently announced the TLGP that provides unlimited deposit insurance on funds in noninterest-bearing transaction deposit accounts not otherwise covered by the existing deposit insurance limit of $250,000, as well as a 100% guarantee of the newly issued senior debt of all FDIC-insured institutions and their holding companies. All eligible institutions were covered under the program for the first 30 days without incurring any costs. After the initial period, participating institutions will be assessed a charge of 10 basis points per annum for the additional insured deposits and a charge of 75 basis points per annum for guaranteed senior unsecured debt. We have elected to participate in the TLGP, and we anticipate that our regulatory costs will increase as a result.

Critical Accounting Policies

        The Company's consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") and follow general practices within the industry in which it operates. Application of these principles requires management to make estimates, assumptions, and judgments that affect the amounts reported in the consolidated financial statements and accompanying notes. These estimates, assumptions, and judgments are based on information available as of the date of the consolidated financial statements; accordingly, as this information changes, the consolidated financial statements could reflect different estimates, assumptions, and judgments. Certain policies inherently have a greater reliance on the use of estimates, assumptions, and judgments and, as such, have a greater possibility of producing results that could be materially different than originally reported. Estimates, assumptions, and judgments are necessary when assets and liabilities are required to be recorded at fair value, when a decline in the value of an asset not carried on the consolidated financial statements at fair value warrants an impairment write-down or valuation reserve to be established, or when an asset or liability needs to be recorded contingent upon a future event. Carrying assets and liabilities at fair value inherently results in more financial statement volatility. When applying accounting policies in such areas that are subjective in nature, management must use its best judgment to arrive at the carrying value of certain assets and liabilities. Below is a discussion of our critical accounting policies.

Allowance for loan losses

        A variety of estimates impact the carrying value of the loan portfolio including the calculation of the allowance for loan losses, valuation of underlying collateral, and the timing of loan charge-offs.

        The allowance is established and maintained at a level that management believes is adequate to cover losses resulting from the inability of borrowers to make required payments on loans. Estimates

36

for loan losses are arrived at by analyzing risks associated with specific loans and the loan portfolio. Current trends in delinquencies and charge-offs, the views of Bank regulators, changes in the size and composition of the loan portfolio, and peer comparisons are also factors. The analysis also requires consideration of the economic climate and direction and change in the interest rate environment, which may impact a borrower's ability to pay, legislation impacting the banking industry, and environmental and economic conditions specific to the Bank's service areas. Because the calculation of the allowance for loan losses relies on estimates and judgments relating to inherently uncertain events, results may differ from our estimates.

Securities available for sale

        Securities available for sale are evaluated periodically to determine whether a decline in their value is other-than-temporary. The term "other-than-temporary" is not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the security.

        The initial indication of OTTI for both debt and equity securities is a decline in the market value below the amount recorded for an investment, and the severity and duration of the decline. In determining whether an impairment is other-than-temporary, we consider the length of time and the extent to which the market value has been below cost, recent events specific to the issuer, including investment downgrades by rating agencies and economic conditions of its industry, and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. For marketable equity securities, we also consider the issuer's financial condition, capital strength, and near-term prospects. For debt securities and for perpetual preferred securities that are treated as debt securities for the purpose of other-than-temporary analysis, we also consider the cause of the price decline (general level of interest rates and industry- and issuer-specific factors), the issuer's financial condition, near-term prospects and current ability to make future payments in a timely manner, the issuer's ability to service debt, and any change in agencies' ratings at evaluation date from acquisition date and any likely imminent action. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

Deferred income taxes

        Under the liability method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities. Deferred tax assets are subject to management's judgment based upon available evidence that future realization is more likely than not.

Loan income recognition

        Interest income on loans is accrued at the contractual rate based on the principal outstanding. Loan origination fees and certain direct loan origination costs are deferred and amortized as a yield adjustment over the contractual loan terms. Accrual of interest is discontinued when its receipt is in doubt, which typically occurs when a loan becomes impaired. Any interest accrued to income in the year when interest accruals are discontinued is generally reversed. Management may elect to continue the accrual of interest when a loan is in the process of collection and the estimated fair value of the collateral is sufficient to satisfy the principal balance and accrued interest. Loans are returned to accrual status once the doubt concerning collectibility has been removed and the borrower has demonstrated the ability to pay and remain current. Payments on nonaccrual loans are generally applied to principal.

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Loan Repurchases

        Our sales agreements with investors who buy our loans generally contain covenants which may require us to repurchase loans under certain provisions, including delinquencies, or return premiums paid by those investors should the loan be paid off early. These covenants are usual and customary within the mortgage-banking industry. We maintain a reserve (included in other liabilities) for potential losses relating to these sales covenants.

        Loans repurchased are accounted for under American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer. Under the SOP, loans repurchased must be recorded at market value at the time of repurchase with any deficiency for recording the loan compared to proceeds paid charged to earnings. Repurchased loans are carried on the balance sheet in the loan portfolio. Any further change in the underlying risk profile or further impairment is recorded as a specific reserve in the allowance for loan losses through the provision for loan losses.

        Repurchased loans which are foreclosed upon are transferred to Real Estate Acquired Through Foreclosure at the time of ratification of foreclosure and recorded at estimated fair value. These assets remain in Real Estate Acquired Through Foreclosure until their disposition. Any declines in value subsequent to foreclosure reduce the carrying amounts through a charge to noninterest expense.

Real Estate Acquired Through Foreclosure

        We record foreclosed real estate assets at the lower of cost or estimated fair value on their acquisition dates and at the lower of such initial amount or estimated fair value less estimated selling costs thereafter. Estimated fair value is based upon many subjective factors, including location and condition of the property and current economic conditions, among other things. Because the calculation of fair value relies on estimates and judgments relating to inherently uncertain events, results may differ from our estimates.

        Write-downs at time of transfer are made through the allowance for loan losses. Write-downs subsequent to transfer are included in our noninterest expenses, along with operating income, net of related expenses of such properties and gains or losses realized upon disposition.

RESULTS OF OPERATIONS AND FINANCIAL CONDITION

        The following discussion compares our financial condition at December 31, 2008 to the financial condition at December 31, 2007 and results of operations for the years ended December 31, 2008, 2007, and 2006. This discussion should be read in conjunction with our accompanying financial statements and related notes as well as statistical information included elsewhere in this report.

Performance Overview

        We recorded a net loss of $15.088 million for 2008 compared to net loss of $10.063 million for 2007, with diluted losses per share totaling $(2.36) for 2008 compared to diluted losses per share of $(1.57) in 2007. The decrease in net income and earnings per share was a result of decreased gross revenue (net interest income and noninterest income) of $1.730 million or 2.5%, increased noninterest expenses of $1.629 million or 2.1%, and an increased provision for loan losses of $5.868 million or 65.8%. We recorded an income tax benefit of $12.512 million in 2008 compared to $8.310 million in 2007.

        Our results for 2008 were significantly impacted by persistent negative trends in the residential real estate markets, which began in the latter portion of 2006 and worsened considerably in 2007 and 2008. During 2008, we continued to address issues with previously repurchased and transferred high loan-to-value ratio/low documentation ("ALT A") loans and experienced increased negative trends in

38

residential construction and development loans. The ALT A loans were primarily originated in 2005 and 2006 through our wholesale division and were repurchased due to delinquent payments by the borrower within the first 90 days of the loans term. During the first half of 2007, the Company repurchased the majority of the anticipated buybacks and progressed through the collection process. As declines in real estate values have continued, the Company provided for additional reserves throughout 2007 and 2008 for the anticipated loss exposure. Our results for 2008 and 2007 included $10.957 and $15.601 million, respectively, in pretax losses relating to its exposure to ALT A residential loans originated by its wholesale division. These charges included $5.802 million and $4.477 million in 2008 and 2007, respectively, for the write-down of foreclosed assets awaiting sales or assets sold at a loss, $3.934 million in 2007 for initial write-downs on loans placed into the Company's loan portfolio during the year, and $5.155 million and $7.190 million in 2008 and 2007, respectively, in additional provisions to the allowance for loan losses related to these loans. In addition to these losses, earnings were further impacted by the loss of interest income on loans placed on nonaccrual status, the cost of carrying foreclosed properties, and higher legal and collection expenses relating to these loans.

        As of December 31, 2008, the Company had a total $9.079 million in real estate acquired through foreclosure that were originated as ALT A loans awaiting sale, with the vast majority being single family residential properties located in Northern Virginia. Additionally, we have $6.772 million of ALT A nonperforming loans in our loan portfolio with specific reserves totaling $1.444 million.

        Management discontinued its offering of ALT A loans through its wholesale lending division at the end of 2006, and believes its exposure to and resolution of its repurchase provisions for these products is substantially complete. Originations of loans through our retail delivery channel performed well and we experienced minimal repurchase and credit losses from retail originated loans. The Company closed its wholesale lending operation entirely in July of 2007. There were no loan repurchases during 2008 for early payment default.

        Our largest category of revenue, net interest income, increased $1.366 million or 3.1% due to higher levels of average earning assets, coupled with lower rates paid on interest-bearing liabilities. Noninterest income decreased $3.096 million or 12.8% due primarily to OTTI charges recorded on certain investment securities, partially offset by gains on retail banking branch sales (two branches) and increases in mortgage-banking revenue.

        Our increase in total expenses resulted primarily due to increased expenses for salaries, occupancy, and expenses related to real estate acquired through foreclosure. The increase of $5.868 million in the provision for loan losses reflects needed increases in the allowance for loan losses relating to weaknesses in the residential construction and development loan portfolio and to maintain reserve levels and replenish charge-offs of ALT A mortgage and residential construction and development loans. The provision for loan losses recorded resulted in an increase in the allowance for loan losses to 1.71% of total loans as of December 31, 2008 from 1.50% as of December 31, 2007. We recorded an income tax benefit of $12.512 million in 2008 compared to $8.310 million in 2007 due to the significant pretax loss and the recording of $585,000 in state tax credits during 2008.

        The return on average assets was (1.19)% for 2008 compared to (0.81)% for 2007. The return on average equity for 2008 was (24.37)% compared to (13.83)% for 2007. Average equity to average assets was 4.86% for 2008 compared to 5.85% for 2007. The decrease in both the return on average assets and the return on average equity was the result of the higher net loss in 2008.

        Our total assets increased by $60.675 million or 4.9% during 2008, reflecting strong loan origination volume. Earning assets increased $68.488 million or 6.4% from $1.076 billion in 2007 to $1.144 billion in 2008. Deposits increased by $45.280 million to $950.233 million at December 31, 2008 from $904.953 million at December 31, 2007. Stockholders' equity decreased $18.555 million or 28.7%, reflecting the 2008 loss, a decrease in other comprehensive income due to the decrease in the market value of securities classified as available for sale and interest rate swaps, and shares repurchased under

39

our stock repurchase plan. These items were offset somewhat by shares sold and issued upon the exercise of options and in connection with our employee stock purchase plan.

        As a result of weakened residential real estate conditions, our asset quality deteriorated substantially due to weakened markets for residential real estate, which impacted all of our asset quality measures. We increased our allowance for loan losses to $16.777 million, which totaled 29.1% of nonperforming assets as of December 31, 2008, compared to 29.5% as of December 31, 2007, as our level of nonperforming assets to total assets increased to 4.42% at December 31, 2008 from 3.48% at December 31, 2007. Our level of loans 90 days delinquent and still accruing interest increased to $9.679 million from $3.019 million in 2007. Our ratio of net chargeoffs to average total loans was 1.22% in 2008 compared to 1.01% in 2007.

        Capital adequacy levels (as defined by banking regulation) declined from the level of "well-capitalized" at December 31, 2007 to "adequately-capitalized" at December 31, 2008. The ratios as of December 31, 2008 for our capital leverage, Tier 1 capital to risk weighted assets, and total capital to risk weighted assets were 4.3%, 5.0%, and 9.9%, respectively, compared to 6.9%, 8.2%, and 14.2%, respectively, at December 31, 2007. Our regulatory capital levels decreased due to the decline in stockholders' equity and disallowance of a portion of our deferred tax assets for regulatory capital ratios. The Bank's similar capital ratios as of December 31, 2008 were 6.0%, 7.0%, and 9.0%, respectively, which also exceeded levels for "adequately-capitalized." As a result of falling below "well-capitalized" levels, the Bank may not place brokered certificates of deposits without the granting of a waiver from its regulators.

Results of Operations

Net Interest Income/Margins

        Our primary source of earnings is net interest income, which is the difference between the interest income we earn on interest-earning assets, such as loans and investment securities, and the interest expense we pay on interest-bearing sources of funds, such as deposits and borrowings. The level of net interest income we earn is determined mostly by the average balances ("volume") and the rate spreads between our interest-earning assets and our funding sources.

        Net interest income for 2008 increased by $1.366 million to $46.046 million compared to $44.680 million for 2007, primarily due to higher levels of earning assets, decreased rates on interest-bearing liabilities, and an increase in the net interest margin. The yield on average earning assets decreased from 8.06% for 2007 to 7.50% for 2008 and the rates on average interest-bearing liabilities decreased from 4.39% for 2007 to 3.53% for 2008. Rates on both earning assets and interest-bearing liabilities decreased due to decreased market interest rates. Rates on average earning assets were also negatively impacted by higher levels of nonperforming assets during 2008 compared to 2007. Average earning assets increased from the 2007 level of $1.099 billion to $1.120 billion for 2008, while average interest-bearing liabilities increased from the 2007 level of $998.941 million to $1.077 billion for 2008.

        The net interest margin is the key performance measure for our net interest income. Our net interest margin is affected by our loan pricing, our mix of earning assets, levels of nonperforming assets, and our distribution and pricing of deposits and borrowings. Our net interest margin (net interest income divided by average earning assets) increased to 4.11% for 2008, as compared to 4.07% for the comparable period in 2007, as the rates of interest-bearing sources of funds decreased more than the increases in average earning assets.

Interest income

        Total interest income decreased by $4.472 million mostly due to the decreased yield on average earning assets. Yields on earning assets for the period decreased to 7.50% from 8.06% due to the

40

depressed rate environment in 2008. The yield on total loans decreased from 8.75% to 8.23% due to the decrease in market rates and a higher level of nonperforming assets. The yield on interest-bearing deposits decreased from 4.97% for 2007 to 1.79% for 2008. The drop in the interest-bearing deposit yield was primarily due to a significant drop in the Federal Funds and other market rates over the past twelve months.

        Average loans outstanding increased by $58.482 million, with increases in commercial loans and lines of credit (+$3.559 million), commercial mortgages (+$6.251 million), residential mortgages (+$36.051 million), and consumer loans (+$33.244 million), partially offset by decreases in consumer residential construction loans (-$3.641 million) and commercial construction loans (-$16.982 million). The decrease in both commercial and consumer residential construction loans is due primarily to the deterioration of the real estate market, which has led to the reduction of new construction. In addition, we had several large construction loans that converted to permanent residential mortgage loans during the year. The increases in commercial loans and lines of credit and in commercial mortgages are due to a continued focus on commercial lending. The increase in residential mortgage loans is due primarily to increased portfolio lending and the conversion of previous construction loans to permanent residential mortgage financing. Consumer loans increased due to increases in both Bank and Mariner Finance consumer lending. Average loans held for sale decreased $17.655 million, primarily due to faster execution of loans sales to investors in 2008. Average securities decreased by $23.620 million, due primarily to normal principal repayments on mortgage-backed securities and $24.891 million in sales of securities, partially offset by purchases of securities of $16.405 million.

Interest expense

        Interest expense decreased by $5.838 million, due to a decrease in the average rate paid on interest-bearing liabilities, from 4.39% for 2007 to 3.53% for 2008, which was partially offset by a higher level of interest-bearing liabilities. The decrease in the rate paid on interest-bearing deposits from 3.76% in 2007 to 3.06% in 2008 was driven primarily by decreases in the rates on money market accounts and certificates of deposit. Average interest-bearing deposits increased by $65.083 million primarily due to an increase in the volume of time deposits, mostly brokered deposits that we placed during 2008. An increase in average borrowings of $13.321 million was due primarily to increased borrowings on Mariner Finance's consumer finance line of credit to fund its consumer loan growth and additional short-term FHLB borrowings by the Bank. We experienced a decrease in the costs of borrowed funds from 6.17% for 2007 to 4.90% for 2008 due to the decline in variable-rate trust preferred security costs and lower short-term borrowing rates.

        The table below sets forth the average balances, net interest income and expense and average yields and rates for our interest-earning assets and interest-bearing liabilities for 2008, 2007, and 2006.

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Comparative Average Balances Yields and Rates

		2008							2007							2006
(dollars in thousands)		Average Balance			Interest (1)		Yield/ Rate		Average Balance			Interest (1)		Yield/ Rate		Average Balance			Interest (1)		Yield/ Rate
ASSETS
Loans (2):
	Commercial loans and lines of credit	$	75,790		$	4,511		5.95%	$	72,231		$	5,546		7.68%	$	70,238		$	4,803		6.84%
	Commercial construction		117,539			7,320		6.23%		134,521			10,632		7.90%		123,188			10,968		8.90%
	Commercial mortgages		298,863			22,110		7.40%		292,612			21,662		7.40%		335,584			24,557		7.32%
	Consumer residential construction		87,831			5,497		6.26%		91,472			7,565		8.27%		113,053			8,977		7.94%
	Residential mortgages		103,978			6,165		5.93%		67,927			3,238		4.77%		46,308			2,733		5.90%
	Consumer		221,631			28,967		13.07%		188,387			25,441		13.50%		166,836			22,239		13.33%
Total loans			905,632			74,570		8.23%		847,150			74,084		8.75%		855,207			74,277		8.69%
Loans held for sale			59,925			3,447		5.75%		77,580			5,285		6.81%		101,841			7,877		7.73%
Investment securities, trading and available for sale			75,501			4,486		5.94%		99,121			5,372		5.42%		262,968			12,365		4.70%
Interest-bearing deposits			72,701			1,303		1.79%		68,694			3,411		4.97%		10,970			529		4.82%
Restricted stock investments, at cost			6,424			237		3.69%		6,123			363		5.93%		12,317			700		5.68%
Total earning assets			1,120,183			84,043		7.50%		1,098,668			88,515		8.06%		1,243,303			95,748		7.70%
Allowance for loan losses			(13,906	)						(12,025	)						(12,000	)
Cash and other nonearning assets			166,880							157,440							129,867
	Total assets	$	1,273,157			84,043			$	1,244,083			88,515			$	1,361,170			95,748
LIABILITIES AND STOCKHOLDERS' EQUITY
Interest-bearing deposits:
	NOW deposits	$	13,249			77		0.58%	$	9,858			21		0.21%	$	10,945			24		0.22%
	Savings deposits		54,918			180		0.33%		56,935			178		0.31%		67,164			205		0.31%
	Money market deposits		210,003			3,085		1.47%		287,837			10,127		3.52%		241,039			7,855		3.26%
	Time deposits		525,700			21,242		4.04%		384,157			17,446		4.54%		388,192			15,836		4.08%
Total interest-bearing deposits			803,870			24,584		3.06%		738,787			27,772		3.76%		707,340			23,920		3.38%
Borrowings			273,475			13,413		4.90%		260,154			16,063		6.17%		389,533			22,562		5.79%
Total interest-bearing liabilities			1,077,345			37,997		3.53%		998,941			43,835		4.39%		1,096,873			46,482		4.24%
Noninterest-bearing demand deposits			131,242							163,011							179,210
Other noninterest-bearing liabilities			2,654							9,359							9,008
Stockholders' equity			61,916							72,772							76,079
	Total liabilities and stockholders' equity	$	1,273,157			37,997			$	1,244,083			43,835			$	1,361,170			46,482
Net interest income/net interest spread					$	46,046		3.97%				$	44,680		3.67%				$	49,266		3.46%
Net interest margin (3)								4.11%							4.07%							3.96%

(1)

There are no tax equivalency adjustments

(2)

The average balances of nonaccrual loans for the years ended December 31, 2008, 2007, and 2006, which are included in the average loan balances for these years, were $30.111 million, $18.465 million, and $3.817 million, respectively.

(3)

Net interest margin is calculated as net interest income divided by average earning assets

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        The "Rate/Volume Analysis" below indicates the changes in our net interest income as a result of changes in volume and rates. We maintain an asset and liability management policy designed to provide a proper balance between rate sensitive assets and rate sensitive liabilities to attempt to optimize interest margins while providing adequate liquidity for our anticipated needs.

Rate/Volume Analysis (1)

			2008 Compared to 2007									2007 Compared to 2006
			Change Due to Variance In									Change Due to Variance In
(dollars in thousands)			Rates			Volume			Total			Rates			Volume			Total
INTEREST INCOME
	Loans:
		Commercial loans and lines of credit	$	(1,297	)	$	262		$	(1,035	)	$	603		$	140		$	743
		Commercial construction		(2,076	)		(1,236	)		(3,312	)		(1,292	)		956			(336	)
		Commercial mortgages		(15	)		463			448			276			(3,171	)		(2,895	)
		Consumer residential construction		(1,777	)		(291	)		(2,068	)		360			(1,772	)		(1,412	)
		Residential mortgages		921			2,006			2,927			(597	)		1,102			505
		Consumer		(841	)		4,367			3,526			296			2,906			3,202
	Total loans			(5,085	)		5,571			486			(354	)		161			(193	)
	Loans held for sale			(746	)		(1,092	)		(1,838	)		(862	)		(1,730	)		(2,592	)
	Investment securities, trading and available for sale			482			(1,368	)		(886	)		1,660			(8,653	)		(6,993	)
	Interest-bearing deposits			(2,296	)		188			(2,108	)		16			2,866			2,882
	Restricted stock investments, at cost			(143	)		17			(126	)		29			(366	)		(337	)
	Total interest income			(7,788	)		3,316			(4,472	)		489			(7,722	)		(7,233	)
INTEREST EXPENSE
	Interest-bearing deposits:
		NOW deposits		47			9			56			(1	)		(2	)		(3	)
		Savings deposits		8			(6	)		2			2			(29	)		(27	)
		Money market deposits		(4,809	)		(2,233	)		(7,042	)		659			1,613			2,272
		Time deposits		(2,087	)		5,883			3,796			1,776			(166	)		1,610
	Total interest-bearing deposits			(6,841	)		3,653			(3,188	)		2,436			1,416			3,852
	Borrowings			(3,465	)		815			(2,650	)		1,413			(7,912	)		(6,499	)
	Total interest expense			(10,306	)		4,468			(5,838	)		3,849			(6,496	)		(2,647	)
	Net interest income		$	2,518		$	(1,152	)	$	1,366		$	(3,360	)	$	(1,226	)	$	(4,586	)

(1)

Changes in interest income and interest expense that result from variances in both volume and rates have been allocated to rate and volume changes in proportion to the absolute dollar amounts of the change in each.

Noninterest Income

        We derive noninterest income principally from mortgage-banking activities, service fees on our deposit accounts, ATM fees, commissions on sales of nondeposit investment products ("brokerage fees"), commissions we earn on sales of insurance products, and income from BOLI. Our noninterest income for the year ended December 31, 2008 totaled $21.004 million, as compared to $24.100 million for the year ended December 31, 2007, a decrease of $3.096 million or 12.8%, due primarily to OTTI charges recorded on certain investment securities, partially offset by an increase in total mortgage-

43

banking revenue, including gains on sales of mortgage loans, the gains on the sales of former branches, and an increase in insurance sales commissions.

        Mortgage-banking revenue increased from $7.146 million for 2007 to $9.910 million for 2008 due to a larger volume of originations of loans, higher margins on loans sold, as well as increased values derived from rate lock commitments on loans in the mortgage loan pipeline. The volume of loans sold increased from $965.865 million in 2007 to $1.149 billion in 2008. The volume of loans we have originated has shifted from wholesale originations to retail and reverse mortgage production.

        Deposit service charges declined to $6.346 million in 2008 from $6.482 million for 2007 due to lower overdraft income and to a decline in the number of accounts in general. Insurance sales commissions increased $409,000 due to increased insurance product sales from Mariner Finance. We recognized an $814,000 net trading loss during 2008, compared to a net trading loss of $702,000 for the same period in 2007, mainly due to declines in value of borrowings accounted for at fair value ($950,000). These losses were partially offset by improved market values of trading assets of $136,000. Brokerage fees decreased $233,000 during 2008, as we realized lower mutual fund and annuity sales.

        We recognized $229,000 in gains on sales of securities in 2008, compared to $943,000 during 2007. During 2008, we also recognized $5.605 million in OTTI charges on three of our securities available for sale. See "Securities" discussion later in this section for more information on these other-than-temporary impairment charges and the related securities.

        We recognized $819,000 in net gains on the sales of our former Towson and Ocean City retail banking branches during 2008. These branches were sold as part of our ongoing practice of reviewing branch and market performance. Our other noninterest income not detailed in the table below decreased $323,000 or 19.0%, mainly the result of lower official check revenue.

        The following table shows the detail of our noninterest income:

	Years ended December 31,
(dollars in thousands)	2008			2007			2006
Origination fees and gain on sale of mortgage loans	$	6,730		$	4,430		$	7,614
Other mortgage-banking revenue		3,180			2,716			2,892
ATM fees		3,188			3,219			3,161
Service fees on deposits		6,346			6,482			6,887
Loss on financial instruments carried at fair value		(814	)		(702	)		—
Gain (loss) on sales of securities, net		229			943			(3,037	)
Other-than-temporary impairment charges on securities available for sale		(5,605	)		—			—
Gain on sale of branches		819			—			—
Commissions on sales of nondeposit investment products		816			1,049			638
Income from bank-owned life insurance		1,505			1,439			1,117
Commissions on sales of other insurance products		3,231			2,822			2,671
Other		1,379			1,702			1,824
	$	21,004		$	24,100		$	23,767

Noninterest Expense

        Our noninterest expenses increased $1.629 million or 2.1% to $79.867 million for 2008 compared to $78.238 million for the same period of 2007 primarily due to increased salaries and benefits, occupancy, and expenses for real estate acquired through foreclosure. Expenses for the Bank, including mortgage operations, declined $2.087 million, while Mariner Finance's expenses increased $3.716 million.

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        Secondary marketing valuation expense decreased $3.579 million for 2008, and write-downs and costs of real estate acquired through foreclosure increased $1.325 million, as nonperforming ALT A loans moved through the foreclosure process. The net decrease in these line items combined is reflective of the decrease in our total ALT A loan exposure and the shift in cost to resolving the assets from setting up initial repurchase valuations. We believe we have substantially reached the end of our exposure to repurchasing ALT A loans and our remaining losses will depend to a large degree on future residential real estate values.

        Our salary and employee benefits expenses increased $1.014 million, or 2.8%, due to increased staffing levels related to branch expansion of consumer finance operations. Occupancy expenses and furniture, fixtures, and equipment expenses also increased by $1.296 million and $274,000, respectively, for the year ended December 31, 2008 due to the consumer finance operations expansion and increases in lease rates at Bank facilities.

        We recorded $1.040 million for a potential FDIC penalty related to prior lending practices. See additional information on provided in Item 1A of Part I of this report under the heading "The Bank May be Subject to a Regulatory Penalty Because of Past Lending Practices" and Item 3 of Part I of this report.

        Professional fees increased $353,000 as a result of increased legal fees associated with foreclosures and regulatory compliance legal costs. FDIC insurance premiums increased $282,000 from $605,000 in 2007 to $887,000 in 2008 due to an increase in our insurance rates during 2008.

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        The following table shows the detail of our noninterest expense:

	Years ended December 31,
(dollars in thousands)	2008		2007		2006
Salaries and employee benefits	$	37,274	$	36,260	$	34,990
Net occupancy		11,144		9,848		8,012
Furniture, fixtures, and equipment		3,876		3,602		3,162
Professional services		1,905		1,552		958
Advertising		921		1,219		1,341
Data processing		2,149		1,941		1,811
Service and maintenance		2,696		2,436		2,202
Office supplies		779		728		747
ATM expenses		1,014		1,030		962
Printing		673		573		602
Corporate insurance		722		560		517
Write-downs, losses, and costs of real estate acquired through foreclosure		5,802		4,477		224
FDIC premiums		887		605		109
Consulting fees		766		789		850
Marketing/promotion		628		821		1,059
Postage		932		949		906
Overnight delivery/courier		763		804		908
Security		195		258		233
Dues and subscriptions		493		522		562
Loan collection expenses		912		894		701
Secondary marketing valuation		355		3,934		4,450
Regulatory compliance settlement		1,040		—		—
Loan origination expense		541		1,084		450
Director fees		289		254		224
Employee education and training		243		228		350
Automobile expense		306		252		256
Travel and entertainment		505		552		710
Other		2,057		2,066		1,863
	$	79,867	$	78,238	$	69,159

Income Tax Expense

        We recorded an income tax benefit of $12.512 million on a net loss before taxes of $27.600 million, resulting in an effective tax rate of (45.3)% for 2008 in comparison to an income tax benefit of $8.310 million on a net loss before taxes of $18.373 million, resulting in an effective tax rate of (45.2)% for 2007. The increase in the tax benefit was driven by the increase in pretax loss, as well as the recording of $585,000 in state tax credits during 2008. The tax credits reflect ones earned and awarded in 2003 through the One Maryland Economic Development ("One Maryland") tax credit program.

        The Bank has earned significant state tax incentives through its participation in the One Maryland and Job Creation Tax Credit programs. The tax incentives total $5.5 million based upon a confirmation received from the Maryland Department of Business and Economic Development. We will realize the benefits of the incentives in our reported earnings as the credits can be utilized, in accordance with accounting standards that govern the recognition of investment tax credits. The amount of the credit that we can utilize will largely be determined by the level of Maryland taxable income for the Bank only, and will be recognized as a reduction in our income tax expense. During 2008, we utilized $585,000 in credit related to this incentive program as a portion of the credits earned are funded

46

regardless of taxable income levels. Any unused One Maryland credits can be carried forward and will expire in 2016. The Job Creation Tax Credit can be carried forward for five years.

        At December 31, 2008, we had approximately $39.000 million in state operating loss carryforwards, representing a deferred income tax asset of $2.073 million, and approximately $17.000 million in federal operating loss carryforwards, representing a deferred income tax asset of $5.951 million. Management has determined that a valuation allowance for deferred tax assets was not required as of December 31, 2008.

Financial Condition

        At December 31, 2008, our total assets were $1.307 billion as compared to $1.247 billion at December 31, 2007, an increase of 4.8%. Earning assets increased $68.488 million or 6.4% to $1.144 billion at December 31, 2008 from $1.076 billion at December 31, 2007. The growth in assets was due primarily to an increase in loans outstanding (+$123.776 million), partially offset by decreases in loans held for sale (-$20.717 million), cash and due from banks (-$18.044 million), trading and available-for-sale securities (-$29.716 million), and other earning assets (-$4.855 million). We funded the growth in assets with increases in deposits (+$45.280 million) and short- and long-term borrowings (+$27.407 million).

        We continued to develop our bank branching and mortgage loan office network, expand our commercial and retail business development efforts, expand Mariner Finance, and successfully develop and market our deposit and loan products.

Securities

        Our investment portfolio at December 31, 2008 is comprised of marketable securities, with over 52% guaranteed by the U.S. government or U.S. government agencies. The maturity structure of our investment portfolio is significantly influenced by the level of prepayment activity on mortgage-backed investments. At December 31, 2008, the average duration of our investment portfolio was 4.98 years, longer than the average duration of 4.49 years at December 31, 2007, primarily due to the increase in the projected lives of mortgage-backed securities and a higher mix of long-term trust preferred securities.

        We utilize the securities portfolio as part of our overall asset/liability management practices to enhance interest revenue while providing necessary liquidity for the funding of loan growth or deposit withdrawals. We continually monitor the credit risk associated with corporate investments and diversify the risk in the corporate portfolio. As of December 31, 2008, we held $12.566 million in securities classified as trading and $39.666 million in securities classified as available for sale ("AFS"). As of December 31, 2007, we held $36.950 million in securities classified as trading and $44.998 million in securities classified as AFS.

        Changes in current market conditions, such as interest rates and the economic uncertainties in the mortgage, housing, and banking industries have severely impacted the securities market. The secondary market for various types of securities has been limited and has negatively impacted securities values. Quarterly, we review each security in our available for sale portfolio to determine the nature of any decline in value and evaluate if any impairment should be classified as OTTI.

Trading Securities

        As of January 1, 2007, we transferred $42.569 million of our investment securities from the available for sale portfolio to a trading portfolio. Since the end of 2007, these securities have increased in value and we recognized $136,000 in trading gains during 2008. During 2008, we sold $21.038 million

47

in securities from the trading account. The entire trading security portfolio consists of mortgage-backed securities as of December 31, 2008 and 2007.

        The estimated fair values and weighted average yields of trading debt securities at December 31, 2008, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay obligations.

(dollars in thousands)		Estimated Fair Value		Weighted- Average Yield
Mortgage-backed securities—
	Due five to ten years	$	10,588		4.15	%
	Due after ten years		1,978		4.29	%
		$	12,566		4.17	%

        Mortgage-backed securities are assigned to maturity categories based on their final maturity.

Securities Available for Sale

        Securities AFS declined $5.332 million due to normal principal payments on mortgage-backed securities, scheduled maturities of other securities, $3.853 million in securities sales, and a decline in market values, partially offset by purchases of securities of $16.405 million during 2008. In addition, we recorded $5.605 million in OTTI charges during 2008, $1.024 million of which was related to one of our corporate bonds, with the remaining related to two pooled trust preferred obligations. At December 31, 2008, our net unrealized loss on securities classified as available for sale totaled $8.191 million compared to a net unrealized loss of $2.997 million at December 31, 2007. The decline in value resulted primarily from declines in the values of trust preferred securities, particularly our holdings of two pooled trust preferred obligations that are considered temporarily impaired, which have an amortized cost of $5.042 million and a related unrealized loss of $3.892 million as of December 31, 2008.

        Changes in current market conditions, such as interest rates and the economic uncertainties in the mortgage, housing, and banking industries, have severely impacted the securities market. The secondary market for various types of securities has been limited and has negatively impacted securities values. Quarterly, we review each security in our AFS portfolio to determine the nature of any decline in value and evaluate if any impairment should be classified as OTTI.

        The trust preferred securities we hold in our securities portfolio were issued by other banks and bank holding companies. Certain of these securities have experienced declines in credit ratings from credit rating firms, which have devalued these specific securities. These declines have occurred primarily over the past year due to changes in the market which has limited the demand for these securities and reduced their liquidity. While some of these issuers have reported weaker financial performance since acquisition of these securities, they continue to possess acceptable credit risk in management's opinion. We monitor the actual default rates and interest deferrals for possible losses and contractual shortfalls of interest or principal, which could warrant further recognition of impairment. We recorded an OTTI charge of $4.581 million during the year ended December 31, 2008 on trust preferred securities.

48

        All of the remaining securities that are temporarily impaired are impaired due to declines in fair values resulting from changes in interest rates or increased credit/liquidity spreads compared to the time they were purchased. We have the ability to hold these securities to maturity and we expect these securities will be repaid in full, with no losses realized. As such, management does not consider the impairments to be other-than-temporary.

        Our total investments in trust preferred securities, corporate obligations, and common equity securities totaled $15.665 million as of December 31, 2008 compared to $21.427 million as of December 31, 2007.

        Our securities available for sale portfolio composition is as follows as of December 31:

(dollars in thousands)	2008		2007		2006		2005		2004
Mortgage-backed securities	$	22,248	$	18,079	$	62,281	$	161,112	$	200,708
Trust preferred securities		12,866		19,034		33,028		34,087		31,507
U.S. government agency notes		—		—		39,894		68,271		78,949
U.S. Treasury securities		1,003		1,017		998		986		1,000
Obligations of state and municipal subdivisions		—		2,975		2,965		2,969		2,973
Corporate obligations		2,548		1,915		1,988		1,777		—
Equity securities		251		478		1,395		1,310		1,531
Foreign government bonds		750		1,500		1,750		1,481		1,400
Other investment securities		—		—		2,991		4,946		4,897
	$	39,666	$	44,998	$	147,290	$	276,939	$	322,965

        The amortized cost, estimated fair values, and weighted average yields of debt securities at December 31, 2008, by contractual maturity, are shown below. Actual maturities may differ from contractual maturities because issuers have the right to call or prepay obligations. Equity securities are excluded as they have no state maturity.

				Unrealized
		Amortized Cost						Estimated Fair Value		Weighted- Average Yield
(dollars in thousands)				Gains		Losses
Mortgage-backed securities:
	Due within one year	$	27	$	—	$	—	$	27		5.50	%
	Due one to five years		—		—		—		—		—
	Due five to ten years		300		13		—		313		6.00	%
	Due after ten years		22,096		596		784		21,908		5.75	%
Trust preferred securities:
	Due after ten years		20,460		—		7,594		12,866		7.23	%
U.S. Treasury securities:
	Due within one year		1,000		3		—		1,003		4.88	%
Corporate obligations:
	Due one to five years		2,675		—		127		2,548		3.91	%
Foreign government bonds:
	Due within one year		400		—		—		400		4.65	%
	Due one to five years		350		—		—		350		4.05	%
		$	47,308	$	612	$	8,505	$	39,415

        Weighted yields are based on amortized cost. Mortgage-backed securities are assigned to maturity categories based on their final maturity.

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Loans

        Our loan portfolio is expected to produce higher yields than investment securities and other interest-earning assets; the absolute volume and mix of loans and the volume and mix of loans as a percentage of total earning assets is an important determinant of our net interest margin.

        The following table sets forth the composition of our loan portfolio as of December 31:

(dollars in thousands)		2008		2007		2006		2005		2004
Commercial loans and lines of credit		$	91,111	$	72,590	$	79,016	$	67,759	$	60,496
Commercial construction			109,484		129,272		137,155		112,383		63,847
Commercial mortgages			319,143		279,578		317,848		349,430		315,676
Consumer residential construction			69,589		86,621		98,066		126,708		135,841
Residential mortgages			138,323		84,892		56,221		40,817		41,589
Consumer			251,046		201,967		178,153		154,489		128,697
	Total loans	$	978,696	$	854,920	$	866,459	$	851,586	$	746,146

        Total loans increased $123.776 million during 2008. We experienced higher balances in commercial loans and lines of credit (+$18.521 million), commercial mortgage loans (+$39.565 million), residential mortgage loans (+$53.431 million), and consumer loans (+$49.079 million). Both commercial and consumer residential construction balances decreased (-$19.788 million and -$17.032 million, respectively). Although we have been aggressive in our loan origination activity, as evidenced by the growth in our total loan portfolio, the poor market environment has impacted the demand for construction and development lending products.

        Approximately 41.3% of our loans have adjustable rates as of December 31, 2008 compared to approximately 48.0% at December 31, 2007, including adjustable rate first mortgage loans indexed to either U.S. Treasury obligations or LIBOR and variable home equity lines of credit tied to the Prime interest rate. Our variable rate loans adjust to the current interest rate environment, whereas fixed rates do not allow this flexibility. If interest rates were to increase in the future, our interest earned on the variable rate loans would improve, and if rates were to fall, the interest we earn would decline, thus impacting our interest income. See our discussion in "Interest Rate Sensitivity" later in this section for more information on interest rate fluctuations.

        The following table sets forth the maturity distribution for our loan portfolio at December 31, 2008. Some of our loans may be renewed or repaid prior to maturity. Therefore, the following table should not be used as a forecast of our future cash collections.

		Maturing
		In one year or less				After 1 through 5 years				After 5 years
(dollars in thousands)		Fixed		Variable		Fixed		Variable		Fixed		Variable		Total
Commercial loans and lines of credit		$	41,943	$	27,568	$	17,520	$	1,699	$	1,926	$	455	$	91,111
Commercial construction			12,204		59,188		23,678		10,088		1,943		2,383		109,484
Commercial mortgages			83,146		20,507		132,414		48,302		4,193		30,581		319,143
Consumer residential construction			64,863		—		4,365		—		361		—		69,589
Residential mortgages			7,660		1,538		2,553		7,925		17,841		100,806		138,323
Consumer			53,265		12,685		67,415		49,218		36,724		31,739		251,046
	Total loans	$	263,081	$	121,486	$	247,945	$	117,232	$	62,988	$	165,964	$	978,696

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Commercial Construction Portfolio

        Our commercial construction portfolio consists of construction and development loans for commercial purposes and includes loans made to builders and developers of residential real estate projects. Of the total included above, $62.056 million represents loans made to borrowers for the development of residential real estate. This segment of the portfolio has exhibited greater weakness during 2008 due to overall weakness in the residential housing sector. As of December 31, 2008, $12.139 million (20%) of these loans are on nonaccrual.

        The breakdown of the portion of the commercial construction portfolio made to borrowers for residential real estate is as follows as of December 31, 2008:

(dollars in thousands)	Balance		Number of Loans
Raw residential land	$	6,630		4
Residential subdivisions		23,407		21
Single residential lots		4,338		12
Single family construction		12,547		25
Townhome construction		2,817		8
Multi-family unit construction		12,317		8
	$	62,056		78

Credit Risk Management

        Credit risk is the risk of loss arising from the inability of a borrower to meet its obligations. We manage credit risk by evaluating the risk profile of the borrower, repayment sources, the nature of the underlying collateral, and other support given current events, conditions, and expectations. We attempt to manage the risk characteristics of our 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, we seek to rely primarily on the cash flow of our borrowers as the principal source of repayment. Although credit policies and evaluation processes are designed to minimize our risk, management recognizes that loan losses will occur and the amount of these losses will fluctuate depending on the risk characteristics of our loan portfolio, as well as general and regional economic conditions.

        We provide for loan losses through the establishment of an allowance for loan losses by provisions charged against earnings. Our allowance represents an estimated reserve for existing losses in the loan portfolio. We deploy a systematic methodology for determining our allowance that includes a quarterly review process, risk rating, and adjustment to our allowance. We classify our portfolios as either consumer or commercial and monitor credit risk separately as discussed below. We evaluate the adequacy of our allowance continually based on a review of all significant loans, with a particular emphasis on nonaccruing, past due, and other loans that we believe require special attention.

        The allowance consists of three elements: (1) specific reserves and valuation allowances for individual credits; (2) general reserves for types or portfolios of loans based on historical loan loss experience, judgmentally adjusted for current conditions and credit risk concentrations; and (3) unallocated reserves. Combined specific reserves and general reserves by loan type are considered allocated reserves. All outstanding loans are considered in evaluating the adequacy of the allowance.

Commercial

        Our commercial portfolio includes all secured and unsecured loans to borrowers for commercial purposes, including commercial lines of credit and commercial real estate. Our process for evaluating

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commercial loans includes performing updates on all loans that we have rated for risk. Our commercial loans are generally reviewed individually, in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan, to determine impairment, accrual status, and the need for specific reserves. Our methodology incorporates a variety of risk considerations, both qualitative and quantitative. Quantitative factors include our historical loss experience by loan type, collateral values, financial condition of borrowers, and other factors. Qualitative factors include judgments concerning general economic conditions that may affect credit quality, credit concentrations, the pace of portfolio growth, and delinquency levels; these qualitative factors are evaluated in connection with our unallocated portion of our allowance for loan losses. We periodically engage outside firms and experts to independently assess our methodology and perform various loan review functions.

        The process of establishing the allowance with respect to our commercial loan portfolio begins when a loan officer initially assigns each loan a risk rating, using established credit criteria. Approximately 50% of our risk grades are subject to review and validation annually by an independent consulting firm, as well as periodically by our internal credit review function. Our methodology employs management's judgment as to the level of future losses on existing loans based on our internal review of the loan portfolio, including an analysis of the borrowers' current financial position, and the consideration of current and anticipated economic conditions and their potential effects on specific borrowers and or lines of business. In determining our ability to collect certain loans, we also consider the fair value of any underlying collateral. We also evaluate credit risk concentrations, including trends in large dollar exposures to related borrowers, industry and geographic concentrations, and economic and environmental factors.

        A commercial loan is determined to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. Such a loan is not considered impaired during a minimal period of delay in payment if we expect to collect all amounts due, including past-due interest. We generally consider a minimal period of delay in payment to include delinquency up to 90 days. Commercial loans we consider impaired at December 31, 2008 and December 31, 2007 totaled $26.695 million and $14.447 million, respectively. The reserve for loan losses for commercial impaired loans was approximately $1.264 million at December 31, 2008 and $241,000 at December 31, 2007. The average recorded investment in commercial impaired loans was approximately $21.530 million and $14.287 million for the years ended December 31, 2008 and December 31, 2007, respectively, and no income has been accrued or collected on the majority of these loans while they have been classified as impaired.

        The following table shows the breakout of commercial impaired loans at December 31:

(dollars in thousands)	2008		2007
Impaired loans with allowance for loan losses allocated in accordance with SFAS 114	$	8,155	$	2,268
Impaired loans with no allowance for loan losses allocated in accordance with SFAS 114		18,540		12,179
	$	26,695	$	14,447

        In general, we place commercial impaired loans on nonaccrual status. Once a loan is placed on nonaccrual, it remains in nonaccrual status until the loan is current as to payment of both principal and interest and the borrower demonstrates the ability to pay and remain current. All payments made on nonaccrual loans are applied to the principal balance of the loan.

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Consumer

        Our consumer portfolio includes residential mortgage loans and other loans to individuals. Consumer and residential mortgage loans, excluding repurchased and transferred ALT A loans, are segregated into homogeneous pools with similar risk characteristics. Trends and current conditions in consumer and residential mortgage pools are analyzed and historical loss experience is adjusted accordingly. Quantitative and qualitative adjustment factors for the consumer and residential mortgage portfolios are consistent with those for the commercial portfolios. Certain loans in the consumer portfolio identified as having the potential for further deterioration are analyzed individually to confirm the appropriate risk rating and accrual status, and to determine the need for a specific reserve. Consumer loans originated by the Bank that are greater than 120 days past due are generally charged off. For consumer loans originated by Mariner Finance, all such loans greater than 90 days past due are considered nonaccrual and are generally charged off when they become 180 days past due.

        Consumer loans we consider impaired at December 31, 2008 and December 31, 2007 consisted of ALT A loans and totaled $20.945 million and $33.529 million, respectively, with $6.772 million and $9.203 million classified as nonaccrual as of December 31, 2008 and December 31, 2007, respectively. The specific reserve for loan losses for consumer impaired loans was approximately $1.444 million at December 31, 2008 and $2.303 million at December 31, 2007. The average recorded investment in consumer impaired loans was approximately $26.214 million and $26.071 million for the years ended December 31, 2008 and 2007, respectively.

        The following table shows the breakout of consumer impaired loans at December 31:

(dollars in thousands)	2008		2007
Impaired loans with allowance for loan losses allocated in accordance with SFAS 114	$	7,410	$	10,654
Impaired loans with no allowance for loan losses allocated in accordance with SFAS 114		13,535		22,875
	$	20,945	$	33,529

        We place consumer impaired loans on nonaccrual status as deemed necessary by relevant circumstances. Once a loan is placed on nonaccrual, it remains in nonaccrual status until the loan is current as to payment of both principal and interest and the borrower demonstrates the ability to pay and remain current. All payments made on nonaccrual loans are applied to the principal balance of the loan.

        Additional information about our nonaccrual loans, including interest income that we would have received had these loans been performing according to their contractual terms, is found in Note 4 to our consolidated financial statements included in Item 8 of Part II of this report.

Repurchased Mortgage Loans

        In accordance with AICPA SOP 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer, we record repurchased loans at their estimated fair value at the time of repurchase. At December 31, 2008, we maintained $6.335 million of loans repurchased in accordance with covenants in our sales agreements with investors.

        In establishing the loan's estimated fair value, management makes significant assumptions concerning the ultimate collectibility of delinquent loans and their ultimate realizable value. While these projections are made with the most current data available to management, actual realized losses could differ due to the changes in the borrowers' willingness or ability to resolve the delinquency status, changes in the actual volume of future repurchases, changes in the real estate market, or changes in

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market values of those loans which are liquidated. Management updates these assumptions continually as greater experience becomes available.

        We believe our exposure to and resolution of our repurchase obligations are substantially complete. We did not repurchase any loans due to early payment default during 2008.

        The following table shows the total portfolio of repurchased loans and their status:

As of December 31, 2008:

(dollars in thousands)	Principal Balance at Repurchase		Initial Write-Down		Carrying Value		Additional Allocated Reserves (1)
Nonaccrual 1st mortgages	$	2,974	$	8	$	2,966	$	335
Nonaccrual 2nd mortgages		73		24		49		49
Delinquent 1st mortgages (2)		325		—		325		—
Modifications (3)		3,163		168		2,995		205
	$	6,535	$	200	$	6,335	$	589

As of December 31, 2007:

(dollars in thousands)	Principal Balance at Repurchase		Initial Write-Down		Carrying Value		Additional Allocated Reserves (1)
Nonaccrual 1st mortgages	$	8,317	$	485	$	7,832	$	588
Nonaccrual 2nd mortgages		390		117		273		272
Delinquent 1st mortgages (2)		1,625		—		1,625		115
Modifications (3)		8,132		583		7,549		467
Current loans		457		—		457		32
	$	18,921	$	1,185	$	17,736	$	1,474

(1)

Additional allocated reserves are included in the allowance for loan losses

(2)

Includes ALT A loans that are 30 days or more past due that are not on nonaccrual status, except for past-due modifications

(3)

Includes ALT A modifications that are 30 days or more past due that are not on nonaccrual status

        All ALT A loans which were 90 days delinquent as of December 31, 2008 were evaluated individually for impairment, with any estimated loss compared to the carrying amount recorded as a specific reserve. All other ALT A loans were evaluated collectively for impairment.

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        The nonaccrual and delinquent loans are currently in the process of collection and the resolution of many of these loans may be through foreclosure of the property. The modifications in the table represent repurchased loans we have renegotiated at lower rates in order to improve the borrower's ability to pay.

Transferred Loans

        In accordance with SFAS No. 65, Accounting for Certain Mortgage Banking Activities, any loans which are originally originated for sale into the secondary market and which we subsequently elect to transfer into the Company's loan portfolio are valued at fair value at the time of the transfer with any decline in value recorded as a charge to operating expense.

        We maintain $11.799 million in first-lien mortgage loans and $2.811 million in second-lien mortgage loans that were transferred from loans held for sale to our mortgage and consumer loan portfolios, respectively. These loans are primarily ALT A loans originated for sale and subsequently transferred as the secondary market for these products became increasingly illiquid. All of the loans transferred were current with respect to principal and interest payments at the time of transfer. Currently, $3.757 million of these loans are on nonaccrual. Specific reserves for all transferred loans amounted to $855,000.

        Information on the activity in transferred loans and related accretable yield is as follows for the years ended December 31:

	Loan Balance						Accretable Yield						Total
(dollars in thousands)	2008			2007			2008			2007			2008			2007
Beginning balance	$	16,907		$	43		$	1,114		$	—		$	15,793		$	43
Additional transfers		1,655			17,860			197			1,175			1,458			16,685
Loans moved to real estate acquired through foreclosure		(1,338	)		(79	)		(47	)		—			(1,291	)		(79	)
Charge-offs		(1,314	)		(794	)		(8	)		—			(1,306	)		(794	)
Payments/amortization		(469	)		(123	)		(425	)		(61	)		(44	)		(62	)
Ending balance	$	15,441		$	16,907		$	831		$	1,114		$	14,610		$	15,793

Unallocated

        The unallocated portion of the allowance is intended to provide for losses that are not identified when establishing the specific and general portions of the allowance and is based upon management's evaluation of various conditions that are not directly measured in the determination of the formula and specific allowances. Such conditions include general economic and business conditions affecting key lending areas, credit quality trends (including trends in delinquencies and nonperforming loans expected to result from existing conditions), loan volumes and concentrations, specific industry conditions within portfolio categories, recent loss experience in particular loan categories, duration of the current business cycle, bank regulatory examination results, findings of external loan review examiners, and management's judgment with respect to various other conditions including loan administration and management and the quality of risk identification systems. Executive management reviews these conditions quarterly. We have risk management practices designed to ensure timely identification of changes in loan risk profiles; however, undetected losses may exist inherently within the loan portfolio. The judgmental aspects involved in applying the risk grading criteria, analyzing the quality of individual loans, and assessing collateral values can also contribute to undetected, but probable, losses.

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        Our total allowance at December 31, 2008 is considered by management to be sufficient to address the credit losses inherent in the current loan portfolio. However, our determination of the appropriate allowance level is based upon a number of assumptions we make about future events, which we believe are reasonable, but which may or may not prove valid. Thus, there can be no assurance that our charge-offs in future periods will not exceed our allowance for loan losses or that we will not need to make additional increases in our allowance for loan losses.

        The following table summarizes the activities in our allowance for loan losses for the years ended December 31:

(dollars in thousands)			2008			2007			2006			2005			2004
Allowance for loan losses, beginning of year			$	12,789		$	12,399		$	11,743		$	9,580		$	8,692
Loans charged off:
	Commercial loans and lines of credit			—			(67	)		—			(15	)		—
	Commercial construction			(401	)		(1,481	)		—			—			(4	)
	Commercial mortgages			(630	)		(495	)		—			—			—
	Consumer residential construction			(331	)		—			(186	)		—			(251	)
	Residential mortgages			(4,658	)		(1,038	)		(99	)		—			—
	Consumer (1)			(5,446	)		(5,908	)		(1,740	)		(1,492	)		(1,318	)
		Total loans charged off		(11,466	)		(8,989	)		(2,025	)		(1,507	)		(1,573	)
Recoveries:
	Commercial loans and lines of credit			13			—			—			—			—
	Commercial construction			—			—			—			—			—
	Commercial mortgages			3			—			—			—			—
	Consumer residential construction			—			—			22			89			11
	Residential mortgages			9			43			—			—			—
	Consumer			367			421			344			294			207
		Total recoveries		392			464			366			383			218
		Net charge-offs		(11,074	)		(8,525	)		(1,659	)		(1,124	)		(1,355	)
Allowance for acquired loans (2)				279			—			—			—			—
Provision for loan losses				14,783			8,915			2,315			3,287			2,243
Allowance for loan losses, end of period			$	16,777		$	12,789		$	12,399		$	11,743		$	9,580
Loans (net of premiums and discounts):
	Period-end balance		$	978,696		$	854,920		$	866,459		$	851,586		$	746,146
	Average balance during period			905,632			847,150			855,207			804,719			652,506
Allowance as a percentage of period-end loan balance				1.71	%		1.50	%		1.43	%		1.38	%		1.28	%
Percent of average loans:
	Provision for loan losses			1.63	%		1.05	%		0.27	%		0.41	%		0.34	%
	Net charge-offs			1.22	%		1.01	%		0.19	%		0.14	%		0.21	%

(1)

Includes $1.506 million and $3.545 million of ALT A second mortgage loans for 2008 and 2007, respectively.

(2)

Allowance acquired in a transaction with Loans, USA

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        The following table summarizes our allocation of allowance by loan type as of December 31:

	2008								2007								2006
(dollars in thousands)	Amount		Percent of Total			Percent of Loans to Total Loans			Amount		Percent of Total			Percent of Loans to Total Loans			Amount		Percent of Total			Percent of Loans to Total Loans
Commercial loans and lines of credit	$	824		4.9	%		9.3	%	$	606		4.7	%		8.5	%	$	926		7.5	%		9.1	%
Commercial construction		2,702		16.1	%		11.2	%		1,456		11.4	%		15.1	%		2,749		22.2	%		15.8	%
Commercial mortgages		2,985		17.8	%		32.6	%		2,316		18.1	%		32.7	%		3,073		24.8	%		36.7	%
Consumer residential construction		583		3.5	%		7.1	%		719		5.6	%		10.1	%		1,068		8.6	%		11.3	%
Residential mortgages		1,576		9.4	%		14.1	%		1,542		12.1	%		10.0	%		28		0.2	%		6.5	%
Consumer		4,683		27.9	%		25.7	%		4,021		31.4	%		23.6	%		2,928		23.6	%		20.6	%
Unallocated		3,424		20.4	%		—			2,129		16.7	%		—			1,627		13.1	%		—
Total	$	16,777		100.0	%		100.0	%	$	12,789		100.0	%		100.0	%	$	12,399		100.0	%		100.0	%

	2005								2004
(dollars in thousands)	Amount		Percent of Total			Percent of Loans to Total Loans			Amount		Percent of Total			Percent of Loans to Total Loans
Commercial loans and lines of credit	$	1,302		11.1	%		8.0	%	$	1,819		19.0	%		8.1	%
Commercial construction		1,031		8.8	%		13.2	%		508		5.3	%		8.6	%
Commercial mortgages		2,908		24.8	%		41.0	%		2,804		29.3	%		42.3	%
Consumer residential construction		1,461		12.4	%		14.9	%		1,523		15.9	%		18.2	%
Residential mortgages		18		0.1	%		4.8	%		20		0.2	%		5.6	%
Consumer		2,242		19.1	%		18.1	%		1,653		17.2	%		17.2	%
Unallocated		2,781		23.7	%		—			1,253		13.1	%		—
Total	$	11,743		100.0	%		100.0	%	$	9,580		100.0	%		100.0	%

        Based upon management's evaluation, provisions are made to maintain the allowance as a best estimate of inherent losses within the portfolio. The allowance for loan losses totaled $16.777 million and $12.789 million as of December 31, 2008 and December 31, 2007, respectively. The increase in the allowance reflects management's ongoing application of its methodologies to establish the allowance, which included increases in the allowance for collateral dependent impaired loans (specific reserves), increases in the allowance for residential construction and development loans (included in commercial construction in the above table) which received internal risk rating downgrades during 2008 (general reserves), as well as increases to reflect negative market trends and other qualitative factors (unallocated reserves). The allowance for loan losses may not move in direct proportion to changes in our overall trends in delinquent, nonperforming, or impaired loans. The specific loans that make up those categories change from period to period. Impairment on those loans, which would be reflected in the allowance for loan losses, might or might not exist, depending on the specific circumstances of each loan.

        Specific and general reserves for the construction portfolios (commercial and consumer residential) and commercial mortgage loan portfolio increased $1.110 million and $669,000, respectively, and reflect management's increased estimate of required reserves for these portfolios. Increased levels of delinquency, lower collateral values, and a greater number of construction and development and commercial mortgage loans receiving internal risk rating downgrades resulted in the increased allowance levels for these loan portfolios.

        Specific and general reserves for consumer loans increased $662,000 due to greater delinquency and collateral value declines in both repurchased and transferred ALT A second mortgage loans and increased reserves related to the increased volume of consumer finance loans. Our unallocated portion

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of the allowance has also increased as general market, economic, and other factors have significantly changed during 2008.

        The provision for loan losses recognized to maintain the allowance was $14.783 million for 2008 as compared to $8.915 million for 2007. We recorded net charge-offs of $11.074 million during 2008 compared to net charge-offs of $8.525 million in 2007, primarily due to increases in net charge-offs of ALT A first and second mortgages. Additionally, charge offs in 2008 included $630,000 in commercial mortgages and $732,000 in consumer and commercial construction loans. During 2008, net charge-offs as compared to average loans outstanding increased to 1.22%, as compared to 1.01% during 2007. Net charge-offs for the Bank totaled $7.974 million, while Mariner Finance net charge-offs were $3.100 million during 2008.

        On December 31, 2008, Mariner Finance acquired substantially all of the assets of Loans USA, Incorporated and its subsidiary, Loans USA Consumer Discount Company of PA, Inc. As a part of that transaction, Mariner Finance acquired a $279,000 allowance for loan losses related to the acquired loan portfolio.

        Our allowance as a percentage of outstanding loans has increased from 1.50% as of December 31, 2007 to 1.71% as of December 31, 2008, reflecting the changes in our loss estimates and the increases resulting from the application of our loss estimate methodology. Management believes the allowance for loan losses is adequate as of December 31, 2008.

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Nonperforming Assets

        Nonperforming assets, expressed as a percentage of total assets, totaled 4.42% at December 31, 2008 and 3.48% at December 31, 2007. The following tables show the distribution of nonperforming assets and loans greater than 90 days past due as of December 31:

(dollars in thousands)		2008		2007		2006		2005		2004
Nonaccruing loans:
	Commercial loans and lines of credit	$	603	$	—	$	1,158	$	1,015	$	—
	Commercial construction		14,544		5,268		—		—		—
	Commercial mortgages		4,134		3,926		575		687		3,476
	Consumer residential construction		8,222		3,362		539		393		433
	Alt A first and second mortgages		6,772		9,203		613		—		—
	Other residential mortgages		1,343		823		257		45		—
	Other consumer		3,145		1,807		1,016		879		719
			38,763		24,389		4,158		3,019		4,628
Real estate acquired through foreclosure:
	Commercial loans and lines of credit		—		—		—		—		——
	Commercial construction		4,909		3,601		—		—		——
	Commercial mortgages		2,080		1,101		—		866		——
	Consumer residential construction		2,826		2,299		349		65		65
	Alt A first and second mortgages		9,079		11,980		527		—		—
	Other residential mortgages		—		—		1,564		—		—
	Other consumer		100		—		—		—		—
			18,994		18,981		2,440		931		65
Total nonperforming assets		$	57,757	$	43,370	$	6,598	$	3,950	$	4,693
Loans past-due 90 days or more and accruing:
	Commercial loans and lines of credit	$	—	$	92	$	—	$	—	$	600
	Commercial construction		210		—		14,339		—		—
	Commercial mortgages		1,634		663		1,939		—		—
	Consumer residential construction		1,587		219		1,044		531		981
	Alt A first and second mortgages		1,519		1,825		9,842		—		—
	Other residential mortgages		1,739		—		—		328		43
	Other consumer		2,990		220		110		1		34
		$	9,679	$	3,019	$	27,274	$	860	$	1,658

        Nonaccrual loans increased $14.374 million in total. Nonaccrual construction and development loans (exclusively residential) increased $14.136 million, reflecting negative market conditions, including slowing sales of new construction and declines in sales values. These factors have contributed to a greater number of our borrowers in these categories becoming significantly delinquent in their payments. Partially offsetting this increase was a decline of $2.431 million of ALT A first- and second-lien mortgages classified as nonaccrual as of December 31, 2008. The decrease reflects a number of loans processing through foreclosure and being transferred to real estate acquired through foreclosure during 2008.

        Nonaccrual commercial construction and consumer residential construction loans increased $14.136 million from December 31, 2007 to December 31, 2008. The increase consisted of the addition of eight commercial construction loans in the amount of $13.189 million and seven consumer construction loans in the amount of $6.024 million, partially offset by write-downs and pay-downs of certain loans of approximately $2.000 million and transfers to real estate acquired through foreclosure

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of approximately $3.000 million. The allowance for impaired commercial loans increased from $241,000 at December 31, 2007 to $1.264 million as of December 31, 2008, which represented the fair value deficiencies for those loans for which the net fair value of the collateral was estimated at less than our carrying amount of the loan. Not all of the loans placed on nonaccrual since December 31, 2007 required impairment reserves, as some of the loans' collateral had estimated fair values greater than the carrying amount of the loan.

        Real estate acquired through foreclosure remained relatively constant at $18.994 million as of December 31, 2008 compared to $18.981 million as of December 31, 2007. The largest category of foreclosed assets continues to be individual residential properties. These properties have a concentration (approximately 50%) in the northern Virginia region and are currently being carried at approximately 60% of their original appraised amount. Real estate acquired through foreclosure is carried at fair value and is not included as part of the allowance for loan loss totals.

        Loans 90 days delinquent and accruing increased from $3.019 million at December 31, 2007 to $9.679 million as of December 31, 2008, primarily due to increases in delinquent commercial mortgage, commercial and consumer construction, and consumer loans. Commercial mortgage loans 90 days delinquent and accruing grew by $971,000 and totaled $1.634 million as of December 31, 2008. This total is made up of four loans, with the largest loan totaling $920,000. Construction and development loans increased to $1.797 million and consisted of four loans, with the largest loan totaling $788,000. Consumer loans 90 days delinquent and accruing increased $2.770 million, and included a large first lien position home equity line of credit with a balance of $2.100 million. We expect to collect all amounts due on these loans, including interest.

Troubled Debt Restructures ("TDRs")

        Troubled debt restructures, which are loans that have been restructured due to the borrower's inability to maintain a current status on the loan, that are not included in the nonaccrual balance above amounted to approximately $9.074 million for 2008 and $10.474 million for 2007. We initially measure impairment of TDRs on a loan-by-loan basis. All of our TDRs as of December 31, 2008 and December 31, 2007 were collateral dependent and, therefore, any impairment was determined using the fair value of the collateral.

Potential Problem Loans

        Potential problem loans consist of loans that are currently performing in accordance with contractual terms; however, management has designated these assets as potential problem loans due to concerns about the ability of the obligor to continue to comply with repayment terms that may result from the obligor's potential operating or financial difficulties. At the end of 2008, loans of this type that are not included in the above table of nonperforming and past-due loans amounted to approximately $74.158 million, compared to $32.710 million at the end of 2007. Potential problem commercial loans, including loans secured by real estate, increased $41.939 million, while consumer residential construction potential problem loans decreased by $491,000. Ninety-one of the loans (93% of total potential problem loans) are commercial relationships that are well secured by commercial real estate and other business assets that are considered sufficient to collect all amounts due in the event of deterioration in the customer's financial condition. The remaining 24 loans (7% of total potential problem loans) are consumer residential construction loans that are well secured by property with residential real estate as the highest and best use and have an appraised value in excess of the carrying value of the loan. The average relationship was $901,000 and the largest relationship was $8.035 million. Depending on changes in the economy and other future events, these loans and others not presently identified as problem loans could be reclassified as nonperforming or impaired loans in the future.

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Deposits

        We use deposits as the primary source of funding of our loans. We offer individuals and businesses a wide variety of deposit accounts. These accounts include checking, savings, money market, and certificates of deposit and are obtained primarily from communities we serve.

        Deposits totaled $950.233 million as of December 31, 2008, increasing $45.280 million or 5.0% over the December 31, 2007 balance of $904.953 million. The increase in deposits was primarily due to an increase in time deposits, partially offset by decreases in all other deposit categories. During 2008, we held approximately $125.000 million in brokered time deposits, which we used to fund increased residential mortgage originations and bolster our overall liquidity position. The mix of deposits has changed somewhat during 2008, with a higher percentage of interest-bearing nontransaction accounts and less noninterest-bearing demand and interest-bearing transaction accounts as of December 31, 2008 compared to December 31, 2007. Additionally, we have experienced a decline in money market accounts and an increase in time deposits as customer preference has shifted to higher yielding certificates of deposit. The following table details the average amount and the average rate paid for each category of deposits as of December 31:

	2008					2007					2006
(dollars in thousands)	Average Balance		Average Rate			Average Balance		Average Rate			Average Balance		Average Rate
NOW accounts	$	13,249		0.58	%	$	9,858		0.21	%	$	10,945		0.22	%
Money market accounts		210,003		1.47	%		287,837		3.52	%		241,039		3.26	%
Savings accounts		54,918		0.33	%		56,935		0.31	%		67,164		0.31	%
Certificates of deposit		525,700		4.04	%		384,157		4.54	%		388,192		4.08	%
Total interest-bearing deposits		803,870		3.06	%		738,787		3.76	%		707,340		3.38	%
Noninterest-bearing demand deposits		131,242					163,011					179,210
Total deposits	$	935,112		2.63	%	$	901,798		3.08	%	$	886,550		2.70	%

        The following table provides the maturities of certificates of deposit in amounts of $100,000 or more at December 31:

(dollars in thousands)		2008		2007
Maturing in:
	3 months or less	$	27,740	$	13,870
	Over 3 months through 6 months		35,029		70,361
	Over 6 months through 12 months		63,940		23,118
	Over 12 months		62,181		49,319
		$	188,890	$	156,668

        Core deposits represent deposits which we believe will not be affected by changes in interest rates and, therefore, will be retained regardless of the movement of interest rates. We consider our core deposits to be all noninterest-bearing, NOW, money market accounts less than $100,000, and saving deposits, as well as all time deposits less than $100,000 that mature in greater than one year. At December 31, 2008, our core deposits were $422.191 million. The remainder of our deposits could be susceptible to attrition due to interest rate movements.

Borrowings

        Our borrowings consist of short-term promissory notes issued to certain qualified investors, a warehouse line of credit (closed in 2007), short-term and long-term advances from the FHLB, a mortgage loan, and a line of credit to finance consumer receivables. Our short-term promissory notes

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are in the form of commercial paper, which reprice daily and have maturities of 270 days or less. Our advances from the FHLB may be in the form of short-term or long-term obligations. Short-term advances have maturities for one year or less and can be paid without penalty. Long-term borrowings through the FHLB have original maturities up to 15 years and generally contain prepayment penalties.

        Long-term borrowings, which totaled $177.868 million and $155.130 million at December 31, 2008 and December 31, 2007, respectively, consist of long-term advances from the FHLB, a line of credit used to fund consumer finance receivables, and a mortgage loan on our former headquarters building. The amortized cost of long-term FHLB advances totaled $85.000 million as of December 31, 2008 and 2007; however, $60.000 million of the advances are recorded at fair value ($64.073 million) in accordance with SFAS No. 159, making the total carrying amount of FHLB advances $89.073 million. As of December 31, 2008 and December 31, 2007, the balance on the mortgage loan was $9.249 million and $9.407 million, respectively, and the balance on the consumer finance line of credit was $79.546 million and $57.600 million, respectively.

        Short-term borrowings consist of short-term promissory notes and short-term advances from the FHLB. These borrowings increased from $37.509 million at December 31, 2007 to $43.128 million at December 31, 2008, due to additional FHLB borrowings, partially offset by a decline in short-term promissory notes.

        See Note 11 to the Consolidated Financial Statements included in Item 8 of Part II of this report for further details about our borrowings and additional borrowing capacity.

        In the past, to further our funding and capital needs, we raised capital by issuing Trust Preferred Securities through the Trusts, which are wholly owned by First Mariner. The Trusts used the proceeds from the sales of the Trust Preferred Securities, combined with First Mariner's equity investment in these Trusts, to purchase subordinated deferrable interest debentures from First Mariner. The debentures are the sole assets of the Trusts. Aggregate debentures as of December 31, 2008 and December 31, 2007 were $73.724 million.

        The Trust Preferred Securities are mandatorily redeemable, in whole or in part, upon repayment of their underlying subordinated debentures at their respective maturities or their earlier redemption. The subordinated debentures are redeemable prior to maturity at First Mariner's option on or after its optional redemption dates. On December 22, 2008, First Mariner announced that it was electing to suspend interest payments on the debentures, beginning with the January 7, 2009 payment. This deferment is permitted under the terms of the debentures and does not constitute an event of default. The debentures continue to accrue interest, which will have to be fully repaid prior to the expiration of the deferral period. The total deferral period may not exceed 20 consecutive quarters.

        First Mariner has fully and unconditionally guaranteed all of the obligations of the Trusts.

Capital Resources

        Stockholders' equity decreased $18.555 million in 2008 to $46.015 million at December 31, 2008 from $64.570 million at December 31, 2007. Retained (deficit) earnings declined by the net loss of $15.088 million for 2008.

        Common stock and additional paid-in-capital increased by $288,000 due to stock issued through the employee stock purchase plan ($283,000) and stock compensation awards ($72,000), partially offset by repurchases of common stock ($67,000). Accumulated other comprehensive loss increased by $3.755 million due to the decline in estimated fair value of the available for sale securities portfolio, primarily trust preferred securities and a decrease in the fair value of our interest rate swap, partially offset by the OTTI charge recognized in income.

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        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.

        To date, we have provided for our capital requirements mainly through the funds we received from stock offerings and issuances of trust preferred securities. In the future, we may consider raising capital from time to time through an offering of common stock or other securities. As reflected in the table below, both the Company and the Bank have exceeded their capital adequacy requirements as of December 31, 2008 and 2007. As of December 31, 2007, the Bank was "well capitalized" under the regulatory framework for prompt corrective action. During 2008, the realized net loss reduced capital to the point that as of December 31, 2008, the Bank was considered "adequately capitalized." We continually monitor our capital adequacy ratios to ensure that we exceed regulatory capital requirements.

        As of December 31, 2008, First Mariner had a total of $71.500 million in outstanding Trust Preferred Securities, of which amount, $17.193 million was eligible for and included in Tier 1 capital and $41.350 million of the remaining Trust Preferred Securities was included in Tier II capital. The total amount of our Trust Preferred Securities allowable as part of capital was limited to $58.543 million as of December 31, 2008.

        Capital is classified as Tier 1 capital (common stockholders' equity less certain intangible assets plus a portion of the trust preferred securities) and Total Capital (Tier 1 plus the allowed portion of the allowance for loan losses and the portion of trust preferred securities not included in Tier 1 capital). Minimum required levels must at least equal 4% for Tier 1 capital and 8% for Total Capital. In addition, institutions must maintain a minimum of 4% leverage capital ratio (Tier 1 capital to average total assets for the previous quarter).

        Our capital position is presented in the following table:

			December 31,									Minimum Requirements for Capital Adequacy Purposes
															To be Well Capitalized Under Prompt Corrective Action Provision
			2008			2007			2006
Regulatory capital ratios:
	Leverage:
		Consolidated		4.3	%		6.9	%		7.8	%		4.0	%		5.0	%
		Bank		6.0	%		7.1	%		7.3	%		4.0	%		5.0	%
	Tier 1 capital to risk-weighted assets:
		Consolidated		5.0	%		8.2	%		10.0	%		4.0	%		6.0	%
		Bank		7.0	%		8.6	%		9.6	%		4.0	%		6.0	%
	Total capital to risk-weighted assets:
		Consolidated		9.9	%		14.2	%		15.6	%		8.0	%		10.0	%
		Bank		9.0	%		10.4	%		11.7	%		8.0	%		10.0	%

        We have entered into agreements with the Federal Reserve Bank of Richmond, FDIC, and the Maryland Banking Commissioner. The material terms of these agreements require us to: (i) formulate a plan for the reduction and collection of adversely classified loans, nonaccrual loans and delinquent loans and otherwise improve our asset quality; (ii) develop a policy for managing the real estate we acquire by foreclosure or by deed in lieu of foreclosure; (iii) periodically review the adequacy of our allowance for loan and lease losses; (iv) develop a plan for systematically reducing and monitoring our residential real estate acquisition, development, and construction loan portfolio; (v) develop and implement a profit and budget plan to improve our operating performance; (vi) develop a capital plan

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to maintain our "well capitalized" status; (vii) submit plans to reduce parent company leverage; and (viii) submit plans to improve enterprise-wide risk management and effectiveness of internal audit programs. We have also agreed to provide the Federal Reserve Bank of Richmond advance notice involving significant capital transactions.

        These agreements will subject us to increased regulatory scrutiny and may have an adverse impact on our business operations. Failure to comply with the provisions of these agreements may result in more restrictive actions from our regulators, including more secure and restrictive enforcement actions.

Liquidity

        Liquidity describes our ability to meet financial obligations, including lending commitments and contingencies that arise during the normal course of business. Liquidity is primarily needed to meet the borrowing and deposit withdrawal requirements of our customers, as well as to meet current and planned expenditures. These cash requirements are met on a daily basis through the inflow of deposit funds, and the maintenance of short-term overnight investments, maturities and calls in our investment portfolio, and available lines of credit with the FHLB, which requires pledged collateral. Fluctuations in deposit and short-term borrowing balances may be influenced by the interest rates paid, general consumer confidence, and the overall economic environment. There can be no assurances that deposit withdrawals and loan fundings will not exceed all available sources of liquidity on a short-term basis. Such a situation would have an adverse effect on our ability to originate new loans and maintain reasonable loan and deposit interest rates, which would negatively impact earnings.

        The borrowing requirements of customers include commitments to extend credit and the unused portion of lines of credit (collectively "commitments"), which totaled $334.540 million at December 31, 2008. Historically, many of the commitments expire without being fully drawn; therefore, the total commitment amounts do not necessarily represent future cash requirements. Commitments for real estate development and construction, which totaled $62.389 million, or 18.6% of the total at December 31, 2008, are generally short-term in nature, satisfying cash requirements with principal repayments as construction properties financed are generally repaid with permanent financing. Available credit lines represent the unused portion of credit previously extended and available to the customer as long as there is no violation of material contractual conditions. Commitments to extend credit for residential mortgage loans of $166.894 million, or 49.9% of the total at December 31, 2008, generally expire within 60 days. Commercial commitments to extend credit and unused lines of credit of $15.583 million, or 4.7%, of the total at December 31, 2008, generally do not extend for more than 12 months. Consumer commitments to extend credit and unused lines of credit of $14.430 million, or 4.3% of the total at December 31, 2008, are generally open ended. At December 31, 2008, available home equity lines totaled $75.244 million, or 22.5% of the total. Home equity credit lines generally extend for a period of 15 years, before being converted to an amortizing loan.

        Capital expenditures for various branch locations and equipment can be a significant use of liquidity. As of December 31, 2008, we plan on expending approximately $600,000 in the next 12 months on our premises and equipment.

        Customer withdrawals are also a principal use of liquidity, but are generally mitigated by growth in customer funding sources, such as deposits and short-term borrowings. While balances may fluctuate up and down in any given period, historically we have experienced a steady increase in total customer funding sources.

        The Bank's principal sources of 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), available for sale and trading securities, loans held for sale, deposit accounts, brokered deposits, and borrowings. The levels of such sources are dependent on the Bank's operating, financing, and investing activities at any given time. We continue to primarily rely on core deposits

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from customers to provide stable and cost-effective sources of funding to support our loan growth. We also seek to augment such deposits with longer term and higher yielding certificates of deposit. Cash and cash equivalents, which totaled $67.339 million at December 31, 2008, have immediate availability to meet our short-term funding needs. Our entire investment portfolio is classified as either available for sale or trading, is highly marketable, and available to meet our liquidity needs. Loans held for sale, which totaled $60.203 million at December 31, 2008, are committed to be sold into the secondary market and generally are funded within 60 days. Our residential real estate portfolio includes loans that are underwritten to secondary market criteria and provide us an additional source of liquidity. Additionally, our residential construction loan portfolio provides a source of liquidity as construction periods generally range from 9-12 months, and these loans are subsequently financed with permanent first mortgages and sold into the secondary market. Our loan to deposit ratio stood at 103.0% as of December 31, 2008 and 94.5% at December 31, 2007.

        We also have the ability to utilize established credit as an additional source of liquidity. To use the vast majority of our credit lines, we must pledge certain loans and/or investment securities before advances can be obtained. As of December 31, 2008, we maintained lines of credit totaling $336.729 million, with funding capacity of $119.045 million based upon loans and investments eligible and available for pledging.

        We are not aware of any known trends, demands, commitments, or uncertainties that are reasonably likely to result in material changes in our liquidity.

Interest Rate Sensitivity

        Interest rate sensitivity is an important factor in the management of the composition and maturity configurations of our earning assets and our funding sources. The primary objective of our asset/liability management is to ensure the steady growth of our primary earnings component, net interest income. Our net interest income can fluctuate with significant interest rate movements. We may attempt to structure the statement of financial condition so that repricing opportunities exist for both assets and liabilities in roughly equivalent amounts at approximately the same time intervals. However, imbalances in these repricing opportunities at any point in time may be appropriate to mitigate risks from fee income subject to interest rate risk, such as mortgage-banking activities.

        The measurement of our interest rate sensitivity, or "gap," is one of the techniques used in asset/liability management. Interest sensitive gap is the dollar difference between our assets and liabilities which are subject to interest rate pricing within a given time period, including both floating rate or adjustable rate instruments and instruments which are approaching maturity.

        Our management and our board of directors oversee the asset/liability management function and meet periodically to monitor and manage the statement of financial condition, control interest rate exposure, and evaluate pricing strategies. We evaluate the asset mix of the statement of financial condition continually in terms of several variables: yield, credit quality, funding sources, and liquidity. Our management of the liability mix of the statement of financial condition focuses on expanding our various funding sources and promotion of deposit products with desirable repricing or maturity characteristics.

        In theory, we can diminish interest rate risk through maintaining a nominal level of interest rate sensitivity. In practice, this is made difficult by a number of factors including cyclical variation in loan demand, different impacts on our interest-sensitive assets and liabilities when interest rates change, and the availability of our funding sources. Accordingly, we strive to manage the interest rate sensitivity gap by adjusting the maturity of and establishing rates on the earning asset portfolio and certain interest-bearing liabilities commensurate with our expectations relative to market interest rates. Additionally, we may employ the use of off-balance sheet instruments, such as interest rate swaps or caps, to manage our exposure to interest rate movements. Generally, we attempt to maintain a balance between

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rate-sensitive assets and liabilities that is appropriate to minimize our overall interest rate risk, not just our net interest margin.

        Our interest rate sensitivity position as of December 31, 2008 is presented in the following table. Our assets and liabilities are scheduled based on maturity or repricing data except for mortgage loans and mortgage-backed securities that are based on prevailing prepayments assumptions and core deposits which are based on core deposit studies done for banks in the Mid-Atlantic region. These assumptions are validated periodically by management. The difference between our rate-sensitive assets and rate-sensitive liabilities or the interest rate sensitivity gap, is shown at the bottom of the table. As of December 31, 2008, our cumulative interest sensitive liabilities exceeded our cumulative interest sensitive assets within a one year period by $59.830 million or 4.6% of total assets, compared to interest sensitive assets exceeding interest sensitive liabilities by $104.458 million or 8.4% as of December 31, 2007. The change in our interest rate sensitivity gap occurred primarily due to additional short-term borrowings and shorter-term certificates of deposit during 2008.

(dollars in thousands)		180 days or less			181 days– one year			One–five years			> 5 years or non- sensitive			Total
Interest-earning assets:
	Interest-bearing deposits	$	46,294		$	—		$	—		$	—		$	46,294
	Investment securities		25,398			4,989			12,710			9,135			52,232
	Restricted stock investments		7,066			—			—			—			7,066
	Loans held for sale		60,203			—			—			—			60,203
	Loans		433,831			110,279			371,593			62,993			978,696
Total interest-earning assets		$	572,792		$	115,268		$	384,303		$	72,128		$	1,144,491
Interest-bearing liabilities:
	Savings accounts	$	4,507		$	4,059		$	32,688		$	10,296		$	51,550
	NOW accounts		731			731			5,890			2,724			10,076
	Money market accounts		130,441			2,518			20,279			9,376			162,614
	Certificates of deposit		234,934			199,330			176,589			389			611,242
	Borrowings and junior subordinated debentures		170,639			—			110,759			13,322			294,720
Total interest-bearing liabilities		$	541,252		$	206,638		$	346,205		$	36,107		$	1,130,202
Interest rate sensitive gap position:
	Period	$	31,540		$	(91,370	)	$	38,098		$	36,021
	% of assets		2.41	%		(6.99	)%		2.91	%		2.76	%
	Cumulative	$	31,540		$	(59,830	)	$	(21,732	)	$	14,289
	% of assets		2.41	%		(4.58	)%		(1.67	)%		1.09	%
	Cumulative risk sensitive assets to risk sensitive liabilities		105.83	%		92.00	%		98.01	%		101.26	%

        While we monitor interest rate sensitivity reports, we primarily test our interest rate sensitivity through the deployment of simulation analysis. We use earnings simulation models to estimate what effect specific interest rate changes would have on our net interest income and net income. Simulation analysis provides us with a more rigorous and dynamic measure of interest sensitivity. 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, and pricing features such as interest rate floors are incorporated. Our fee income produced by mortgage-banking operations may also be impacted by changes in rates. As long-term rates increase, the volume of fixed rate mortgage

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loans originated for sale in the secondary market may decline and reduce our revenues generated by this line of business. We attempt to structure our asset and liability management strategies to mitigate the impact on net interest income by changes in market interest rates. However, there can be no assurance that we will be able to manage interest rate risk so as to avoid significant adverse effects on net interest income. At December 31, 2008, the simulation model provided the following profile of our interest rate risk measured over a one-year time horizon, assuming a parallel shift in a yield curve based off the U.S. dollar forward swap curve adjusted for certain pricing assumptions:

	Immediate Rate Change
	+200BP			-200BP
Net interest income		(1.84	)%		(1.22	)%

        Both of the above tools used to assess interest rate risk have strengths and weaknesses. Because the gap analysis reflects a static position at a single point in time, it is limited in quantifying the total impact of market rate changes which do not affect all earning assets and interest-bearing liabilities equally or simultaneously. In addition, gap reports depict the existing structure, excluding exposure arising from new business. While the simulation process is a powerful tool in analyzing interest rate sensitivity, many of the assumptions used in the process are highly qualitative and subjective, and are subject to the risk that past historical activity may not generate accurate predictions of the future. The model also assumes parallel movements in interest rates, which means both short-term and long-term rates will change equally. Nonparallel changes in interest rates (short-term rates changing differently from long-term rates) could result in significant differences in projected income amounts when compared to parallel tests. Both measurement tools taken together, however, provide an effective evaluation of our exposure to changes in interest rates, enabling management to better control the volatility of earnings.

        We are party to mortgage rate lock commitments to fund mortgage loans at interest rates previously agreed (locked) by both us and the borrower for specified periods of time. When the borrower locks an interest rate, we effectively extend a put option to the borrower, whereby the borrower is not obligated to enter into the loan agreement, but we must honor the interest rate for the specified time period. We are exposed to interest rate risk during the accumulation of interest rate lock commitments and loans prior to sale. We utilize forward sales commitments to economically hedge the changes in fair value of the loan due to changes in market interest rates.

Off-Balance Sheet Arrangements

        We enter into off-balance sheet arrangements in the normal course of business. These arrangements consist primarily of commitments to extend credit, lines of credit and letters of credit, potential loan repurchases, certain contractual obligations, and certain derivatives.

Credit Commitments

        Credit commitments are agreements to lend to a customer as long as there is no violation of any condition to the contract. Loan commitments generally have interest rates fixed at current market amounts, fixed expiration dates, and may require payment of a fee. Lines of credit generally have variable interest rates. Such lines do not represent future cash requirements because it is unlikely that all customers will draw upon their lines in full at any time. Letters of credit are commitments issued to guarantee the performance of a customer to a third party.

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        Our exposure to credit loss in the event of nonperformance by the borrower is the contract amount of the commitment. Loan commitments, lines of credit, and letters of credit are made on the same terms, including collateral, as outstanding loans. We are not aware of any accounting loss we would incur by funding our commitments.

        Outstanding loan commitments, unused lines of credit, and letters of credit were as follows at December 31, 2008:

(dollars in thousands)
Commitments to extend credit	$	229,283
Unused lines of credit		105,257
Letters of credit		4,151
	$	338,691

Potential Loan Repurchases

        We are not aware of any repurchase obligations pending as of December 31, 2008.

Contractual Obligations

        First Mariner has certain obligations to make future payments under contract. At December 31, 2008, the aggregate contractual obligations and commitments are:

	Payments Due by Period
(dollars in thousands)	Total		Less than one year		Over 1–3 years		Over 3–5 years		After 5 years
Certificates of deposit	$	611,242	$	406,520	$	162,955	$	41,767	$	—
Borrowings and junior subordinated debentures		294,720		43,128		143,619		—		107,973
Annual rental commitments under noncancelable leases		31,566		5,481		8,546		6,431		11,108
	$	937,528	$	455,129	$	315,120	$	48,198	$	119,081

Derivatives

        We maintain and account for hedging derivatives, in the form of swaps, interest rate lock commitments, and forward sales commitments, in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. We recognize gains and losses on swap contracts in the Consolidated Statement of Financial Condition in accumulated other comprehensive income, net of tax effects. We recognize any gains and losses on interest rate lock commitments or forward sales commitments on loan pipeline through mortgage-banking revenue in the Consolidated Statement of Operations.

        Mariner Finance has entered into swap contracts to hedge the economic impact of its consumer finance receivables line of credit. The swap is intended to decrease the volatility of the variable nature of the interest rate associated with the line of credit and ultimately decrease interest sensitivity.

        The Bank, through First Mariner Mortgage, enters into interest rate lock commitments, under which we originate residential mortgage loans with interest rates determined prior to funding. Rate lock commitments on mortgage loans that we intend to sell in the secondary market are considered derivatives. The period of time between issuance of a loan commitment and closing and sale of the loan generally ranges from 14 days to 60 days. For these rate lock commitments, we protect the

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Company from changes in interest rates through the use of forward sales commitments, primarily in bulk ("mandatory delivery").

        Under mandatory delivery commitments, we are exposed to price risk from the time a rate lock commitment is made to a mortgage applicant until the time the mortgage loan is sold. To manage this risk we use forward sales of agency mortgage-backed securities. Additionally, under mandatory delivery commitments, we remain exposed to basis risk in that the changes in value of our hedges may not equal or completely offset the changes in value of the rate commitments being hedged. This can result due to changes in the market demand for our mortgage loans brought about by supply and demand considerations and perceptions about credit risk relative to the agency securities. We also mitigate counterparty risk by entering into mandatory delivery commitments with proven counterparties and forward sales of mortgage-backed securities with pre-approved financial intermediaries.

        The market value of rate lock commitments is not readily ascertainable with precision because rate lock commitments are not actively traded in stand-alone markets. The Bank determines the fair value of rate lock commitments by measuring the change in the value of the underlying asset, while taking into consideration the probability that the rate lock commitments will close.

        Information pertaining to the carrying amounts of our derivative financial instruments follows as of December 31:

	2008				2007
(dollars in thousands)	Notional Amount		Estimated Fair Value		Notional Amount		Estimated Fair Value
Interest rate swaps	$	60,000	$	61,199	$	—	$	—
Interest rate lock commitments		166,894		169,957		18,867		18,843
Forward contracts to sell mortgage-backed securities		100,000		98,496		—		—

        Changes in interest rates could materially affect the fair value of the swaps, the interest rate lock commitments, or the forward sales commitments. In the case of the loan related derivatives, fair value is also impacted by the probability that the rate lock commitment will close ("fallout factor"). In addition, changes in interest rates could result in changes in the fallout factor, which might magnify or counteract the sensitivities. This is because the impact of an interest rate shift on the fallout ratio is non-symmetrical and non-linear.

Impact of Inflation and Changing Prices

        Inflation may be expected to have an impact on our operating costs and thus on net income. A prolonged period of inflation could cause interest rates, wages, and other costs to increase and could adversely affect our results of operations unless the fees we charge could be increased correspondingly.

        Our consolidated financial statements and notes thereto included in Item 8 of Part II of this report have been prepared in accordance with generally accepted accounting principles, which require the measurement of financial position and operating results in terms of historical dollars without considering the change in the relative purchasing power of money over time and due to inflation. The impact of inflation is reflected in the increased cost of our operations. Unlike most industrial companies, nearly all of our assets are monetary in nature. As a result, interest rates have a greater impact on our performance than do the effects of general levels of inflation. Interest rates do not necessarily move in the same direction or to the same extent as the price of goods and services. We believe that the impact of inflation was not material for 2008 or 2007.

Recent Accounting Pronouncements

        See Note 23 to our Consolidated Financial Statements included in Item 8 of Part II of this report for discussion of recent accounting pronouncements.

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Financial Review 2007/2006

Cumulative Effect of Accounting Change

        We adopted SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115, effective January 1, 2007. The effect of adopting this statement on existing eligible items at the time of adoption is recorded as a cumulative effect of accounting change in the financial statements through retained earnings and is detailed as follows:

(dollars in thousands)			Balance Sheet January 1, 2007 Prior to Adoption		Net Loss Upon Adoption			Balance Sheet January 1, 2007 After Adoption of Fair Value Option
Investment trading securities			$	42,569	$	(1,618	)	$	40,951
Long-term debt				60,000		(2,038	)		62,038
	Pretax cumulative effect of adoption of the fair value option					(3,656	)
	Increase in deferred tax assets					1,348
		Cumulative effect of adoption of the fair value option (charge to retained earnings)			$	(2,308	)

        We also adopted Emerging Issues Task Force ("EITF") Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements, effective January 1, 2007 for our BOLI. The cumulative effect of the accounting change recorded as a reduction to retained earnings was $135,000, which recognized the cumulative liability for payments owed to employees from the Company upon their death.

Results Review

        For the year ended December 31, 2007, we recorded a net loss of $10.063 million or $(1.57) per diluted share, a decrease of 623.0% from net income of $1.924 million or $0.29 per diluted share in 2006. Our gross revenue (net interest income and noninterest income) decreased $4.253 million and our noninterest expenses, the provision for credit losses, and income taxes increased by $7.734 million.

        Our net interest income for 2007 decreased $4.586 million or 9.3% from 2006, primarily due to lower levels of earning assets and higher levels of nonperforming assets, which more than offset an increase in the net interest margin. The yield on average earning assets increased from 7.70% for 2006 to 8.06% for 2007 and the rates on average interest-bearing liabilities increased from 4.24% for 2006 to 4.39% for 2007. Rates on both earning assets and interest-bearing liabilities increased due to increased market interest rates. Although market interest rates declined over the last half of 2007, they were still higher on average than for the same time in 2006. Earning asset rate increases were also favorably impacted by a higher mix of higher yielding consumer loans as a percentage of earning assets. Average earning assets decreased from the 2006 level of $1.243 billion to $1.099 billion for 2007, while average interest-bearing liabilities decreased from the 2006 level of $1.097 billion to $998.941 million for 2007. Our net interest margin increased 11 basis points to 4.07% in 2007 compared to 3.96% in 2006.

        Our provision for loan losses increased to $8.915 million in 2007 from $2.315 million in 2006. Our allowance for loan losses at December 31, 2007 represented 1.50% of loans outstanding, an increase from December 31, 2006 of 1.43% of loans outstanding. We recognized net chargeoffs of $8.525 million in 2007 compared to $1.659 million in 2006.

        Our total noninterest income increased 1.4% to $24.100 million, which included a net gain on sales of securities of $943,000 in 2007 compared to a net loss on sales of securities of $3.037 million in 2006. Excluding gains and losses on sales of securities, our noninterest income decreased $3.647 million or

70

13.6%. The decrease was mostly due to a decrease in our revenue from mortgage-banking activities due to lower loan sales volumes, reversals of gains recognized on previously sold mortgage loans which had to be repurchased, and lower profit spreads on loans sold.

        Brokerage fees increased $411,000 during 2007, as we realized higher mutual fund and annuity sales and asset management fees. Deposit service charges declined to $6.482 million in 2007 from $6.887 million for 2006 due to lower overdraft income. Income from BOLI increased by $322,000 due to the purchase of additional insurance policies in the second half of 2006 and the conversion of several existing policies to new carriers with higher crediting yields. Insurance sales commissions increased $151,000 due to increased insurance product sales from Mariner Finance. We recognized $702,000 in trading losses during 2007, mainly due to declines in value of borrowings accounted for at fair value.

        Our noninterest expenses increased $9.079 million or 13.1% to $78.238 million for 2007 compared to $69.159 million for the same period of 2006. Increased write-downs of real estate acquired through foreclosure and write-downs on ALT A loans were the most significant factor in the increase in noninterest expenses. Excluding the write-downs of real estate acquired through foreclosure and ALT A loans, noninterest expense increased $5.342 million or 8.3%.

        Our salary and employee benefits expenses increased $1.270 million, or 3.6%, due to additional personnel costs for staffing hired to support the expansion of the consumer finance company and increased cost of employer provided health care. Also included is $200,000 for severance benefits for the period, mostly related to the closing of wholesale lending operations. Occupancy expenses increased $1.836 million to $9.848 million from $8.012 million in 2006, primarily due to additional space for the new executive and administrative offices, which we began to occupy in the third quarter of 2006 and occupied for the entire year of 2007. Occupancy expenses also increased due to additional offices of Mariner Finance and approximately $200,000 of expense to sublease our former wholesale mortgage offices. Professional fees increased $594,000 as a result of increased legal fees associated with foreclosures. Service and maintenance expense and furniture, fixtures, and equipment expense also increased ($234,000 and $440,000, respectively) due to increased locations. FDIC insurance premiums increased $496,000 from $109,000 in 2006 to $605,000 in 2007 due to an increase in our insurance rates during 2007.

        We recorded an income tax benefit of $8.310 million on a net loss before taxes of $18.373 million, resulting in an effective tax rate of (45.2)% for 2007 in comparison to an income tax benefit of $365,000 on income before taxes of $1.559 million, resulting in an effective tax rate of (23.4)% for 2006. The increase in the tax benefit was primarily driven by the decrease in pretax income. Also impacting the tax benefit was the increase in the state of Maryland income tax rates effective January 1, 2008.

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ITEM 7A    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

        Results of operations for financial institutions, including us, 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. Our loan portfolio is concentrated primarily in central Maryland and portions of Maryland's eastern shore and is, therefore, subject to risks associated with these local economies.

        The United States has entered into an economic downturn. The economic downturn generally, and the disruptions in the capital markets in particular, have decreased liquidity and increased our cost of debt and equity capital, where available. The longer these conditions persist, the greater the probability that these factors could continue to increase our costs and significantly limit our access to debt and equity capital, and thus have an adverse effect on our operations and financial results. Many of the customers to which we have made, or will make, loans may also be susceptible to the economic downturn, which may affect the ability of our customers to repay loans, thereby, increasing the level of our nonperforming assets. The economic downturn may also decrease the value of collateral securing some of our loans, as well as the value of our securities investments, which could affect our operations and financial results, as well as decrease our ability to borrow under our credit facilities or raise equity capital. The economic downturn has affected the availability of credit generally and may prevent us from replacing or renewing our credit facilities on reasonable terms, if at all. We do not know when market conditions will stabilize, if adverse conditions will intensify, or the full extent to which the disruptions will affect us. Also, it is possible that continued instability of the financial markets could have other, unforeseen material effects on our business.

        As of December 31, 2008, we have a significant amount of loans that we either repurchased from investors or transferred from our held for sale portfolio with collateral located in Northern Virginia, where the housing market has declined dramatically. See our discussion of repurchased loans in Item 7 of Part II of this report under the heading "Credit Risk Management."

        We also face market risk related to interest rates that arises from our lending, investing, and deposit taking activities. Our profitability is largely dependent on the Bank's net interest income. Interest rate risk can significantly affect net interest income to the degree that interest bearing liabilities mature or reprice at different intervals than interest earning assets. For a discussion of this interest rate risk, see Item 7 of Part II of this report under the heading "Interest Rate Sensitivity".

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ITEM 8    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

Report of Independent Registered Public Accounting Firm

Board of Directors and Stockholders
First Mariner Bancorp
Baltimore, Maryland

        We have audited the accompanying consolidated statements of financial condition of First Mariner Bancorp and Subsidiaries (the "Company") as of December 31, 2008 and 2007 and the related consolidated statements of operations, changes in stockholders' equity, and cash flows for each of the years in the three-year period ended December 31, 2008. The Company's management is responsible for these consolidated financial statements. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

        We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

        In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2008 and 2007, and the results of its operations and cash flows for each of the years in the three-year period ended December 31, 2008, in conformity with accounting principles generally accepted in the United States of America.

/S/ STEGMAN & COMPANY

Baltimore, Maryland
March 25, 2009

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FIRST MARINER BANCORP AND SUBSIDIARIES

Consolidated Statements of Financial Condition

				December 31, 2008			December 31, 2007
				(dollars in thousands)
ASSETS
Cash and due from banks				$	21,045		$	39,089
Federal funds sold and interest-bearing deposits					46,294			52,232
Trading securities, at fair value					12,566			36,950
Securities available for sale, at fair value					39,666			44,998
Loans held for sale					60,203			80,920
Loans receivable					978,696			854,920
Allowance for loan losses					(16,777	)		(12,789	)
Loans, net					961,919			842,131
Real estate acquired through foreclosure					18,994			18,981
Restricted stock investments					7,066			5,983
Premises and equipment, net					49,964			52,215
Accrued interest receivable					6,335			7,181
Income tax recoverable					1,812			4,433
Deferred income taxes					26,057			12,428
Bank-owned life insurance					36,436			34,931
Prepaid expenses and other assets					19,140			14,350
	Total assets			$	1,307,497		$	1,246,822
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
	Deposits:
		Noninterest-bearing		$	114,751		$	149,710
		Interest-bearing			835,482			755,243
			Total deposits		950,233			904,953
	Short-term borrowings				43,128			37,509
	Long-term borrowings, at fair value				64,073			63,123
	Long-term borrowings				113,795			92,007
	Junior subordinated deferrable interest debentures				73,724			73,724
	Accrued expenses and other liabilities ($1,199 and $0 at fair value, respectively)				16,529			10,936
			Total liabilities		1,261,482			1,182,252
Stockholders' equity:
	Common stock, $.05 par value; 20,000,000 shares authorized; 6,452,631 and 6,351,611 shares issued and outstanding, respectively				323			318
	Additional paid-in capital				56,741			56,458
	Retained (deficit) earnings				(5,485	)		9,603
	Accumulated other comprehensive loss				(5,564	)		(1,809	)
		Total stockholders' equity			46,015			64,570
	Total liabilities and stockholders' equity			$	1,307,497		$	1,246,822

See accompanying notes to Consolidated Financial Statements

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FIRST MARINER BANCORP AND SUBSIDIARIES

Consolidated Statements of Operations

		For the Years Ended December 31,
		2008			2007			2006
		(dollars in thousands, except per share data)
Interest income:
	Loans	$	78,017		$	79,369		$	82,154
	Securities and other earning assets		6,026			9,146			13,594
Total interest income			84,043			88,515			95,748
Interest expense:
	Deposits		24,584			27,772			23,920
	Short-term borrowings		766			1,316			9,299
	Long-term borrowings		12,647			14,747			13,263
Total interest expense			37,997			43,835			46,482
Net interest income			46,046			44,680			49,266
Provision for loan losses			14,783			8,915			2,315
Net interest income after provision for loan losses			31,263			35,765			46,951
Noninterest income:
	Origination fees and gain on sale of mortgage loans		6,730			4,430			7,614
	Other mortgage-banking revenue		3,180			2,716			2,892
	ATM fees		3,188			3,219			3,161
	Service fees on deposits		6,346			6,482			6,887
	Loss on financial instruments carried at fair value		(814	)		(702	)		—
	Gain (loss) on sales of securities, net		229			943			(3,037	)
	Other-than-temporary impairment charges on securities available for sale		(5,605	)		—			—
	Gain on sale of branches		819			—			—
	Commissions on sales of nondeposit investment products		816			1,049			638
	Income from bank-owned life insurance		1,505			1,439			1,117
	Commissions on sales of other insurance products		3,231			2,822			2,671
	Other		1,379			1,702			1,824
Total noninterest income			21,004			24,100			23,767
Noninterest expenses:
	Salaries and employee benefits		37,274			36,260			34,990
	Occupancy, net		11,144			9,848			8,012
	Furniture, fixtures, and equipment		3,876			3,602			3,162
	Professional services		1,905			1,552			958
	Advertising		921			1,219			1,341
	Data processing		2,149			1,941			1,811
	ATM expenses		1,014			1,030			962
	Write-downs, losses, and costs of real estate acquired through foreclosure		5,802			4,477			224
	Service and maintenance		2,696			2,436			2,202
	Secondary marketing valuation		355			3,934			4,450
	Other		12,731			11,939			11,047
Total noninterest expenses			79,867			78,238			69,159
Net (loss) income before income taxes			(27,600	)		(18,373	)		1,559
Income tax benefit			(12,512	)		(8,310	)		(365	)
Net (loss) income		$	(15,088	)	$	(10,063	)	$	1,924
Net (loss) income per common share—Basic		$	(2.36	)	$	(1.57	)	$	0.30
Net (loss) income per common share—Diluted		$	(2.36	)	$	(1.57	)	$	0.29

See accompanying notes to Consolidated Financial Statements

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FIRST MARINER BANCORP AND SUBSIDIARIES

Consolidated Statements of Changes in Stockholders' Equity

	For the Years Ended December 31, 2008, 2007, and 2006
	Number of Shares of Common Stock			Common Stock			Additional Paid-in Capital			Retained (Deficit) Earnings			Accumulated Other Comprehensive Loss			Total Stockholders' Equity
	(dollars in thousands, except number of shares)
Balance at January 1, 2006		6,262,442		$	313		$	55,193		$	20,185		$	(3,316	)	$	72,375
Net income		—			—			—			1,924			—			1,924
Common stock issued, net of costs		196,183			9			1,875			—			—			1,884
Common stock repurchased, net of costs		(30,900	)		(1	)		(581	)		—			—			(582	)
Stock-based compensation expense		—			—			51			—			—			51
Tax effect of stock options		—			—			585			—			—			585
Other comprehensive income		—			—			—			—			2,392			2,392
Balance at December 31, 2006		6,427,725			321			57,123			22,109			(924	)		78,629
Cumulative effect of accounting changes		—			—			—			(2,443	)		993			(1,450	)
Net loss		—			—			—			(10,063	)		—			(10,063	)
Common stock issued, net of costs		43,486			2			369			—			—			371
Common stock repurchased, net of costs		(119,600	)		(5	)		(1,157	)		—			—			(1,162	)
Stock-based compensation expense		—			—			123			—			—			123
Other comprehensive loss		—			—			—			—			(1,878	)		(1,878	)
Balance at December 31, 2007		6,351,611			318			56,458			9,603			(1,809	)		64,570
Net loss		—			—			—			(15,088	)		—			(15,088	)
Common stock issued, net of costs		118,020			6			277			—			—			283
Common stock repurchased, net of costs		(17,000	)		(1	)		(66	)		—			—			(67	)
Stock-based compensation expense		—			—			72			—			—			72
Other comprehensive loss		—			—			—			—			(3,755	)		(3,755	)
Balance at December 31, 2008		6,452,631		$	323		$	56,741		$	(5,485	)	$	(5,564	)	$	46,015

See accompanying notes to Consolidated Financial Statements

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FIRST MARINER BANCORP AND SUBSIDIARIES

Consolidated Statements of Cash Flows

			For the Years Ended December 31,
			2008			2007			2006
			(dollars in thousands)
Cash flows from operating activities:
Net (loss) income			$	(15,088	)	$	(10,063	)	$	1,924
Adjustments to reconcile net (loss) income to net cash from operating activities:
	Stock-based compensation			72			114			51
	Excess tax benefit on stock-based compensation			—			—			(585	)
	Depreciation and amortization			5,561			5,240			4,744
	Amortization of unearned loan fees and costs, net			60			(597	)		(1,022	)
	Amortization of premiums and discounts on loans, net			(1,639	)		(997	)		(690	)
	Amortization of premiums and discounts on mortgage-backed securities, net			11			10			218
	Loss on financial instruments carried at fair value			814			702			—
	Origination fees and gain on sale of mortgage loans			(6,730	)		(4,430	)		(7,614	)
	(Gain) loss on sale of securities			(229	)		(943	)		3,037
	Other-than-temporary impairment charges on securities available for sale			5,605			—			—
	Gain on real estate acquired through foreclosure			—			—			(14	)
	(Gain) loss on disposal of premises and equipment			(819	)		70			—
	Write-downs and losses on real estate acquired through foreclosure			5,162			3,720			197
	Repurchase of mortgage loans			(120	)		(30,797	)		(13,458	)
	Secondary marketing valuation			355			3,934			4,450
	Decrease (increase) in accrued interest receivable			846			3,398			(2,542	)
	Provision for loan losses			14,783			8,915			2,315
	Increase in cash surrender value of bank-owned life insurance			(1,505	)		(1,439	)		(1,117	)
	Originations of mortgage loans held for sale			(1,149,319	)		(965,865	)		(1,191,676	)
	Proceeds from mortgage loans held for sale			1,175,307			953,355			1,197,271
	Deferred income taxes			(10,989	)		(3,578	)		(2,372	)
	Net increase (decrease) in accrued expenses and other liabilities			5,238			(5,683	)		(1,884	)
	Net increase in prepaids and other assets			(1,161	)		(3,344	)		(4,014	)
Net cash provided by (used in) operating activities				26,215			(48,278	)		(12,781	)
Cash flows from investing activities:
	Principal loan (disbursements), net of repayments			(146,431	)		41,387			(4,035	)
	Purchases of premises and equipment			(3,858	)		(8,463	)		(13,444	)
	Proceeds from disposals of premises and equipment			1,367			—			40
	(Purchases) sales of restricted stock investments, net			(1,083	)		466			7,198
	Activity in securities available for sale:
		Sales		3,853			1,445			97,387
		Maturities/calls/repayments		5,097			58,768			39,190
		Purchases		(16,405	)		(999	)		(6,284	)
	Sales of trading securities			21,038			—			—
	Maturities/calls/repayments of trading securities			3,481			4,577			—
	Additional disbursements on real estate acquired through foreclosure			(32	)		—			—
	Proceeds from sales of real estate acquired through foreclosure			9,873			4,150			981
	Purchase of bank-owned life insurance			—			—			(5,000	)
Net cash (used in) provided by investing activities				(123,100	)		101,331			116,033
Cash flows from financing activities:
	Net increase (decrease) in deposits			45,280			(19,985	)		48,929
	Net increase (decrease) in other borrowed funds			27,407			16,075			(156,934	)
	Excess tax benefit on stock-based compensation			—			—			585
	Proceeds from stock issuance, net of costs			283			371			1,884
	Repurchase of common stock, net of costs			(67	)		(1,162	)		(582	)
Net cash provided by (used in) financing activities				72,903			(4,701	)		(106,118	)
Net (decrease) increase in cash and cash equivalents				(23,982	)		48,352			(2,866	)
Cash and cash equivalents at beginning of period				91,321			42,969			45,835
Cash and cash equivalents at end of period			$	67,339		$	91,321		$	42,969
Supplemental information:
	Interest paid on deposits and borrowed funds		$	37,071		$	43,700		$	46,038
	Income taxes paid			—			—			2,925
	Real estate acquired through foreclosure			15,016			24,410			2,673
	Transfer of loans held for sale to loan portfolio			1,458			16,685			—

See accompanying notes to Consolidated Financial Statements

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FIRST MARINER BANCORP AND SUBSIDIARIES

Notes to Consolidated Financial Statements

For the Years Ended December 31, 2008, 2007, and 2006

(1) Summary of Significant Accounting Policies

Organization, Basis of Presentation, and Use of Estimates

        First Mariner Bancorp ("First Mariner," on a parent only basis and "we," "our," or "us" on a consolidated basis) is a bank holding company incorporated under the laws of the state of Maryland. First Mariner is headquartered in Baltimore, Maryland, and was originally organized as "MarylandsBank Corp." in May 1994. MarylandsBank Corp.'s name was changed to "First Mariner Bancorp" in May 1995. First Mariner Bancorp owns 100% of common stock of First Mariner Bank (the "Bank") and 100% of the interests in Mariner Finance, LLC ("Mariner Finance") and FM Appraisals, LLC ("FM Appraisals").

        Most of our activities are with customers within the Central Maryland region. A portion of activities related to consumer finance operations and mortgage lending are more dispersed and cover parts of the Mid-Atlantic region and other regions outside of the state of Maryland. Note 3 describes the types of securities that we invest in, and Note 4 discusses our lending activities. We do not have any concentrations to any one industry or customer.

        Our consolidated financial statements include the accounts of First Mariner and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain reclassifications have been made to amounts previously reported to conform with classifications made in 2008.

        The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Material estimates that are particularly susceptible to significant change in the near term relate to the determination of the allowance for loan losses (the "allowance"), loan repurchases and related valuations, real estate acquired through foreclosure, impairment of securities available for sale, and deferred taxes. In connection with these determinations, management evaluates historical trends and ratios and, where appropriate, obtains independent appraisals for significant properties and prepares fair value analyses. Actual results could differ significantly from those estimates.

Cash and Cash Equivalents

        We consider all highly liquid securities with original maturities of three months or less to be cash equivalents. For reporting purposes, assets grouped in the Statement of Financial Condition under the captions "Cash and due from banks" and "Federal funds sold and interest-bearing deposits" are considered cash or cash equivalents. For financial statement purposes, these assets are carried at cost. Cash and due from banks, federal funds sold, and interest-bearing deposits have overnight maturities and are generally in excess of amounts that would be recoverable under Federal Deposit Insurance Corporation ("FDIC") insurance.

Securities

        We designate securities into one of three categories at the time of purchase. Debt securities that we have the positive intent and ability to hold to maturity are classified as held to maturity and recorded at amortized cost. Debt and equity securities are classified as trading securities if bought and

78

held principally for the purpose of selling them in the near term. Trading securities are reported at estimated fair value, with unrealized gains and losses included in earnings. Debt securities not classified as held to maturity and debt and equity securities not classified as trading are considered available for sale and are reported at estimated fair value, with unrealized gains and losses reported as a separate component of stockholders' equity, net of tax effects, in accumulated other comprehensive income. Effective January 1, 2007, we adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards ("SFAS") No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115, and designated $42.569 million in securities as trading securities which were previously designated as available for sale. In accordance with SFAS No. 159, we recorded a cumulative effect of accounting change reduction to retained earnings related to the securities in the amount of $993,000 (net of deferred tax impact) as of January 1, 2007.

        Securities available for sale are evaluated periodically to determine whether a decline in their value is other-than-temporary. The term "other-than-temporary" is not intended to indicate a permanent decline in value. Rather, it means that the prospects for near term recovery of value are not necessarily favorable, or that there is a lack of evidence to support fair values equal to, or greater than, the carrying value of the security.

        The initial indication of other-than-temporary impairment for both debt and equity securities is a decline in the market value below the amount recorded for an investment, and the severity and duration of the decline. In determining whether an impairment is other-than-temporary, we consider the length of time and the extent to which the market value has been below cost, recent events specific to the issuer, including investment downgrades by rating agencies and economic conditions of its industry, and our ability and intent to hold the investment for a period of time sufficient to allow for any anticipated recovery. For marketable equity securities, we also consider the issuer's financial condition, capital strength, and near-term prospects. For debt securities and for perpetual preferred securities that are treated as debt securities for the purpose of other-than-temporary analysis, we also consider the cause of the price decline (general level of interest rates and industry-and issuer-specific factors), the issuer's financial condition, near-term prospects and current ability to make future payments in a timely manner, the issuer's ability to service debt, and any change in agencies' ratings at evaluation date from acquisition date and any likely imminent action. Once a decline in value is determined to be other-than-temporary, the value of the security is reduced and a corresponding charge to earnings is recognized.

        Gains or losses on the sales of securities are calculated using a specific-identification basis and are determined on a trade-date basis. Premiums and discounts on securities are amortized over the term of the security using methods that approximate the interest method. Gains and losses on trading securities are recognized regularly in income as the fair value of those securities changes.

Loans Held for Sale

        Loans originated for sale are carried at the lower of aggregate cost or market value. Market value is determined based on outstanding investor commitments or, in the absence of such commitments, based on current investor yield requirements or third party pricing models. Gains and losses on loan sales are determined using the specific-identification method.

Loans Receivable

        Our loans receivable are stated at their principal balance outstanding, net of related deferred fees and costs. Interest income on our loans is accrued at the contractual rate based on the principal outstanding. For smaller loans, we place loans in nonaccrual status when they are contractually past due 90 days as to either principal or interest, unless the loan is well secured and in the process of

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collection or earlier, when, in the opinion of management, the collection of principal and interest is in doubt. Management may grant a waiver from nonaccrual status for a 90-day past-due loan that is both well secured and in the process of collection. For larger loans and certain mortgage loans, Management applies SFAS No. 114, Accounting by Creditors for Impairment of a Loan, to determine accrual status. Under SFAS No. 114, when it is probable that we will be unable to collect all payments due, including interest, we place the loan on nonaccrual. A loan remains in nonaccrual status until the loan is current as to payment of both principal and interest and the borrower demonstrates the ability to pay and remain current. As a result of our ongoing review of the loan portfolio, we may classify loans as nonaccrual even though the presence of collateral or the borrower's financial strength may be sufficient to provide for ultimate repayment. We recognize interest on nonaccrual loans only when it is received. Loans are charged-off when a loan or a portion thereof is considered uncollectible.

        We identify impaired loans and measure impairment (i) at the present value of expected cash flows discounted at the loan's effective interest rate, (ii) at the observable market price, or (iii) at the fair value of the collateral if the loan is collateral dependent. If our measure of the impaired loan is less than the recorded investment in the loan, we recognize an impairment loss through a valuation allowance and corresponding charge to provision for loan losses. We do not apply these provisions to larger groups of smaller-balance homogeneous loans such as consumer installment and residential first and second mortgage loans. We evaluate these loans collectively for impairment, except for 90 days past due high loan-to-value ratio/low documentation ("ALT A") loans, to which we apply SFAS No. 114.

        We determine a loan to be impaired when, based on current information and events, it is probable that we will be unable to collect all amounts due according to the contractual terms of the loan agreement. We do not consider a loan impaired during a period of delay in payment if we expect to collect all amounts due, including interest past-due. Generally we consider a period of delay in payment to include delinquency up to 90 days, but may extend this period if the loan is collateralized by residential or commercial real estate with a low loan-to-value ratio, and where collection and repayment efforts are progressing.

        When the ultimate collectibility of an impaired loan's principal is in doubt, wholly or partially, all cash receipts are applied to principal. Once the recorded principal balance has been reduced to zero, future cash receipts are applied to interest income, to the extent any interest has been foregone, and then they are recorded as recoveries of any amounts previously charged off. When this doubt no longer exists, cash receipts are applied under the contractual terms of the loan agreements. Origination and commitment fees and direct origination costs on loans held for investment generally are deferred and amortized to income over the contractual lives of the related loans using the interest method. Under certain circumstances, commitment fees are recognized over the commitment period or upon expiration of the commitment. Fees to extend loans three months or less are recognized in income upon receipt. Unamortized loan fees are recognized in income when the related loans are sold or prepaid.

Repurchased Loans

        In certain instances, our loan sales agreements are subject to recourse provisions, which would require us to repurchase the assets, or otherwise indemnify the purchaser, under certain circumstances. In the case of loan sale agreements, these recourse provisions generally relate to a sold loan's delinquency during a specified period of time subsequent to the sale ("early payment default") or to an early payoff of the loan. We sell loans to many different investors, each with different early payment default and early payoff provisions in their agreements. Early payment default provisions can cover a period as long as the first six months from the origination of the loan. Early payoff provisions generally range from payoff in the first 30 days from the origination of the loan to payoff in the first nine months from the origination of the loan. We measure this potential liability based upon past repurchase experience, by calculating past repurchases by loan type as a percent of volume and taking a reserve in

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that amount against future repurchases. We continually revise this calculation based upon experience up until the point that our potential liability for a recourse obligation on a loan has passed.

        In accordance with American Institute of Certified Public Accountants ("AICPA") Statement of Position ("SOP") 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer, we record repurchased loans at estimated fair value at the time of repurchase. Repurchased loans are valued at the time of repurchase at the individual loan level and not on a pool basis. The basis for the valuation is a collateral based approach. For each loan repurchased, management utilizes independent third party valuation models, including broker price opinions, to establish a collateral value. Management believes that the more current valuation model estimates would be more reliable than the original values received from appraisals performed at the time the loan is closed with the borrower, considering market deterioration. Where more than one valuation model is available, which has been true for the vast majority of the loans repurchased in the past, the estimates are averaged to determine collateral value for the property. If only one model for the valuation is available, that source is used to estimate value. In the rare case where there is no model available or the values have high disparities between the two, the original appraisal is used. This has been the case in a very small minority of repurchased loans. Ordering new full appraisals is deemed too costly and time prohibitive given the volume and speed of past repurchase requests.

        Once the collateral value is established, management further reduces the expected cash flow by 3% to absorb estimated accrued and unpaid interest and 5% to absorb estimated selling and disposal costs. This discounted amount is considered to be the loans' realizable value. The realizable value is compared to the loan amount and any shortfall is established with a charge to other operating expense.

        We monitor repurchased loans for subsequent changes in cash flows expected to be collected and account for them in accordance with SOP 03-3. Any change after initial valuation of the expected cash flows is recorded through the allowance for loan losses. While we do not expect the market for these loans to improve in the near future, if the cash flows were to increase, we would look at the related yields and record accretion, where appropriate.

        Contractual interest accruals on loans repurchased are generally permitted for a period of time if there is sufficient collateral (realizable value) to support the level of accrued interest. For the most part, there is sufficient realizable value to continue the accrual of interest for first lien repurchased mortgages at the time of repurchase, while interest accruals at the time of repurchase are generally discontinued for second lien loans repurchased. As of December 31, 2008, no repurchased second lien mortgage loans remained on accrual status. Management regularly monitors the performance of repurchased loans through its ongoing delinquency tracking methods and makes decisions relative to interest accruals in accordance to its methodologies established for portfolio loans. Where loans become severely delinquent (90 days past due) and collateral values are not sufficient, the accrual of interest is discontinued and any post acquisition accrued interest is reversed against previously recognized interest income. No accretion of any amounts recorded to write-down the loans at initial repurchase have been taken during 2007 or 2008 as a substantial amount of the repurchased loans have become severely delinquent and values continued to deteriorate throughout the period.

        To date, we have not returned any unmodified repurchased loan to accrual status from nonaccrual status. Given the severity of delinquency and reduced values associated with most of our nonaccrual repurchased loans, we would foresee a very low probability for the return to accrual status of any unmodified repurchased loan. A return to accrual status would require a substantial improvement in expected cash flow and a history of regular payment. We see little likelihood of these events occurring in our nonaccrual repurchased loans at this time. Moreover, these improvements would need to be sufficient to eliminate any specific reserves established after the acquisition, before any accrual of interest or accretion of write-down would be recognized.

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Transfers of Financial Assets

        Transfers of financial assets are accounted for as sales, when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets, and (3) the Company does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.

Transferred Loans

        In accordance with SFAS No. 65, Accounting for Certain Mortgage Banking Activities, any loans which are originally originated for sale into the secondary market and which we subsequently elect to transfer into the Company's loan portfolio are valued at fair value at the time of the transfer with any decline in value recorded as a charge to operating expense.

Allowance for Loan Losses

        Our allowance for loan losses represents an estimated amount that, in management's judgment, will be adequate to absorb probable incurred losses on existing loans. The allowance for loan losses consists of an allocated component and an unallocated component. The components of the allowance for loan losses represent an estimation done pursuant to either SFAS No. 5, Accounting for Contingencies, or SFAS No. 114, Accounting by Creditors for Impairment of a Loan. The adequacy of the allowance for loan losses is determined through careful and continuous review and evaluation of the loan portfolio and involves the balancing of factors as outlined below to establish a prudent level. Loans deemed uncollectible are charged against, while recoveries are credited to, the allowance. Management adjusts the level of the allowance through the provision for loan losses, which is recorded as a current period operating expense. Our methodology for assessing the appropriateness of the allowance consists of several key elements, which include the formula allowance, specific allowance, and the unallocated allowance.

        The formula allowance is calculated by applying loss factors to corresponding categories of outstanding homogenous loans. Loss factors are based on our historical loss experience, or for newer classes of loans, management's estimate of probable losses. The use of these loss factors is intended to reduce the difference between estimated losses inherent in the portfolio and observed losses.

        Specific allowances are established in cases where management has identified significant conditions or circumstances related to a loan that leads management to believe the probability that a loss may be incurred in an amount different from the amount determined by the formula allowance calculation. Management determines fair value of the loan and recognizes any impairment in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan, and recognizes any such impairment as a specific allowance.

        The unallocated allowance is based upon management's evaluation of various conditions that are not directly measured in the determination of the formula and specific allowances. Such conditions include, but are not limited to, general economic and business conditions affecting key lending areas, credit quality trends (including trends in delinquencies and nonperforming loans expected to result from existing conditions), loan volumes and concentrations, specific industry conditions within portfolio categories, recent loss experience in particular loan categories, duration of the current business cycle, bank regulatory examination results, findings of internal loan examiners, and management's judgment with respect to various other conditions including loan administration and management and the quality of risk identification systems. Executive management and the Board of Directors review these conditions quarterly.

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        Management believes that the allowance for loan losses is adequate. However, the determination of the allowance requires significant judgment, and estimates of probable incurred losses inherent in the loan portfolio can vary significantly from the amounts actually observed. While management uses all available information to recognize probable incurred losses, future additions to the allowance may be necessary based on changes in the loans comprising the loan portfolio and changes in the financial condition of borrowers which may result from changes in economic conditions. In addition, various regulatory agencies, as an integral part of their examination process, periodically review the Bank's and Mariner Finance's loan portfolio and allowance for loan losses. Such review may result in recognition of additions to the allowance based on their judgments of information available to them at the time of their examination.

Real Estate Acquired Through Foreclosure

        We record foreclosed real estate assets at the lower of cost or estimated fair value on their acquisition dates and at the lower of such initial amount or estimated fair value less estimated selling costs thereafter. Subsequent write-downs are included in our noninterest expenses, along with operating income, net of related expenses of such properties and gains or losses realized upon disposition.

Restricted Stock Investments

        The Bank, as a member of the Federal Home Loan Bank System, is required to maintain an investment in capital stock of the Federal Home Loan Bank of Atlanta ("FHLB") in varying amounts based on asset size and on amounts borrowed from the FHLB. Because no ready market exists for this stock and it has no quoted market value, the Bank's investment in this stock is carried at cost.

        The Bank maintains an investment in capital stock of several bankers banks. Because no ready market exists for these stocks and they have no quoted market values, the Bank's investment in these stocks is carried at cost.

Premises and Equipment

        Our premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are accumulated using straight-line and accelerated methods over the estimated useful lives of the assets. Additions and betterments are capitalized and charges for repairs and maintenance are expensed when incurred. The cost and accumulated depreciation or amortization is eliminated from the accounts when an asset is sold or retired and the resultant gain or loss is credited or charged to income. Premises and equipment have estimated useful lives ranging from 3 to 39 years. We capitalize the cost of imputed interest we incur for significant real estate construction and development and charge the amount of capitalized interest to depreciation expense on a straight-line basis over the useful life of the asset. Capitalized interest is computed and capitalized based on the average invested amount in the development project over the construction period at the rate of the Company's incremental borrowing cost for the construction period.

Bank Owned Life Insurance ("BOLI")

        Bank owned life insurance is carried at the aggregate cash surrender value of life insurance policies owned where the Company or its subsidiaries are named beneficiaries. Increases in cash surrender value derived from crediting rates for underlying insurance policies is credited to noninterest income. We adopted Emerging Issues Task Force ("EITF") Issue No. 06-4, Accounting for Deferred Compensation and Postretirement Benefit Aspects of Endorsement Split-Dollar Life Insurance Arrangements, effective January 1, 2007 for BOLI. The adoption of this Issue resulted in the recording of a cumulative effect of accounting change as a reduction to retained earnings of $135,000.

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Borrowings

        In conjunction with our adoption of SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities—Including an amendment of FASB Statement No. 115, as of January 1, 2007, we began recording certain of our long-term borrowings at fair value, with corresponding changes in fair values recorded in income. On January 1, 2007, we recorded a cumulative effect of accounting change reduction to retained earnings in the amount of $1.315 million (net of deferred tax impact) related to $60.000 million in borrowings that we began recording at fair value.

Comprehensive Income

        Comprehensive income includes all changes in stockholders' equity during a period, except those relating to investments by and distributions to stockholders. Our comprehensive income consists of net earnings and unrealized gains and losses on securities available for sale and interest rate swaps and is presented in Note 20. Accumulated other comprehensive income is displayed as a separate component of stockholders' equity.

Income Taxes

        Deferred income taxes are recognized for the tax consequences of temporary differences between financial statement carrying amounts and the tax bases of assets and liabilities. Deferred income taxes are provided on income and expense items when they are reported for financial statement purposes in periods different from the periods in which these items are recognized in the income tax returns. Deferred tax assets are recognized only to the extent that it is more likely than not that such amounts will be realized based upon consideration of available evidence, including tax planning strategies and other factors.

        We adopted FASB Interpretation ("FIN") 48, Accounting for Uncertainty in Income Taxes, as of January 1, 2007. A tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the "more likely than not" test, no tax benefit is recorded. The adoption had no material effect on our consolidated financial statements.

        We recognize interest and penalties related to income tax matters in income tax (benefit) expense.

Net (Loss) Income Per Share

        Our basic (loss) income per share is computed by dividing net (loss) income available to common stockholders by the weighted-average number of common shares outstanding during the year. Diluted (loss) income per share is computed after adjusting the denominator of the basic (loss) income per share computation for the effect of all dilutive potential common shares outstanding during the period. The dilutive effects of options, warrants and their equivalents are computed under the "treasury stock" method, and are provided in Note 16.

Stock-Based Compensation

        In January 2006, we adopted SFAS No. 123R, Share-Based Payment (Revised 2004), for our stockholder-approved Long-Term Incentive Plan, which permits the grant of share options and shares to our directors and key employees. We made the transition to fair value-based compensation using the modified version of the prospective application, which means the fair value-based method prescribed under SFAS 123R applies to new awards, modification of previous awards, repurchases and cancellations after January 1, 2006 and to any awards that retain service requirements after January 1, 2006.

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Loan Servicing

        We recognize as assets the rights to service mortgage loans for others ("MSRs") based on their estimated fair value at the time of sale of the underlying mortgage loan. We account for MSRs in accordance with SFAS No. 156, Accounting for Servicing of Financial Assets—an amendment of FASB Statement No. 140. Fair value is determined through a review of valuation assumptions that are supported by market and economic data collected from various outside sources.

        Amortization of MSRs is recorded based on the cash flows as estimated by future net servicing income, including the write-off of MSRs associated with loans that are paid in full. The projected future cash flows are calculated and updated monthly by applying market-based assumptions. Impairment for MSRs is determined based on the fair value of the rights, stratified by predominate risk characteristics. Any impairments would be recognized through a valuation allowance with a corresponding charge recorded in income.

Advertising

        We expense our advertising costs as incurred, except payments for major sponsorships which are amortized over an estimated life not to exceed one year. Advertising expenses were $921,000, $1.219 million, and $1.341 million for the years ended December 31, 2008, 2007, and 2006, respectively.

Derivatives and Hedging Activities

        We account for derivates in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, as amended. We designate a derivative as held for trading, an economic hedge not designated as a SFAS 133 hedge, or a qualifying SFAS 133 hedge when we enter into the derivative contract. The designation may change based upon management's reassessment or changing circumstances. Derivatives utilized by the Company include swaps, interest rate lock commitments, and forward settlement contracts. A swap agreement is a contract between two parties to exchange cash flows based on specified underlying notional amounts, assets and/or indices. Interest rate lock commitments occur when we originate mortgage loans with interest rates determined prior to funding. Forward settlement contracts are agreements to buy or sell a quantity of a financial instrument, index, currency or commodity at a predetermined future date, and rate or price.

        We designate at inception whether a derivative contract is considered hedging or non-hedging for SFAS 133 accounting purposes. All of our derivatives are non-exchange traded contracts, and as such, their fair value is based on dealer quotes, pricing models, discounted cash flow methodologies, or similar techniques for which the determination of fair value may require significant management judgment or estimation.

        For SFAS 133 hedges, we formally document at inception all relationships between hedging instruments and hedged items, as well as risk management objectives and strategies for undertaking various accounting hedges. We utilize derivatives to manage interest rate sensitivity in certain cases. These cash flow hedges are used to minimize the variability in cash flows of assets or liabilities, or forecasted transactions caused by interest rate or foreign exchange fluctuation. We use dollar offset or regression analysis at the hedge's inception and for each reporting period thereafter to assess whether the derivative used in a hedging transaction is expected to be, and has been, effective in offsetting changes in the fair value of the hedged item. We would discontinue hedge accounting if it were determined that a derivative is not expected to be, or has ceased to be, effective as a hedge.

        We recognize gains and losses on swap contracts in the Consolidated Statement of Financial Condition in accumulated other comprehensive income, net of tax effects; such gains and losses are reclassified into the line item in the Consolidated Statement of Operations in which the hedged item is recorded in the same period the hedged item affects earnings. Hedge ineffectiveness and gains and

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losses on the excluded component of a derivative in assessing hedge effectiveness are recorded in earnings in the same income statement line item that is used to record hedge effectiveness. We recognize any gains and losses on interest rate lock commitments or forward sales commitments on residential mortgage originations through mortgage-banking revenue in the Consolidated Statements of Operations.

Legal Accrual

        The FDIC is investigating the Bank to determine whether the Bank overcharged certain borrowers in 2005, 2006, and 2007 in violation of the federal Equal Credit Opportunity Act and the federal Fair Housing Act and whether its marketing and disclosure materials used in 2006 and 2007 with respect to certain loans were misleading in violation of federal trade practices laws. In connection with this investigation, we anticipate that the FDIC will require the Bank to pay restitution to impacted borrowers and pay a civil money penalty. We have set aside $1.040 million for restitution and the penalty, although no assurance can be given that this amount will ultimately prove to be the final amount we are required to pay. We expect that this matter will be finalized during 2009.

(2) Restrictions on Cash and Due From Banks

        The Bank is required by the Federal Reserve System ("FRB") to maintain certain cash reserve balances based principally on deposit liabilities. At both December 31, 2008 and 2007, the required reserve balance was $1.000 million. The Bank has also pledged $6.000 million and $3.092 million in cash against the long-term FHLB borrowings and for exposure on debit card transactions, respectively, as of December 31, 2008.

(3) Securities

        The composition of our securities portfolio is as follows at December 31:

		2008
(dollars in thousands)		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Available for Sale:
	Mortgage-backed securities	$	22,423	$	609	$	784	$	22,248
	Trust preferred securities		20,460		—		7,594		12,866
	Equity securities		549		—		298		251
	U.S. Treasury securities		1,000		3		—		1,003
	Corporate obligations		2,675		—		127		2,548
	Foreign government bonds		750		—		—		750
		$	47,857	$	612	$	8,803		39,666
Trading:
	Mortgage-backed securities								12,566
								$	52,232

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		2007
(dollars in thousands)		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Available for Sale:
	Mortgage-backed securities	$	18,184	$	250	$	355	$	18,079
	Trust preferred securities		21,872		2		2,840		19,034
	Equity securities		549		—		71		478
	U.S. Treasury securities		999		18		—		1,017
	Obligations of state and municipal subdivisions		2,934		41		—		2,975
	Corporate obligations		1,957		—		42		1,915
	Foreign government bonds		1,500		—		—		1,500
		$	47,995	$	311	$	3,308		44,998
Trading:
	Mortgage-backed securities								36,950
								$	81,948

        Contractual maturities of debt securities at December 31, 2008 are shown below. Actual maturities may differ from contractual maturities because borrowers have the right to call or prepay obligations with or without call or prepayment penalties.

(dollars in thousands)		Amortized Cost		Estimated Fair Value
Available for Sale:
	Due in one year or less	$	1,400	$	1,403
	Due after one year through five years		3,025		2,898
	Due after ten years		20,460		12,866
	Mortgage-backed securities		22,423		22,248
		$	47,308		39,415
Trading:
	Mortgage-backed securities				12,566
				$	51,981

        The following table shows the level of our gross unrealized losses and the fair value of the associated securities by type and maturity for securities available for sale at December 31, 2008:

	Less than 12 months				12 months or more				Total
(dollars in thousands)	Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses		Estimated Fair Value		Unrealized Losses
Mortgage-backed securities	$	4,253	$	711	$	3,281	$	73	$	7,534	$	784
Trust preferred securities		5,539		1,125		7,327		6,469		12,866		7,594
Corporate obligations		2,548		127		—		—		2,548		127
Equity securities		—		—		251		298		251		298
	$	12,340	$	1,963	$	10,859	$	6,840	$	23,199	$	8,803

        For securities available for sale, gross unrealized losses totaled $8.803 million as of December 31, 2008 and equaled 37.9% of the fair value of securities with unrealized losses as of this date. A total of 26 securities were in an unrealized loss position as of December 31, 2008, with the largest single unrealized loss in any one security totaling $2.017 million. Ten securities were in an unrealized loss position for twelve months or more. We recorded other-than-temporary-impairment ("OTTI") charges of $5.605 million during 2008.

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        The trust preferred securities that we hold in our securities portfolio are issued by other banks and bank holding companies. Certain of these securities have experienced declines in value since acquisition. These declines have occurred primarily over the past year due to changes in the market which has limited the demand for these securities and reduced their liquidity. While some of these issuers have reported weaker financial performance since acquisition of these securities, they continue to possess acceptable credit risk in management's opinion. We recorded OTTI charges of $4.581 million on positions in pooled trust preferred collateralized debt obligations during 2008. We determined that the remaining trust preferred securities were temporarily impaired as of December 31, 2008.

        All of the remaining securities that are temporarily impaired are impaired due to declines in fair values resulting from changes in interest rates or increased credit/liquidity spreads since the time they were purchased. The duration and severity of the declines in value have also been considered. We have the ability to hold these securities to maturity, or, for equity securities, for the foreseeable future, and we expect these securities will be repaid in full, with no losses realized. As such, management does not consider the impairments to be other-than-temporary.

        During 2008, 2007, and 2006, we recognized gross losses on the sale of securities of $50,000, $0, and $3.063 million, respectively. During 2008, 2007, and 2006, we recognized gross gains on sale of securities of $279,000, $943,000, and $26,000, respectively.

        At December 31, 2008, we held securities with an aggregate carrying value (fair value) of $28.083 million that we have pledged as collateral for certain borrowings and customer deposits.

(4) Loans Receivable and Allowance for Loan Losses

        Approximately 86% of our loans receivable are to customers located in the state of Maryland. Loans are extended only after evaluation by management of customers' creditworthiness and other relevant factors on a case-by-case basis. For loans with real estate collateral, we generally do not lend more than 90% of the appraised value of a property and require private mortgage insurance on residential mortgages with loan-to-value ratios in excess of 80%. In addition, we generally obtain personal guarantees of repayment from our borrowers and/or others for construction, commercial, and multi-family residential loans and disburse the proceeds of construction and similar loans only as work progresses on the related projects.

        We generally consider our residential lending to involve less risk than other forms of lending, although our payment experience on these loans is dependent, to some extent, on economic and market conditions in our primary lending area. However, in 2008 and 2007, loss levels on residential real estate loans were significantly higher than on other loan types due to the significant declines in residential real estate values and higher defaults experienced in this portfolio. Commercial and construction loan repayments are generally dependent on the operations of the related properties or the financial condition of its borrower or guarantor. Accordingly, repayment of such loans can be more susceptible to adverse conditions in the real estate market and the regional economy.

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        Loans receivable are summarized as follows at December 31:

(dollars in thousands)		2008			2007
Loans secured by first mortgages on real estate:
	Residential	$	138,551		$	84,973
	Commercial		319,591			280,102
	Consumer residential construction		69,496			86,430
	Commercial construction		109,773			129,647
			637,411			581,152
Commercial			90,896			72,356
Loans secured by second mortgages on real estate			135,873			98,833
Consumer			112,941			100,671
Loans secured by deposits and other			3,526			2,430
	Total loans		980,647			855,442
Unamortized loan discounts, net			(386	)		(445	)
Unearned loan fees, net			(1,565	)		(77	)
		$	978,696		$	854,920

        Included in consumer loan totals in the above table are overdrawn commercial and retail checking accounts totaling $378,000 and $458,000 as of December 31, 2008 and 2007, respectively. Included in net unearned loan fees and costs in the above table is unearned income on installment loans of $2.674 million and $1.114 million as of December 31, 2008 and 2007, respectively.

        In accordance with SFAS No. 65, Accounting for Certain Mortgage Banking Activities, any loans which are originally originated for sale into the secondary market and which we subsequently elect to transfer into the Company's loan portfolio are valued at fair value at the time of the transfer with any decline in value recorded as a charge to operating expense.

        Information on the activity in transferred loans and related accretable yield is as follows for the years ended December 31:

	Loan Balance						Accretable Yield						Total
(dollars in thousands)	2008			2007			2008			2007			2008			2007
Beginning balance	$	16,907		$	43		$	1,114		$	—		$	15,793		$	43
Additional transfers		1,655			17,860			197			1,175			1,458			16,685
Loans moved to real estate acquired through foreclosure		(1,338	)		(79	)		(47	)		—			(1,291	)		(79	)
Charge-offs		(1,314	)		(794	)		(8	)		—			(1,306	)		(794	)
Payments/amortization		(469	)		(123	)		(425	)		(61	)		(44	)		(62	)
Ending balance	$	15,441		$	16,907		$	831		$	1,114		$	14,610		$	15,793

        The following table provides information concerning nonperforming assets and past-due loans at December 31:

(dollars in thousands)	2008		2007
Nonaccruing loans	$	38,763	$	24,389
Real estate acquired through foreclosure		18,994		18,981
Total nonperforming assets	$	57,757	$	43,370
Loans past-due 90 days or more and accruing	$	9,679	$	3,019

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        The interest income which would have been recorded on nonaccrual loans if those loans had been performing in accordance with their contractual terms was approximately $4.737 million, $2.778 million, and $388,000 in 2008, 2007, and 2006, respectively. The actual interest income recorded on these loans in 2008, 2007, and 2006 was approximately $1.264 million, $731,000, and $159,000, respectively.

        Commercial loans we consider impaired at December 31, 2008 and 2007 totaled $26.695 million and $14.447 million, respectively. The reserve for loan losses for commercial impaired loans was approximately $1.264 million at December 31, 2008 and $241,000 at December 31, 2007. The average recorded investment in commercial impaired loans was approximately $21.530 million, $14.287 million, and $1.412 million for the years ended December 31, 2008, 2007, and 2006, respectively, and no income has been accrued or collected on the majority of these loans while they have been classified as impaired.

        The following table shows the breakout of commercial impaired loans at December 31:

(dollars in thousands)	2008		2007
Impaired loans with allowance for loan losses allocated in accordance with SFAS 114	$	8,155	$	2,268
Impaired loans with no allowance for loan losses allocated in accordance with SFAS 114		18,540		12,179
	$	26,695	$	14,447

        Consumer loans we consider impaired at December 31, 2008 and 2007 totaled $20.945 million and $33.529 million, respectively. The reserve for loan losses for consumer impaired loans was approximately $1.444 million at December 31, 2008 and $2.303 million at December 31, 2007. The average recorded investment in consumer impaired loans was approximately $26.214 million, $26.071 million, and $0 for the years ended December 31, 2008, 2007, and 2006, respectively, and no income has been accrued or collected on the majority of these loans while they have been classified as impaired.

        The following table shows the breakout of consumer impaired loans at December 31:

(dollars in thousands)	2008		2007
Impaired loans with allowance for loan losses allocated in accordance with SFAS 114	$	7,410	$	10,654
Impaired loans with no allowance for loan losses allocated in accordance with SFAS 114		13,535		22,875
	$	20,945	$	33,529

        Troubled debt restructures ("TDRs"), which are loans that have been restructured due to the borrower's inability to maintain a current status on the loan, for 2008 that are not included in the nonaccrual balance above amounted to approximately $9.074 million for 2008 and $10.474 million for 2007. Our troubled debt restructures are generally reviewed individually, in accordance with SFAS No. 114, Accounting by Creditors for Impairment of a Loan, to determine impairment, accrual status, and the need for specific reserves. For collateral dependent loans, we utilize the fair value of the collateral in determining impairment. For noncollateral dependent loans, we calculate the present value of expected future cash flows to determine fair value and impairment. We initially measure impairment of TDRs on a loan-by-loan basis. All of our TDRs as of December 31, 2008 and December 31, 2007 were collateral dependent and, therefore, any impairment was determined using the fair value of the collateral. The interest income which would have been recorded on TDRs if those loans had been handled in accordance with their contractual terms was approximately $916,000 in 2008 and $588,000 in

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2007 and the actual interest income recorded on these loans in 2008 and 2007 was $496,000 and $186,000, respectively.

        Changes in the allowance for losses on loans are summarized as follows for the years ended December 31:

(dollars in thousands)	2008			2007			2006
Balance at beginning of year	$	12,789		$	12,399		$	11,743
Provision for loan losses		14,783			8,915			2,315
Charge-offs		(11,466	)		(8,989	)		(2,025	)
Recoveries		392			464			366
Allowance for acquired loans		279			—			—
Balance at end of year	$	16,777		$	12,789		$	12,399

        At December 31, 2008, we have pledged loans with a carrying value of $263.995 million as collateral for FHLB advances and the consumer finance line of credit.

(5) Mortgage Servicing Rights

        We retain servicing on certain loans we sell into the secondary market. At December 31, 2008, 2007, and 2006 our servicing portfolio totaled $173.643 million, $110.397 million, and $1.436 million, respectively. Of the amounts serviced as of December 31, 2008, $172.532 million relates to servicing of reverse mortgage loans sold to Fannie Mae. Servicing loans for others generally consists of collecting mortgage payments (or disbursing payments in the case of reverse mortgages), disbursing payments to investors, and foreclosure processing. Loan servicing income is recorded upon receipt and includes servicing fees from investors and certain charges collected from borrowers, such as late payment fees. MSRs arise from contractual agreements between the Bank and investors in mortgage loans. Under these agreements, we perform loan servicing functions in exchange for fees and other remuneration. We recognized $374,000, $553,000, and $0 in contractual mortgage servicing income in 2008, 2007, and 2006, respectively.

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        A summary of the key economic assumptions used to measure total MSRs as of December 31, 2008 and 2007 and the sensitivity of the fair values to adverse changes in those assumptions follows (dollars in thousands):

	2008			2007
Fair value of MSRs	$	1,081		$	670
Weighted-average life (in years) (1)		4.9			5.5
Discount rate		6.75	%		8.25	%
Option-adjusted spread ("OAS")		2.75	%		2.75	%
Sensitivity Analysis
Discount Rate Assumption (Change in OAS):
Decrease in fair value from 100bp adverse change	$	32		$	20
Decrease in fair value from 200bp adverse change		62			40
Decrease in fair value from 300bp adverse change		90			58
Prepayment Speed Assumption (Assumed Age Borrower Vacates Property)
Decrease in fair value from 5-year adverse change	$	228		$	130
Decrease in fair value from 10-year adverse change		503			309
Decrease in fair value from 15-year adverse change		768			474

(1)

The majority of our MSRs are related to reverse mortgages for which there are no calculable contractual lives

        The value of MSRs is derived from the net positive cash flows associated with the servicing contracts. The Company receives a net servicing fee of generally $240 per loan annually. The precise market value of MSRs cannot be readily determined because these assets are not actively traded in stand-alone markets. Our MSRs valuation process uses a discounted cash flow model combined with analysis of current market data to arrive at an estimate of fair value at each balance sheet date. The key assumptions used in the valuation of MSRs include mortgage prepayment speeds (average lives), which are a function of the age of the borrower, and the discount rate (projected LIBOR plus option-adjusted spread). Changes in fair value based on variations in assumptions generally cannot be extrapolated because the relationship of the change in assumption to the change in fair value may not be linear. Also, the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, changes in one factor may result in changes in another, which might magnify or counteract the sensitivities. The discount rate used to determine the present value of estimated future net servicing income represents the required rate of return investors in the market would expect for an asset with similar risk.

        We did not have any servicing rights or related amortization for the year ended December 31, 2006. The following is the activity of MSRs for the years ended December 31, 2008 and 2007:

(dollars in thousands)	2008			2007
Balance at beginning of year	$	670		$	—
Originated MSRs		519			732
Amortization		(97	)		(55	)
Net change in fair value due to pay-offs		(11	)		(7	)
Balance at end of year	$	1,081		$	670

        No valuation allowances were required at December 31, 2008 or 2007 for MSRs. The value of originated MSRs are included in our statements of operations under the caption "origination fees and

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gain on sale of mortgage loans." Servicing income, net of amortization and changes in fair value, are included in the caption entitled "other mortgage-banking revenue."

(6) Credit Commitments

        Commitments to extend credit are agreements to lend to customers, provided that terms and conditions established in the related contracts are met. At December 31, 2008 and 2007, we had commitments to originate first mortgage loans on real estate of approximately $166.894 million and $24.444 million, respectively, most of which were committed for sale in the secondary market.

        At December 31, 2008 and 2007, we also had commitments to loan funds under unused home equity lines of credit aggregating approximately $75.244 million and $79.660 million, respectively, and unused commercial lines of credit, retail checking lines of credit, as well as unfunded construction, commercial, and consumer commitments aggregating approximately $92.402 million and $96.656 million, respectively. Such commitments generally carry a fixed rate of interest, while home equity lines of credit are generally variable.

        Commitments for first mortgage loans generally expire within 60 days and are normally funded with loan principal repayments, excess liquidity, and deposits. Since certain commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent our future cash requirements.

        Substantially all outstanding commitments at December 31, 2008 and 2007 are for loans to be secured by real estate with appraised values in excess of the commitment amounts. Our exposure to credit loss under these contracts in the event of nonperformance by the other parties is represented by the commitment amounts, assuming the collateral has no value.

        Letters of credit are commitments issued to guarantee the performance of a customer to a third party. At December 31, 2008 and 2007, letters of credit totaled $4.151 million and $4.973 million, respectively.

(7) Derivatives and Hedging

        We maintain and account for hedging derivatives, in the form of interest rate swaps ("swaps"), interest rate lock commitments, and forward sales commitments, in accordance with SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities. We recognize any gains and losses on interest rate lock commitments or forward sales commitments through mortgage-banking revenue in the Consolidated Statement of Operations. We recognize gains and losses on swap contracts in the Consolidated Statement of Financial Condition in accumulated other comprehensive income, net of tax effects.

        During 2008, we modified interest rate swaps with a notional amount of $20.000 million that were scheduled to mature during fiscal year 2011. As a result of the modification, we received cash proceeds and recorded a deferred gain of $143,000. In accordance with SFAS No. 133, the gain will be amortized to interest expense on borrowings over the remaining life of the borrowings that were originally hedged by the modified interest rate swap agreements.

        See Note 18 for carrying value and fair value information on our derivatives and hedges.

(8) Related Party Transactions

        During the ordinary course of business, we make loans to our directors and their affiliates and several of our policy making officers on substantially the same terms, including interest rates and

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collateral, as those prevailing for comparable transactions with other customers. During the years ended December 31, 2008, 2007, and 2006, transactions in related party loans were as follows:

(dollars in thousands)	2008			2007			2006
Beginning balance	$	25		$	23		$	1,628
Additions		2,324			8			23
Repayments		(4	)		(6	)		(957	)
Change in officers/directors		366			—			(671	)
	$	2,711		$	25		$	23

        Unused loan commitments to directors and policy making officers totaled $1.592 million as of December 31, 2008 and $594,000 as of December 31, 2007. Letters of credit included in the unused loan commitments above and in the totals in Note 6 above issued on behalf of directors and policy making officers totaled $400,000 for December 31, 2007. There were no such comparable letters of credit as of December 31, 2008.

        We currently lease 84,000 square feet of a building owned by Edwin F. Hale, Sr., CEO of the Company, for our executive offices and various operational departments. We paid $2.654 million, $2.364 million, and $1.091 million in rent on this location in 2008, 2007, and 2006, respectively.

        We leased from Hale Properties, LLC, a company owned by Mr. Hale, 34,500 square feet of general office space at 1516 Baylis Street, Baltimore, Maryland, which housed a significant portion of the Company's servicing and operations units. We vacated this space before the end of 2006, moving our operational divisions into the new executive office tower on South Clinton Street and into our old executive office building on Boston Street. We paid $209,000 in rent expense on this location in 2006.

        We also leased 18,400 square feet of storage space and disaster recovery facilities at two other locations owned by Mr. Hale. In 2008, 2007, and 2006, we paid $24,000, $75,000, and $86,000, respectively, in rent for these facilities. During 2008, Mr. Hale sold the storage facility to an unaffiliated third party.

        The Bank sponsors the activities of the Baltimore Blast, a professional soccer team owned by Mr. Hale. The Bank paid approximately $176,000 in 2008, $175,000 in 2007, and $176,000 in 2006 for a sponsorship package which includes printed material and Bank banners displayed at Baltimore Blast games, prize giveaways, free tickets, and employee recognition nights. In addition to the Bank sponsorship, Mariner Finance paid approximately $20,000 in each of 2008, 2007, and 2006 in sponsorship of Baltimore Blast activities.

        We have obtained the naming rights to the major indoor sports/entertainment facility in Baltimore from Mr. Hale who obtained them from the City of Baltimore. We pay Mr. Hale $75,000 per year for the naming rights, which is the same as Mr. Hale pays the City of Baltimore. We have a letter of credit with the City of Baltimore in the amount of $375,000 securing performance under the contract.

        All related party transactions are subject to review by management and the Audit Committee and approved by the full Board of Directors. We believe that the terms for all related party transactions are at least as favorable as those that could be obtained from a third party.

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(9) Premises and Equipment

        We own property and equipment as follows at December 31:

(dollars in thousands)	2008			2007
Land	$	10,554		$	10,982
Buildings and improvements		27,965			26,927
Leasehold improvements		10,346			9,986
Furniture, fixtures, automobiles, and equipment		28,007			26,753
Total, at cost		76,872			74,648
Less: accumulated depreciation and amortization		(26,908	)		(22,433	)
Total premises and equipment	$	49,964		$	52,215

        Depreciation and amortization expense for the years ended December 31, 2008, 2007, and 2006 was $5.561 million, $5.240 million, and $4.744 million, respectively.

        We lease various branch and general office facilities to conduct our operations. The leases have remaining terms which range from a period of less than 1 year to 28 years. Most leases contain renewal options which are generally exercisable at increased rates. Some of the leases provide for increases in the rental rates at specified times during the lease terms, prior to the expiration dates.

        The leases generally provide for payment of property taxes, insurance, and maintenance costs by the Company. The total rental expense for all real property leases amounted to $6.082 million, $5.424 million, and $3.666 million for 2008, 2007, and 2006, respectively.

        Our minimum lease payments due for each of the next five years are as follows (1):

(dollars in thousands)
2009	$	5,481
2010		4,676
2011		3,870
2012		3,429
2013		3,002
Thereafter		11,108
	$	31,566

(1)

Includes an estimated 3% annual increase cap (based on the change in the consumer price index) on our headquarters lease

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(10) Deposits

        Deposits are summarized as follows at December 31:

			2008					2007
(dollars in thousands)			Amount		Weighted- Average Effective Rate			Amount		Weighted- Average Effective Rate
Noncertificate:
	Savings		$	51,550		0.33	%	$	51,917		0.31	%
	Interest-bearing demand			10,076		0.58	%		22,095		0.21	%
	Money market accounts			162,614		1.47	%		263,979		3.52	%
	Noninterest-bearing demand			114,751					149,710
Total noncertificate deposits				338,991					487,701
Certificates of deposit:
	Original maturities:
		Under 12 months		103,124		4.01	%		49,999		4.85	%
		12 to 60 months		452,669		4.07	%		322,298		4.51	%
	IRA and KEOGH			55,449		3.80	%		44,955		4.59	%
Total certificates of deposit				611,242					417,252
Total deposits			$	950,233				$	904,953

        Time deposits mature as follows:

	2008					2007
(dollars in thousands)	Amount		% of Total			Amount		% of Total
Within 6 months	$	200,367		32.78	%	$	162,025		38.83	%
Over 6 months - 12 months		206,153		33.73	%		136,747		32.77	%
Over 12 months - 24 months		123,622		20.23	%		58,520		14.03	%
Over 24 months - 36 months		39,333		6.43	%		49,777		11.93	%
Over 36 months - 48 months		9,297		1.52	%		4,380		1.05	%
Over 48 months		32,470		5.31	%		5,803		1.39	%
	$	611,242		100.00	%	$	417,252		100.00	%

        The Bank offers certain certificate products that provide customers a "one-time" withdrawal option that the customer may exercise at any time without penalty. As of December 31, 2008, certificates that permitted early withdrawal totaled $42.899 million.

        Certificates of deposit of $100,000 or more totaled $188.890 million and $156.668 million at December 31, 2008 and 2007, respectively.

(11) Borrowings

        Our borrowings consist of short-term and long-term advances from the FHLB, short-term promissory notes, a mortgage warehouse line of credit (closed in 2007), a mortgage loan, and a line of credit to finance consumer receivables.

        The FHLB advances are available under a specific collateral pledge and security agreement, which currently allows us to borrow up to 20% of the Bank's total assets and requires that we maintain collateral for all of our borrowings equal to 100% of advances. We may pledge as collateral specific

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first- and second-mortgage loans or commercial mortgages up to 10% of the Bank's total assets. For advances exceeding 10% of the Bank's total assets, additional collateral must be in the form of cash and/or securities. Long-term FHLB advances are fixed-rate instruments with various call provisions. Short-term advances are in the form of overnight borrowings with rates changing daily.

        We maintained a $75.000 million mortgage warehouse line of credit to assist in the funding of our mortgage-banking business that was secured by the pledging of loans from the Company's loans held for sale portfolio. The line of credit was closed in 2007.

        The line of credit for finance consumer receivables represents borrowings by Mariner Finance and is a line of credit maintained with a commercial bank which permits Mariner Finance to borrow up to $85.000 million at a variable rate of interest. The line of credit is secured by eligible receivables of Mariner Finance and is also guaranteed by First Mariner Bancorp. Other covenants relating to the line of credit require Mariner Finance to maintain predetermined levels of operating performance, credit quality, and equity levels, as well as other usual and customary requirements.

        The mortgage loan on our former headquarters building is with a commercial bank on which we pay a fixed rate of 5.58% until maturity in 2031. The carrying value of the property securing the loan was approximately $18.735 million as of December 31, 2008.

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        Certain information regarding our borrowings and repurchase agreements are as follows as of December 31:

(dollars in thousands)		2008			2007			2006
Amount outstanding at year-end:
	FHLB short-term advances	$	25,000		$	—		$	—
	FRB short-term borrowings		—			—			—
	Short-term promissory notes		18,128			37,509			40,298
	Mortgage warehouse line of credit		—			—			586
	Consumer finance line of credit		79,546			57,600			38,000
	FHLB long-term advances		89,073			88,123			85,000
	Mortgage loan		9,249			9,407			9,557
Weighted-average interest rate at year-end:
	FHLB short-term advances		2.49	%		—			—
	FRB short-term borrowings		—			—			—
	Short-term promissory notes		0.84	%		3.11	%		3.50	%
	Mortgage warehouse line of credit		—			—			6.07	%
	Consumer finance line of credit		3.78	%		6.65	%		8.41	%
	FHLB long-term advances		4.75	%		5.68	%		5.68	%
	Mortgage loan		5.58	%		5.58	%		5.58	%
Maximum outstanding at any month-end:
	FHLB short-term advances	$	35,000		$	—		$	173,500
	FRB short-term borrowings		—			—			—
	Short-term promissory notes		38,129			58,704			40,860
	Mortgage warehouse line of credit		—			16,878			45,602
	Consumer finance line of credit		79,546			57,600			38,000
	FHLB long-term advances		89,567			88,123			85,000
	Mortgage loan		9,395			9,546			9,689
Average outstanding:
	FHLB short-term advances	$	10,137		$	696		$	131,099
	FRB short-term borrowings		—			—			75
	Short-term promissory notes		26,184			39,614			30,814
	Mortgage warehouse line of credit		—			1,184			25,693
	Consumer finance line of credit		65,380			48,947			33,505
	FHLB long-term advances		88,695			86,513			85,000
	Mortgage loan		9,355			9,476			9,623
Weighted-average interest rate during the year:
	FHLB short-term advances		2.95	%		5.58	%		5.29	%
	FRB short-term borrowings		—			—			6.00	%
	Short-term promissory notes		1.78	%		3.00	%		2.35	%
	Mortgage warehouse line of credit		—			7.34	%		6.36	%
	Consumer finance line of credit		4.75	%		7.54	%		7.78	%
	FHLB long-term advances		4.91	%		5.67	%		5.56	%
	Mortgage loan		5.66	%		5.66	%		5.66	%

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        The principal maturities of long-term borrowings are as follows as of December 31, 2008:

(dollars in thousands)
2009	$	—
2010		64,073
2011		79,546
2012		—
2013		—
After 2013		34,249
	$	177,868

        The maturities listed in the above table for 2010 are callable immediately at the option of the issuer, while $25.000 million maturing after 2013 is callable beginning in 2010.

        We have pledged securities with a carrying value (fair value) of $28.083 million, loans with a carrying value of $263.995 million, and cash of $6.000 million as collateral for short-term promissory notes, FHLB advances, and the consumer finance line of credit.

(12) Junior Subordinated Deferrable Interest Debentures

        The following table shows the subordinated debt issued by First Mariner Bancorp and the related Trust Preferred Securities issued at December 31, 2008 (dollars in thousands):

Trust	Subordinated Debt Issued to Trust		Security Title	Trust Preferred Securities Issued by Trust		Date of Original Issue		Optional Redemption Date	Stated Maturity
MCT II	$	10,310	Floating rate Trust Preferred Securities	$	10,000		December 10, 2002	December 15, 2007	December 10, 2032
MCT III		14,949	5-year Fixed Trust Preferred Securities (1)		14,500		June 18, 2003	July 7, 2008	July 7, 2033
MCT IV		12,380	Floating rate Trust Preferred Securities		12,000		August 18, 2003	August 18, 2008	August 18, 2033
MCT V		10,310	Floating rate Trust Preferred Securities		10,000		September 25, 2003	October 8, 2008	October 8, 2033
MCT VI		10,310	Floating rate Trust Preferred Securities		10,000		October 21, 2004	January 7, 2010	January 7, 2035
MCT VII		5,155	Floating rate Trust Preferred Securities		5,000		August 18, 2005	September 15, 2010	September 15, 2035
MCT VIII		10,310	5-year Fixed Trust Preferred Securities		10,000		December 28, 2005	December 30, 2010	December 30, 2035
	$	73,724		$	71,500

(1)

Reset to floating rate in July, 2008

        First Mariner issued junior subordinated deferrable interest debentures to seven statutory trust subsidiaries, Mariner Capital Trust ("MCT") II, MCT III, MCT IV, MCT V, MCT VI, MCT VII, and MCT VIII (collectively, the "Trusts"). The Trusts are Delaware business trusts for which all the common securities are owned by First Mariner and which were formed for the purpose of issuing Trust Preferred Securities. In accordance with the provisions of FIN 46, Consolidation of Variable Interest Entities—an Interpretation of ARB No. 51, we have deconsolidated the Trusts, and their financial position and results of operations are not included in our consolidated financial position and results of operations. The terms payment and redemption of the debentures and related Trust Preferred Securities are substantially identical.

        The Trust Preferred Securities are mandatorily redeemable, in whole or in part, upon repayment of their underlying subordinated debt at their respective maturities or their earlier redemption. The junior subordinated deferrable interest debentures are redeemable prior to maturity at our option on or after their optional redemption dates.

        The Floating Rate Trust Preferred Securities issued by MCT II accrue interest at a variable rate of interest equal to the 3-month LIBOR rate plus 335 basis points. The Trust Preferred Securities issued

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by MCT III accrue interest at a variable rate of interest equal to 3-month LIBOR rate plus 325 basis points. The Floating Rate Trust Preferred Securities issued by MCT IV accrue interest at a variable rate of interest equal to the 3-month LIBOR rate plus 305 basis points. The Floating Rate Trust Preferred Securities issued by MCT V accrue interest at a variable rate of interest equal to the 3-month LIBOR rate plus 310 basis points. The Floating Rate Trust Preferred Securities issued by MCT VI accrue interest at a variable rate of interest equal to the 3-month LIBOR rate plus 205 basis points. The Floating Rate Trust Preferred Securities issued by MCT VII accrue interest at a variable rate of interest equal to the 3-month LIBOR rate plus 195 basis points. The Trust Preferred Securities issued by MCT VIII accrue interest at an initial fixed rate of interest of 6.26%, then reset on December 30, 2010 to the 3-month LIBOR rate plus 150 basis points.

        The interest expense (including amortization of the cost of issuance) on junior subordinated deferrable interest debentures was $4.640 million in 2008, $5.501 million in 2007, and $5.384 million in 2006. On December 22, 2008, we announced that we were electing to defer interest payments on the debentures, beginning with the January 7, 2009 payment. This deferment is permitted by the terms of the debentures and does not constitute an event of default thereunder. Interest on the debentures and dividends on the related Trust Preferred Securities continue to accrue and will have to be paid in full prior to the expiration of the deferral period. The total deferral period may not exceed 20 consecutive quarters.

        The junior subordinated deferrable interest debentures are the sole assets of the Trusts. First Mariner has fully and unconditionally guaranteed all of the obligations of the Trusts.

        Under applicable regulatory guidelines, a portion of the Trust Preferred Securities will qualify as Tier I capital, and the remaining portion will qualify as Tier II capital. Under applicable regulatory guidelines, $17.193 million of the outstanding Trust Preferred Securities qualify as Tier I capital and $41.350 million of the remaining Trust Preferred Securities qualify as Tier II capital at December 31, 2008. The total amount of our Trust Preferred Securities allowable as part of capital was limited to $58.543 million as of December 31, 2008.

(13) Employee Benefit Plans

(a)

Profit Sharing Plan

        We established a defined contribution plan in 1997, covering our employees meeting certain age and service eligibility requirements. The Plan provides for cash deferrals qualifying under Section 401(k). We made matching contributions to the plan which totaled $639,000, $583,000, and $530,000 in 2008, 2007, and 2006, respectively. As of December 31, 2008, we discontinued the company-match contributions.

(b)

Stock Options

        We have stock option plans, which provide for the granting of options to acquire First Mariner common stock to our directors and key employees. Option exercise prices are equal to or greater than the fair market value of the common stock on the date of the grant. As of December 31, 2008, options to purchase 823,683 shares of common stock were fully vested, options to purchase 26,000 shares of common stock vest over a three-year period, and options to purchase 1,236 shares of common stock vest over the next year. All options expire 10 years after the date of grant. There have been no modifications to the existing plan.

        We account for stock options issued under our stockholder-approved Long-Term Incentive Plan (the "Plan") in accordance with SFAS No. 123R, Share-Based Payment (Revised 2004). The plan permits the granting of share options and shares to our directors and key employees. We recognized stock based compensation cost of $72,000, $114,000, and $51,000 for the years ended December 31, 2008,

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2007, and 2006, respectively. We expect to incur $70,000 in additional stock based compensation expense related to the unvested portion of options over the next three years.

        Information with respect to stock options is as follows for the years ended December 31, 2008, 2007, and 2006:

	2008					Weighted- Average Remaining Contractual Term (in years)				2007					Weighted- Average Remaining Contractual Term (in years)
	Number of Shares			Weighted- Average Exercise Price				Aggregate Intrinsic Value (in thousands)		Number of Shares			Weighted- Average Exercise Price				Aggregate Intrinsic Value (in thousands)
Outstanding at beginning of year		813,788		$	12.47						793,022		$	12.84
Granted		55,600			5.32						42,950			7.85
Exercised		—			—						(2,650	)		10.88
Forfeited/cancelled		(18,469	)		8.27						(19,534	)		17.38
Oustanding at end of year		850,919			12.09		4.5	$	—		813,788			12.47		5.4	$	28
Exercisable at end of year		823,683			12.29		4.3	$	—		809,832			12.47		5.4	$	28

	2006					Weighted- Average Remaining Contractual Term (in years)
	Number of Shares			Weighted- Average Exercise Price				Aggregate Intrinsic Value (in thousands)
Outstanding at beginning of year		981,934		$	12.16
Granted		9,600			18.62
Exercised		(188,279	)		9.45
Forfeited/cancelled		(10,233	)		15.54
Oustanding at end of year		793,022			12.84		6.2	$	4,532
Exercisable at end of year		793,022			12.84		6.2	$	4,532

        The weighted average fair values of our option grants for the years ended December 31, 2008, 2007, and 2006 were $2.28, $3.57, and $5.71, respectively, on the dates of grants. The fair values of our options granted were calculated using the Black-Scholes-Merton option-pricing model with the following weighted average assumptions for the years ended December 31:

	2008			2007			2006
Dividend yield		—			—			—
Expected volatility		28.00	%		28.08	%		15.61	%
Risk-free interest rate		3.76	%		4.20	%		5.12	%
Expected lives		8 years			9.5 years			8 years

        There were no options exercised during 2008. The total intrinsic value of options exercised and the related tax benefit amounted to $11,300 and $0, respectively, during the year ended December 31, 2007 and $1.810 million and $585,000, respectively, during the year ended December 31, 2006. Proceeds from exercises of stock options amounted to $29,000 and $1.779 million for the years ended December 31, 2007 and 2006, respectively.

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        Options outstanding are summarized as follows at December 31, 2008:

Exercise Price	Options Outstanding (shares)		Weighted Average Remaining Contractual Life (in years)		Options Exercisable (shares)
$  4.00		1,200		2.0		1,200
4.15		13,600		9.3		13,600
5.41		17,531		9.0		17,531
5.50		93,500		2.1		93,500
5.63		40,750		1.2		40,750
5.70		42,000		9.2		16,000
6.25		3,000		1.4		3,000
6.45		400		2.5		400
7.10		3,500		2.3		3,500
7.40		250		2.7		250
8.69		10,000		0.9		10,000
9.16		850		3.0		850
9.86		1,350		3.8		1,350
10.45		118,000		3.0		118,000
10.50		3,000		0.5		3,000
10.70		650		3.2		650
11.68		167,000		4.0		167,000
11.75		11,500		0.1		11,500
11.95		700		4.1		700
12.03		3,500		3.3		3,500
12.10		6,000		3.3		6,000
13.00		700		4.3		700
13.33		8,900		8.3		7,664
13.52		4,000		4.3		4,000
16.67		5,900		6.3		5,900
16.70		1,800		6.8		1,800
16.95		2,400		4.8		2,400
17.45		39,388		7.0		39,388
17.77		199,950		6.1		199,950
18.20		6,150		5.3		6,150
18.38		33,000		5.0		33,000
18.94		2,450		7.9		2,450
19.30		8,000		7.3		8,000
		850,919				823,683

(c)

Stock Purchase

        We offer an employee stock purchase plan whereby our employees can purchase First Mariner common stock through payroll deductions. While our employee stock purchase plan provides for up to a 10% discount from market value at issuance, we do not recognize compensation expense on the discount as: substantially all employees that meet limited employment qualifications may participate in the plan on an equitable basis; the plan incorporates no option features, the purchase price is based solely on the market price of the shares at the date of purchase, and employees are permitted to cancel participation before the purchase date and obtain a refund of amounts previously paid and; the discount from the market price does not exceed the per-share amount of share issuance costs that

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would have been incurred to raise a significant amount of capital by a public offering. This plan was suspended effective October 1, 2008.

(14) Income Taxes

        Our income tax benefit consists of the following for the years ended December 31:

(dollars in thousands)	2008			2007			2006
Current	$	(23,501	)	$	(11,888	)	$	(2,737	)
Deferred		10,989			3,578			2,372
Income tax benefit	$	(12,512	)	$	(8,310	)	$	(365	)

        The income tax benefit is reconciled to the amount computed by applying the federal corporate tax rate of 35% in 2008 and 34% in 2007 and 2006 to (loss) income before taxes as follows for the years ended December 31:

	2008						2007						2006
(dollars in thousands)	Amount			Rate			Amount			Rate			Amount			Rate
Tax at statutory federal rate	$	(9,660	)		(35.0	)%	$	(6,247	)		(34.0	)%	$	530			34.0	%
State income taxes, net of federal income tax benefit		(1,559	)		(5.7	)%		(919	)		(5.0	)%		—			—
Change in valuation allowance		—			—			—			—			(321	)		(20.6	)%
Investment income		(29	)		(0.1	)%		(37	)		(0.2	)%		(46	)		(3.0	)%
Bank-owned life insurance		(527	)		(1.9	)%		(489	)		(2.7	)%		(380	)		(24.4	)%
Insurance income		(5	)		—			(55	)		(0.3	)%		(34	)		(2.2	)%
Federal and state income tax credits		(753	)		(2.7	)%		(168	)		(0.9	)%		(168	)		(10.8	)%
Other		21			0.1	%		(395	)		(2.1	)%		54			3.6	%
	$	(12,512	)		(45.3	)%	$	(8,310	)		(45.2	)%	$	(365	)		(23.4	)%

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        The tax effects of temporary differences between the financial reporting basis and income tax basis of assets and liabilities relate to the following at December 31:

(dollars in thousands)		2008		2007
Deferred tax assets:
	Allowance for losses on loans	$	6,771	$	5,045
	Amortization of intangible assets		93		103
	Valuation allowance and secondary marketing reserve		3,235		4,089
	State net operating loss carryforward		2,073		1,054
	Federal net operating loss carryforward		5,951		—
	Other-than-temporary impairment		2,262		—
	Nonaccrual interest		1,295		554
	Tax credit carryforward		193		—
Total deferred tax assets			21,873		10,845
Deferred tax liabilities:
	Depreciation		736		899
	Other		345		143
Total deferred tax liabilities			1,081		1,042
Net deferred tax asset attributable to operations			20,792		9,803
Unrealized loss on interest rate swap charged
	to other comprehensive income		484		—
Unrealized loss on investments charged
	to other comprehensive income		4,781		2,625
Net deferred tax assets		$	26,057	$	12,428

        We have net operating loss carryforwards for state and federal income tax purposes of approximately $39.000 million and $17.000 million, respectively, that are available to offset future taxable income. Management expects to fully realize the benefits of these tax loss carryforwards before their expiration.

        The Bank has earned significant state tax incentives through its participation in the One Maryland Economic Development ("One Maryland") and Job Creation Tax Credit programs. The tax incentives total $5.5 million based upon a confirmation received from the Maryland Department of Business and Economic Development. We will realize the benefits of the incentives in our reported earnings as the credits can be utilized, in accordance with accounting standards that govern the recognition of investment tax credits. The amount of the credit that we can utilize will be determined by the level of Maryland taxable income for the Bank only, and will be recognized as a reduction in our income tax expense. During 2008, we utilized $585,000 in credit related to this incentive program. Any unused One Maryland credits can be carried forward and will expire in 2016. The Job Creation Tax Credit can be carried forward for five years. The total amount of tax credits not utilized as of December 31, 2008 is approximately $3.515 million.

        The Bank has invested in a partnership that owns and manages seven affordable housing projects in the Mid-Atlantic area. Through its interest in the partnership, the Bank receives tax incentives in the form of Federal tax credits that can be used to offset current Federal income taxes. Tax credits associated with the limited partnership (assuming the 5% limited partnership interest currently owned by the Bank) is projected to total $1.599 million and will be available to the limited partners from January 2003 through December 2012. The annual tax credits anticipated to be available approximate $168,000. The Bank invested $1.5 million to obtain its 5% interest in the partnership in July of 2003, and recognized $168,000 in tax credits in both 2007 and 2006. As a result of tax losses incurred in 2008,

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credits of $168,000 were not realized and were carried forward. Total credits utilized to date through December 31, 2008 amounted to $754,000.

(15) Other Expenses

        The following summarizes our other noninterest expenses for the years ended December 31:

(dollars in thousands)	2008		2007		2006
Office supplies	$	779	$	728	$	747
Printing		673		573		602
Corporate insurance		722		560		517
FDIC premiums		887		605		109
Consulting fees		766		789		850
Marketing/promotion		628		821		1,059
Postage		932		949		906
Overnight delivery/courier		763		804		908
Security		195		258		233
Dues and subscriptions		493		522		562
Loan collection expenses		912		894		701
Regulatory compliance settlement		1,040		—		—
Loan origination expense		541		1,084		450
Director fees		289		254		224
Employee education and training		243		228		350
Automobile expense		306		252		256
Travel and entertainment		505		552		710
Other		2,057		2,066		1,863
	$	12,731	$	11,939	$	11,047

(16) Dividends and Earnings Per Share

        As a depository institution whose deposits are insured by the FDIC, the Bank may not pay dividends or distribute any of its capital assets while it remains in default on any assessment due the FDIC. The Bank currently is not in default under any of its obligations to the FDIC. As a commercial bank under the Maryland Financial Institution Law, the Bank may declare cash dividends from undivided profits or, with the prior approval of the Commissioner of Financial Regulation, out of surplus in excess of 100% of its required capital stock, after providing for due or accrued expenses, losses, interest, and taxes.

        First Mariner and the Bank, in declaring and paying dividends, are also limited insofar as minimum capital requirements mandated by regulatory authorities. First Mariner and the Bank comply with such capital requirements.

        First Mariner's current ability to pay dividends to stockholders is largely dependent upon the receipt of dividends from the Bank. Both federal and state laws impose restrictions on the ability of the Bank to pay dividends. Federal law prohibits the payment of a dividend by an insured depository institution if the depository institution is considered "under-capitalized" or if the payment of the dividend would make the institution "under-capitalized". For a Maryland state-chartered bank or trust company, dividends may be paid out of undivided profits or, with the prior approval of the Commissioner, from surplus in excess of 100% of required capital stock. Cash dividends may not be paid in excess of 90% of net earnings.

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        On December 22, 2008, First Mariner announced its election to defer interest payments under its outstanding junior subordinated deferrable interest debentures related to the Trust Preferred Securities. This deferred interest will have to be fully repaid before First Mariner can pay any cash dividends to stockholders. Additionally, First Mariner and the Bank have entered into agreements with their regulators which require, among other things, prior consultation with those regulators before dividends are paid. See Note 17.

        Information relating to the calculations of our (loss) earnings per common share is summarized as follows for the years ended December 31:

(dollars in thousands, except for per share data)	2008			2007			2006
Net (loss) income—basic and diluted	$	(15,088	)	$	(10,063	)	$	1,924
Weighted-average shares outstanding—basic		6,390,046			6,396,142			6,318,205
Dilutive securities—options and warrants		—			—			323,520
Adjusted weighted-average shares outstanding—dilutive		6,390,046			6,396,142			6,641,725
(Loss) earnings per share—basic	$	(2.36	)	$	(1.57	)	$	0.30
(Loss) earnings per share—diluted	$	(2.36	)	$	(1.57	)	$	0.29

        For the years ended December 31, 2008 and 2007, all options were antidilutive due to our realized net loss. For the year ended December 31, 2006, 8,600 options to purchase shares of common stock were antidilutive and excluded from the above computation.

(17) Regulatory Matters

        Various regulatory capital requirements administered by the federal banking agencies apply to First Mariner and the Bank. Failure to meet minimum capital requirements can initiate certain mandatory, and possibly additional discretionary, actions by regulators that, if undertaken, could have a direct material effect on our financial statements. Under capital adequacy guidelines and the regulatory framework for prompt corrective action, the Bank must meet specific capital guidelines that involve quantitative measures of assets, liabilities, and certain off-balance sheet items as calculated under regulatory accounting practices. The Bank's capital amounts and classification are also subject to qualitative judgments by the regulators about components, risk weightings, and other factors.

        Quantitative measures established by regulation to ensure capital adequacy require the Bank to maintain minimum amounts and ratios of Total and Tier 1 capital to risk-weighted assets, and of Tier 1 capital to average assets. Management believes, as of December 31, 2008, that the Bank meets all capital adequacy requirements to which it is subject. As of December 31, 2007, the Bank was "well capitalized" under the regulatory framework for prompt corrective action. During 2008, the realized net loss reduced capital to the point that as of December 31, 2008, the Bank was considered "adequately capitalized."

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        Our regulatory capital amounts and ratios as of December 31, 2008 and 2007, were as follows:

												To be Well Capitalized Under Prompt Corrective Action Provision
							Minimum Requirements for Capital Adequacy Purposes
		Actual Amount
(dollars in thousands)				Ratio			Amount		Ratio			Amount		Ratio
As of December 31, 2008
Total capital (to risk-weighted assets):
	Consolidated	$	110,650		9.9	%	$	89,212		8.0	%		111,515		10.0	%
	Bank		90,367		9.0	%		80,322		8.0	%		100,403		10.0	%
Tier 1 capital (to risk-weighted assets):
	Consolidated		55,325		5.0	%		44,606		4.0	%		66,909		6.0	%
	Bank		70,693		7.0	%		40,161		4.0	%		60,242		6.0	%
Tier 1 capital (to average fourth quarter assets):
	Consolidated		55,325		4.3	%		51,122		4.0	%		63,903		5.0	%
	Bank		70,693		6.0	%		47,052		4.0	%		58,815		5.0	%
As of December 31, 2007
Total capital (to risk-weighted assets):
	Consolidated	$	147,212		14.2	%	$	82,924		8.0	%		103,655		10.0	%
	Bank		96,638		10.4	%		74,076		8.0	%		92,595		10.0	%
Tier 1 capital (to risk-weighted assets):
	Consolidated		84,879		8.2	%		41,462		4.0	%		62,193		6.0	%
	Bank		79,510		8.6	%		37,038		4.0	%		55,557		6.0	%
Tier 1 capital (to average fourth quarter assets):
	Consolidated		84,879		6.9	%		49,330		4.0	%		61,663		5.0	%
	Bank		79,510		7.1	%		45,117		4.0	%		56,397		5.0	%

        The FDIC, through the Deposit Insurance Fund ("DIF"), insures deposits of accountholders up to $250,000. The Bank pays an annual premium to provide for this insurance. On October 3, 2008, as a part of the Emergency Economic Stabilization Act of 2008, this maximum was raised from $100,000 to $250,000 through December 31, 2009. Unless extended, the maximum will revert back to the $100,000 amount at December 31, 2009.

        The Bank is a member of the Federal Home Loan Bank System and is required to maintain an investment in the stock of the FHLB based on specific percentages of outstanding mortgages, total assets, or FHLB advances. Purchases and sales of stock are made directly with the Bank at par value.

        We have entered into agreements with the Federal Reserve Bank of Richmond, FDIC, and the Maryland Banking Commissioner. The material terms of these agreements require us to: (i) formulate a plan for the reduction and collection of adversely classified loans, nonaccrual loans, and delinquent loans and otherwise improve our asset quality; (ii) develop a policy for managing the real estate we acquire by foreclosure or by deed in lieu of foreclosure; (iii) periodically review the adequacy of our allowance for loan and lease losses; (iv) develop a plan for systematically reducing and monitoring our residential real estate acquisition, development, and construction loan portfolio; (v) develop and implement a profit and budget plan to improve our operating performance; (vi) develop a capital plan to maintain "well capitalized" status; (vii) submit plans to reduce parent company leverage; and (viii) submit plans to improve enterprise-wide risk management and effectiveness of internal audit programs. We have also agreed to provide the Federal Reserve Bank of Richmond advance notice involving significant capital transactions.

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        These agreements will subject us to increased regulatory scrutiny and may have an adverse impact on our business operations. Failure to comply with the provisions of these agreements may result in more restrictive actions from our regulators, including more secure and restrictive enforcement actions.

(18) Fair Value of Financial Instruments

        We group financial assets and financial liabilities measured at fair value in three levels, based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. These levels are:

Level 1	Valuations for assets and liabilities traded in active exchange markets. Valuations are obtained from readily available pricing sources for market transactions involving identical assets or liabilities.
Level 2	Valuations for assets and liabilities traded in less active dealer or broker markets. Valuations are obtained from third party pricing services for identical or comparable assets or liabilities which use observable inputs other than Level 1 prices, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

        The following table presents fair value measurements for assets, liabilities, and off-balance sheet items that are measured at fair value on a recurring basis as of December 31, 2008:

(dollars in thousands)	Carrying Value (Fair Value)		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)		Trading Gains and (Losses)			Total Changes In Fair Values Included In Period Earnings
Trading securities	$	12,566	$	—	$	12,566	$	—	$	136		$	136
Securities available for sale		39,666		—		37,159		2,507		—			(5,605	)(1)
Long-term borrowings at fair value		64,073		—		64,073		—		(950	)		(950	)
Interest rate swaps		61,199		—		61,199		—		—			—
Mortgage servicing rights		1,081		—		—		1,081		—			(11	)
Interest rate lock commitments		169,957		—		169,957		—		—			3,063
Forward contracts to sell mortgage-backed securities		98,496		—		98,496		—		—			(1,504	)

(1)

Represents other-than-temporary-impairment charges taken on certain Level 2 and Level 3 securities

Securities (trading and available for sale)

        The fair value of trading securities is based on bid quotations received from securities dealers or modeling utilizing estimated cash flows, depending on the circumstances of the individual security. The fair value of securities available for sale is based on bid quotations received from securities dealers, bid prices received from an external pricing service, or modeling utilizing estimated cash flows, depending on the circumstances of the individual security.

        Financial instruments are considered Level 3 when their values are determined using pricing models, discounted cash flow methodologies, or similar techniques and at least one significant model assumption or input is unobservable. Level 3 financial instruments also include those for which the

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determination of fair value requires significant management judgment or estimation. As of December 31, 2008, $2.507 million ($10.938 million par value) of our securities available for sale (four securities) were classified as Level 3, all of which are pooled trust preferred securities. The ongoing market environment has become increasingly inactive for these security types and made fair value pricing more subjective. The amount of Level 3 securities will likely continue to be a function of market conditions and additional security transfers from Level 2 to Level 3 could result if further market inactivity occurs.

        The following table details the four Level 3 securities:

								Current Rating/ Outlook (2)
			(1) Percent Subordinate			Remaining Par Value					(3) Auction Call Date	(4) Index
(dollars in thousands)	Class							Moody's	Fitch	Maturity
ALESCO Preferred Funding VII		C-1		9.33	%	$	1,000	Baa1/Neg	BBB+/Neg	7/23/2035	MAR 2015		3ML + 1.5	%
ALESCO Preferred Funding XI		C-1		6.46	%		4,938	Baa1/Neg	A-/Neg	12/23/2036	JUNE 2016		3ML + 1.2	%
MM Community Funding III		B		9.90	%		2,500	Ba3	BBB+/Neg	8/1/2031	N/A		6ML + 3.1	%
MM Community Funding IX		B-1		10.51	%		2,500	B3	A-/Neg	5/1/2033	N/A		3ML + 1.8	%

(1)

Indicates the estimated percentage of issued securities within the structure that are subordinate in payment of principal and interest to the notes owed by the bank

(2)

Ratings as of December 31, 2008

(3)

Under the terms of the offering, if the notes have not been redeemed in full prior to the indicated call date then an auction of the Collateral Debt Securities will be conducted and the collateral will be sold and the notes redeemed. If the auction is not successful, the Collateral Manager will conduct auctions on a quarterly basis until the rated notes are redeemed in full.

(4)

3/6ML—3 or 6 Month LIBOR. LIBOR (London Interbank Offered Rate)—daily reference rate based on the interest rates at which banks offer to lend unsecured funds to other banks in the London wholesale money market or interbank market

        Classification of Level 3 indicates that significant valuation assumptions are not consistently observable in the market and as such, fair values are derived using the best available data. We calculated fair value for these four securities by using a present value of future cash flows model, which incorporated assumptions as follows:

	Key Model Assumptions Used In Pricing
	Libor			Risk Free Rate (1)			Liquidity/Risk Premium (2)			Discount Rate (3)			Maturity (4)
ALESCO Preferred Funding VII		3.25	%		3.00	%		25.00	%		28.00	%		3/23/2015
ALESCO Preferred Funding XI		3.25	%		3.00	%		35.00	%		38.00	%		6/23/2016
MM Community Funding III		3.25	%		3.00	%		21.00	%		24.00	%		8/1/2031
MM Community Funding IX		3.25	%		3.00	%		21.00	%		24.00	%		5/1/2033

(1)

Indicates the interest rate that it is assumed can be obtained by investing in financial instruments with no default risk, a rate that is typically associated with an investment in U.S. Treasury obligations of comparable maturity

(2)

The risk of being unable to sell the instrument for cash at short notice without significant costs, usually indicative of the level of trading activity for a specific security or class of securities, combined with a deal specific credit risk premium

(3)

The discount rate is the sum of the risk free rate and the liquidity/risk premium. It represents the rate used to discount the series of cash flow payments (principal and interest) expected to be received over the life of the issue

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(4)

Maturity is call date, where appropriate

(dollars in thousands)	Model Result		Fair Value
ALESCO Preferred Funding VII	$	0.32	$	320
ALESCO Preferred Funding XI		0.21		1,037
MM Community Funding III		0.25		625
MM Community Funding IX		0.21		525
			$	2,507

        The following table shows the sensitivity of the fair value of the Level 3 securities to changes in the model assumptions:

	Estimated % Price Change Due To 3 Month LIBOR Rate (1)							Estimated % Price Change Due To Risk Free Interest Rate (1)
	(1.00)%			Base		1.00%		(1.00)%		Base		1.00%
ALESCO Preferred Funding VII		(8.80)	%		3.25%		8.80%		4.50%		3.00%		(4.20)	%
ALESCO Preferred Funding XI		(6.90)	%		3.25%		6.90%		3.70%		3.00%		(3.50)	%
MM Community Funding III		(15.40)	%		3.25%		15.40%		5.00%		3.00%		(4.60)	%
MM Community Funding IX		(19.50)	%		3.25%		19.50%		4.80%		3.00%		(4.30)	%

	Estimated % Price Change Due To Liquidity/Risk Premium Rate (1)
	(10.00)%		Base		10.00%
ALESCO Preferred Funding VII		59.00%		25.00%		(33.40)	%
ALESCO Preferred Funding XI		49.40%		35.00%		(27.90)	%
MM Community Funding III		84.80%		21.00%		(32.70)	%
MM Community Funding IX		82.40%		21.00%		(31.20)	%

(1)

The indicated pricing under each simulation assumes that all of the other key assumptions in the model are held constant. Percentage changes in price are approximations and should not be relied upon for investment purposes.

        At the end of the third quarter of 2008, we transferred the four securities discussed above to Level 3, primarily due to the lack of market activity for these securities. That lack of market activity made pricing more difficult as there were no true observable inputs to determine pricing.

        As of December 31, 2008, MSRs were classified as Level 3. We calculate the fair value of MSRs by using a present value of future cash flows model. Note 5 details our model assumptions and sensitivity analysis for MSRs.

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        The table below presents a reconciliation of financial instruments measured at fair value on a recurring basis using significant unobservable inputs (Level 3) during 2008:

(dollars in thousands)	Securities			MSRs
Balance at beginning of year	$	—		$	670
Additions to and transfers into Level 3		10,980			519
MSR amortization		—			(97	)
Total realized losses included in other comprehensive income		(4,581	)		(11	)
Total unrealized losses included in other comprehensive income		(3,892	)		—
Balance at end year	$	2,507		$	1,081

Servicing Rights

        Fair value of servicing rights are estimated based on the future servicing income of the servicing receivables utilizing management's best estimate of remaining loan lives and discounted at the original discount rate.

Derivative Loan Commitments

        Commitments to Originate Loans.    We engage an experienced third party to estimate the fair market value of our interest rate lock commitments ("IRLC"). IRLCs are valued based upon mandatory pricing quotes from correspondent lenders less estimated costs to process and settle the loan. Fair value is adjusted for the estimated probability of the loan closing with the borrower.

        Forward Sales of Mortgage-Backed Securities Contracts.    Fair value of these commitments is determined based upon the quoted market values of the securities.

        We may be required, from time to time, to measure certain other financial assets and liabilities at fair value on a nonrecurring basis. These adjustments to fair value usually result from application of lower-of-cost-or-market accounting or write-downs of individual assets. For assets measured at fair value on a nonrecurring basis as of December 31, 2008, the following table provides the level of valuation assumptions used to determine each adjustment and the carrying value of the assets:

(dollars in thousands)	Carrying Value		Quoted Prices (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Impaired Alt A loans	$	20,945	$	—	$	—	$	20,945
Other impaired loans		26,695		—		—		26,695
Real estate acquired through foreclosure		18,994		—		—		18,994

ALT A loans

        In accordance with AICPA SOP 03-3, Accounting for Certain Loans or Debt Securities Acquired in a Transfer, we record repurchased loans at their estimated fair value at the time of repurchase. At December 31, 2008, we maintained $6.335 million of ALT A loans repurchased in accordance with covenants in our sales agreements with investors. Such loans amounted to $17.736 million as of December 31, 2007. We did not repurchase any loans due to early payment default during 2008.

        In establishing the loan's estimated fair value, management makes significant assumptions concerning the ultimate collectibility of delinquent loans and their ultimate realizable value. While these projections are made with the most current data available to management, actual realized losses could differ due to the changes in the borrowers' willingness or ability to resolve the delinquency status,

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changes in the actual volume of future repurchases, changes in the real estate market, or changes in market values of those loans which are liquidated. We consider these collateral values to be estimated using Level 3 inputs. Management updates the assumptions utilized in determining fair value continually as greater experience becomes available.

        In accordance with SFAS No. 65, Accounting for Certain Mortgage Banking Activities, any loans which are originally originated for sale into the secondary market and which we subsequently elect to transfer into the Company's loan portfolio are valued at fair value at the time of the transfer with any decline in value recorded as a charge to operating expense. At December 31, 2008, we held $14.610 million in primarily ALT A loans in our portfolio that were transferred from loans held for sale at fair value. Such loans amounted to $15.793 million at December 31, 2007.

Impaired Loans

        Loans for which it is probable that the Company will not collect all principal and interest due according to contractual terms are measured for impairment in accordance with the provisions of SFAS No. 114, Accounting by Creditors for Impairment of a Loan. Allowable methods for estimating fair value include using the fair value of the collateral for collateral dependent loans or, where a loan is determined not to be collateral dependent, using the discounted cash flow method. In our determination of fair value, we have categorized both methods of valuation as estimates based on Level 3 inputs.

        If the impaired loan is identified as collateral dependent, then the fair value method of measuring the amount of impairment is utilized. This method requires obtaining a current independent appraisal or utilizing some other method of valuation for the collateral and applying a discount factor to the value based on our loan review policy and procedures.

        If the impaired loan is determined not to be collateral dependent, then the discounted cash flow method is used. This method requires the impaired loan to be recorded at the present value of expected future cash flows discounted at the loan's effective interest rate. The effective interest rate of a loan is the contractual interest rate adjusted for any net deferred loan fees or costs, premiums, or discounts existing at origination or acquisition of the loan.

        Management establishes a specific reserve for loans that have an estimated fair value that is below the carrying value. Impaired loans (including ALT As) had a carrying amount of $47.640 million as of December 31, 2008 and $47.976 million as of December 31, 2007, with specific reserves of $2.708 million as of December 31, 2008 and $2.544 million as of December 31, 2007.

        When there is little prospect of collecting either principal or interest, loans, or portions of loans, may be charged-off to the allowance for loan losses. Losses are recognized in the period an obligation becomes uncollectible. The recognition of a loss does not mean that the loan has absolutely no recovery or salvage value, but rather that it is not practical or desirable to defer writing off the loan even though partial recovery may be occur in the future. During 2008, the Company charged-off $7.525 million of impaired loans to the allowance for loan losses.

Real Estate Acquired Through Foreclosure

        We record foreclosed real estate assets at the lower of cost or estimated fair value on their acquisition dates and at the lower of such initial amount or estimated fair value less estimated selling costs thereafter. Estimated fair value is generally based upon independent appraisal of the collateral, listing prices supported by broker recommendation, or discounted based on various economic factors consistent with our loan review policies. We consider these collateral values to be estimated using Level 3 inputs. We held real estate acquired through foreclosure of $18.994 million as of December 31, 2008 and $18.981 million as of December 31, 2007. During 2008, we added $15.016 million, net of

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reserves, to real estate acquired through foreclosure and recorded write-downs, included in noninterest expense, of $4.400 million.

        The carrying value and estimated fair value of financial instruments as of December 31, 2008 and 2007 are summarized in the following table in accordance with the requirements of SFAS No. 107, Disclosures About Fair Value of Financial Instruments. Certain financial instruments disclosed previously in this footnote are excluded from this table.

		2008				2007
(dollars in thousands)		Carrying Value		Estimated Fair Value		Carrying Value		Estimated Fair Value
Assets:
	Cash and cash equivalents	$	67,339	$	67,339	$	91,321	$	91,321
	Loans held for sale		60,203		60,203		80,920		80,920
	Loans receivable		978,696		986,467		854,920		862,168
	Restricted stock investments		7,066		7,066		5,983		5,983
Liabilities:
	Deposits		950,233		964,077		904,953		906,719
	Long- and short-term borrowings		156,923		168,873		129,516		132,499
	Junior subordinated deferrable interest debentures		73,724		67,291		73,724		68,016

        Pricing or valuation models are applied using current market information to estimate fair value. In some cases considerable judgment is required to interpret market data to develop the estimates of fair value. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize in a current market exchange. The use of different market assumptions and/or estimation methods may have a material effect on the estimated fair value amounts.

Cash and Cash Equivalents

        The carrying amount for cash and cash equivalents approximates fair value due to the short maturity of these instruments.

Loans Held for Sale

        Loans held for sale are carried at the lower of cost or market, which may be indicated by the committed sales price for loans under contract to sell but are not yet funded or by third party quoted market values for loans not yet committed to be sold. Due to the short holding period of these loans, generally 14 to 60 days, the carrying amount of loans held for sale is a reasonable estimate of fair value.

Loans Receivable

        Loans were segmented into portfolios with similar financial characteristics. Loans were also segmented by type such as residential, multifamily, and nonresidential construction and land, second mortgage loans, commercial, and consumer. Each loan category was further segmented by fixed and adjustable rate interest terms and performing and nonperforming categories. The fair value of each loan category was calculated by discounting anticipated cash flows based on weighted-average contractual maturity, weighted-average coupon, and discount rate.

        The fair value for nonperforming loans was determined utilizing SFAS No. 114.

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Restricted Stock Investments

        The carrying value of restricted stock investments is a reasonable estimate of fair value as these investments do not have a readily available market.

Deposits

        The fair value of deposits with no stated maturity, such as noninterest-bearing deposits, interest-bearing NOW accounts, money market, and statement savings accounts, is deemed to be equal to the carrying amounts. The fair value of certificates of deposit is based on the discounted value of contractual cash flows. The discount rate for certificates of deposit was estimated using the rate currently offered for deposits of similar remaining maturities.

Long- and Short-Term Borrowings and Junior Subordinated Deferrable Interest Debentures

        Long- and short-term borrowings and junior subordinated notes were segmented into categories with similar financial characteristics. Carrying values were discounted using a cash flow approach based on market rates as of December 31, 2008.

Servicing Rights

        Fair value of servicing rights are estimated based on the future servicing income of the servicing receivables utilizing management's best estimate of remaining loan lives and discounted at the original discount rate.

Other Off-Balance Sheet Financial Instruments

        The disclosure of fair value amounts does not include the fair values of any intangibles, including core deposit intangibles. Core deposit intangibles represent the value attributable to total deposits based on an expected duration of customer relationships.

Limitations

        Fair value estimates are made at a specific point in time, based on relevant market information and information about financial instruments. These estimates do not reflect any premium or discount that could result from a one-time sale of our total holdings of a particular financial instrument. Because no market exists for a significant portion of our financial instruments, fair value estimates are based on judgments regarding future expected loss experience, current economic conditions, risk characteristics of various financial instruments, and other factors. These estimates are subjective in nature and involve uncertainties and matters of significant judgment and therefore cannot be determined with precision. Changes in assumptions could significantly affect estimates.

(19) Segment Information

        We are in the business of providing financial services, and we operate in three business segments—commercial and consumer banking, consumer finance, and mortgage-banking. Commercial and consumer banking is conducted through the Bank and involves delivering a broad range of financial services, including lending and deposit taking, to individuals and commercial enterprises. This segment also includes our treasury and administrative functions. Consumer finance is conducted through Mariner Finance, and involves originating small direct consumer loans and the purchase of retail installment sales contracts. Mortgage-banking is conducted through First Mariner Mortgage and Next Generation Financial Services, divisions of the Bank, and involves originating first- and second-lien residential mortgages for sale in the secondary market and to the Bank. The results of our subsidiary, FM Appraisals, are included in the mortgage-banking segment.

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        The following table presents certain information regarding our business segments:

For the year ended December 31, 2008

(dollars in thousands)		Commercial and Consumer Banking			Consumer Finance		Mortgage- Banking			Total
Interest income		$	59,609		$	20,987	$	3,447		$	84,043
Interest expense			32,442			3,381		2,174			37,997
	Net interest income		27,167			17,606		1,273			46,046
Provision for loan losses			5,701			3,927		5,155			14,783
	Net interest income (loss) after provision for loan losses		21,466			13,679		(3,882	)		31,263
Noninterest income			7,977			3,959		9,068			21,004
Noninterest expense			49,386			14,797		15,684			79,867
Net intersegment income			1,437			—		(1,437	)		—
Net (loss) income before income taxes		$	(18,506	)	$	2,841	$	(11,935	)	$	(27,600	)
Total assets		$	1,143,348		$	103,946	$	60,203		$	1,307,497

For the year ended December 31, 2007

(dollars in thousands)		Commercial and Consumer Banking			Consumer Finance		Mortgage- Banking			Total
Interest income		$	66,656		$	16,574	$	5,285		$	88,515
Interest expense			35,236			4,089		4,510			43,835
	Net interest income		31,420			12,485		775			44,680
(Reversal of) provision for loan losses			(367	)		2,215		7,067			8,915
	Net interest income (loss) after provision for loan losses		31,787			10,270		(6,292	)		35,765
Noninterest income			14,383			3,482		6,235			24,100
Noninterest expense			48,208			11,081		18,949			78,238
Net intersegment income			79			—		(79	)		—
Net (loss) income before income taxes		$	(1,959	)	$	2,671	$	(19,085	)	$	(18,373	)
Total assets		$	1,085,590		$	80,312	$	80,920		$	1,246,822

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For the year ended December 31, 2006

(dollars in thousands)		Commercial and Consumer Banking		Consumer Finance		Mortgage- Banking			Total
Interest income		$	73,808	$	14,063	$	7,877		$	95,748
Interest expense			37,852		3,299		5,331			46,482
	Net interest income		35,956		10,764		2,546			49,266
Provision for loan losses			150		2,165		—			2,315
	Net interest income after provision for loan losses		35,806		8,599		2,546			46,951
Noninterest income			10,876		3,121		9,770			23,767
Noninterest expense			43,612		9,345		16,202			69,159
Net intersegment income			42		—		(42	)		—
Net income (loss) before income taxes		$	3,112	$	2,375	$	(3,928	)	$	1,559
Total assets		$	1,103,008	$	65,911	$	94,371		$	1,263,290

(20) Comprehensive Income

        Comprehensive income is defined as net income plus transactions and other occurrences which are the result of nonowner changes in equity. Our nonowner equity changes are comprised of unrealized gains or losses on available-for-sale securities and interest rate swaps that will be accumulated with net income in determining comprehensive income.

        Components of our comprehensive loss are as follows for the years ended December 31:

(dollars in thousands)		2008			2007			2006
Net (loss) income		$	(15,088	)	$	(10,063	)	$	1,924
Other comprehensive income items:
	Cumulative effect of accounting change for certain investments, net of tax expense of $0, $625, and $0, respectively		—			993			—
	Unrealized holding (losses) gains arising during the period (net of tax (benefit) expense of $(4,227), $(817), and $332, respectively)		(6,246	)		(1,299	)		528
	Unrealized holding losses on swaps arising during the period (net of tax benefit of $484, $0, and $0, respectively)		(715	)		—			—
	Reclassification adjustment for losses (gains) (net of tax (benefit) expense of $(2,170), $364, and $(1,173), respectively) included in net (loss) income		3,206			(579	)		1,864
Total other comprehensive (loss) income			(3,755	)		(885	)		2,392
Total comprehensive (loss) income		$	(18,843	)	$	(10,948	)	$	4,316

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(21) Quarterly Results of Operations

        The following is a summary of unaudited quarterly results of operations for the years ended December 31, 2008 and 2007:

	2008
(dollars in thousands)	Fourth Quarter			Third Quarter			Second Quarter			First Quarter
Interest income	$	20,343		$	20,951		$	21,025		$	21,724
Interest expense		9,876			9,253			9,114			9,754
Net interest income		10,467			11,698			11,911			11,970
Provision for loan losses		5,358			3,098			2,504			3,823
Other operating income		6,975			6,829			7,948			4,628
(Loss) gain on sale of securities, net		(50	)		279			—			—
Other-than-temporary impairment charges		(4,581	)		(1,024	)		—			—
Operating expenses		22,817			19,183			19,386			18,481
Loss before taxes		(15,364	)		(4,499	)		(2,031	)		(5,706	)
Income tax benefit		(6,304	)		(2,218	)		(1,562	)		(2,428	)
Net loss	$	(9,060	)	$	(2,281	)	$	(469	)	$	(3,278	)
Net loss per common share (basic)	$	(1.41	)	$	(0.36	)	$	(0.07	)	$	(0.52	)
Net loss per common share (diluted)	$	(1.41	)	$	(0.36	)	$	(0.07	)	$	(0.52	)
Market prices: high	$	2.50		$	3.95		$	5.99		$	8.05
low		0.50			0.22			3.11			5.06

	2007
(dollars in thousands)	Fourth Quarter			Third Quarter			Second Quarter			First Quarter
Interest income	$	22,069		$	22,076		$	22,391		$	21,979
Interest expense		10,933			11,197			10,933			10,772
Net interest income		11,136			10,879			11,458			11,207
Provision for loan losses		3,452			2,411			2,515			537
Other operating income		5,933			5,753			5,409			6,062
Gain on sale of securities		—			56			—			887
Operating expenses		20,101			20,012			20,478			17,647
Loss before taxes		(6,484	)		(5,735	)		(6,126	)		(28	)
Income tax benefit		(3,766	)		(2,154	)		(2,262	)		(128	)
Net (loss) income	$	(2,718	)	$	(3,581	)	$	(3,864	)	$	100
Net (loss) income per common share (basic)	$	(0.43	)	$	(0.56	)	$	(0.60	)	$	0.02
Net (loss) income per common share (diluted)	$	(0.43	)	$	(0.56	)	$	(0.60	)	$	0.02
Market prices: high	$	10.40		$	13.05		$	15.20		$	18.61
low		4.89			7.95			12.00			15.00

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(22) Financial Information of Parent Company

        The following is financial information of First Mariner Bancorp (parent company only):

Statements of Financial Condition

		December 31,
(dollars in thousands)		2008		2007
Assets:
Cash and interest-bearing deposits		$	5,252	$	10,946
Subordinated notes			7,500		7,500
Loans receivable			4,000		6,501
Securities available for sale			251		478
Investment in subsidiaries			98,354		108,849
Company-owned life insurance			3,029		2,900
Other assets			2,799		3,205
	Total assets	$	121,185	$	140,379
Liabilities and stockholders' equity:
Other liabilities		$	1,446	$	2,085
Junior subordinated deferrable interest debentures			73,724		73,724
Stockholders' equity			46,015		64,570
	Total liabilities and stockholders' equity	$	121,185	$	140,379

Statements of Operations

			For the Years Ended December 31,
(dollars in thousands)			2008			2007			2006
Income:
	Interest on investments and interest-bearing deposits		$	164		$	365		$	261
	Interest on subordinated note			541			508			493
	Interest on loans			323			863			1,205
	Gain on sale of securities			—			943			26
	Other income			1,009			1,030			883
		Total income		2,037			3,709			2,868
Expenses:
	Interest expense			4,640			5,501			5,384
	Professional expenses			354			325			297
	Other expenses			404			370			366
		Total expenses		5,398			6,196			6,047
	Loss before income tax benefit			(3,361	)		(2,487	)		(3,179	)
Income tax (benefit) expense				(227	)		63			(412	)
	Loss before equity in undistributed net loss of subsidiaries			(3,134	)		(2,550	)		(2,767	)
Equity in undistributed net (loss) income of subsidiaries				(11,954	)		(7,513	)		4,691
	Net (loss) income		$	(15,088	)	$	(10,063	)	$	1,924

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Statements of Cash Flows

			For the Years Ended December 31,
(dollars in thousands)			2008			2007			2006
Cash flows from operating activities:
	Loss before undistributed net income of subsidiaries		$	(3,134	)	$	(2,550	)	$	(2,767	)
	Gain on sale of securities			—			(943	)		(26	)
	Decrease (increase) in other assets			1,492			(3,665	)		(352	)
	Income from company-owned life insurance			(130	)		(122	)		(100	)
	Excess tax benefit on stock-based compensation			—			—			(585	)
	(Decrease) increase in other liabilities			(639	)		768			327
		Net cash used in operating activities		(2,411	)		(6,512	)		(3,503	)
Cash flows from investing activities:
	(Investment in) dividends from subsidiaries			(6,000	)		1,324			(1,695	)
	Loan repayments (disbursements), net			2,501			13,353			(12,598	)
	Sale of securities available for sale			—			1,445			116
		Net cash (used in) provided by investing activities		(3,499	)		16,122			(14,177	)
Cash flows from financing activities:
	Proceeds from stock issuance, net			283			371			1,884
	Repurchase of common stock, net			(67	)		(1,162	)		(582	)
	Excess tax benefit on stock-based compensation			—			—			585
		Net cash provided by (used in) financing activities		216			(791	)		1,887
		Net (decrease) increase in cash and cash equivalents		(5,694	)		8,819			(15,793	)
Cash and cash equivalents at beginning of year				10,946			2,127			17,920
Cash and cash equivalents at end of year			$	5,252		$	10,946		$	2,127

(23) Recent Accounting Pronouncements

Pronouncements Adopted

        On October 10, 2008, the FASB issued Staff Position ("FSP") No. 157-3, Determining the Fair Value of a Financial Asset When the Market for That Asset Is Not Active. FSP 157-3 clarifies the application of SFAS 157 in a market that is not active and provides an example to illustrate key considerations in determining the fair value of a financial asset when the market for that financial asset is not active. FSP 157-3 was effective immediately upon issuance, and includes prior periods for which financial statements have not been issued. We applied the guidance contained in FSP 157-3 in determining fair values at December 31, 2008.

        On December 11, 2008, the FASB issued FSP No. 140-4 and FIN46(R)-8, Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities, to require public entities to provide additional disclosures about transfers of financial assets. FSP 140-4 and FIN46(R)-8 are effective for the first reporting period ending after December 15, 2008. We adopted the guidance for our disclosures for the year ended December 31, 2008.

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Pronouncements Issued But Not Yet Effective

        In December 2007, the FASB issued SFAS No. 141R, Business Combinations. The objective of this Statement is to improve the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial reports about a business combination and its effects. To accomplish that, this Statement establishes principles and requirements for how the acquirer:

•

Recognizes and measures in its financial statements the identifiable assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree

•

Recognizes and measures the goodwill acquired in the business combination or a gain from a bargain purchase

•

Determines what information is to disclose to enable users of the financial statements to evaluate the nature and financial effects of the business combination

        This Statement applies prospectively to business combinations for which the acquisition date is on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. An entity may not apply it before that date. There is no current impact on us. Any future impact will only be for acquisitions of other companies completed after this date and is not something that is measurable at this time.

        In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements—an amendment of ARB No. 51. This statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB 51's consolidation procedures for consistency with the requirements of SFAS No. 141 (revised 2007), Business Combinations. This statement is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Management does not anticipate the adoption of this standard to have a material impact on the our financial statements.

        In March 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging Activities. This statement requires enhanced disclosures in order to enable investors to better understand the effects of derivative instruments and hedging activities on an entity's financial position, financial performance, and cash flows. This statement is effective for fiscal years and interim periods beginning after November 15, 2008, with early application encouraged. Management does not anticipate the adoption of this standard to have a material impact on the disclosures to our financial statements.

ITEM 9    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

        None.

ITEM 9A    CONTROLS AND PROCEDURES

        Senior management maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods provided in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, senior management has recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and therefore has been required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

        In accordance with Rule 13a-15(b) of the Exchange Act, as of the end of the fiscal year ended December 31, 2008, we carried out an evaluation under the supervision and with the participation of

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our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as defined in rule 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures are, in fact, effective at the reasonable assurance level.

        During the quarter ended December 31, 2008, there were no changes in our internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

        As required by Section 404 of the Sarbanes-Oxley Act of 2002, management has performed an evaluation and testing of the Company's internal control over financial reporting as of December 31, 2008. Management's report on the Company's internal control over financial reporting is set forth in the page that follows.

Management's Report On Internal Control Over Financial Reporting

        Management of First Mariner Bancorp (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting. The internal control process has been designed under management's supervision to provide reasonable assurance regarding the reliability of financial reporting and the preparation of the Company's consolidated financial statements for external reporting purposes in accordance with accounting principles generally accepted in the United States of America.

        This annual report on Form 10-K does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting because management's report was not subject to attestation pursuant to temporary rules of the SEC that permit the Company to provide only this management's report.

        Management of the Company has conducted an assessment of the effectiveness of the Company's internal control over financial reporting as of December 31, 2008, utilizing the framework established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that, as of December 31, 2008, the Company's internal control over financial reporting is effective.

        The Company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the financial statements.

        Any internal control system, no matter how well designed, will have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ EDWIN F. HALE, SR.
Edwin F. Hale, Sr.
Chief Executive Officer /s/ MARK A. KEIDEL
Mark A. Keidel
Chief Financial Officer

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ITEM 9B    OTHER INFORMATION

        None.

PART III

ITEM 10    DIRECTORS AND EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

        We have a Code of Conduct and Ethics that applies to our employees, officers, and directors, including our principal executive officer, principal financial officer, and principal accounting officer. A copy of this Code of Conduct and Ethics is available on our website at www.1stmarinerbancorp.com (investor relations section), or a written copy can be obtained by request. We intend to disclose any changes in or waivers from our code by posting such information on our website. We also have adopted an Executive Code of Conduct and Ethics Policy that addresses (i) trading prohibitions during "blackout period;" (ii) prohibitions against insider trading; (iii) corporate opportunities; and (iv) loans to insiders policy.

        All other information required by this item is incorporated herein by reference to First Mariner's definitive proxy statement to be filed in connection with the 2009 Annual Meeting of Stockholders.

ITEM 11    EXECUTIVE COMPENSATION

        The information required by this item is incorporated herein by reference to First Mariner's definitive proxy statement to be filed in connection with the 2009 Annual Meeting of Stockholders.

ITEM 12    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

        The information required by this item with respect to our equity compensation plans is incorporated herein by reference to the section entitled "Equity Compensation Plan Information" contained in Item 5 of Part II of this report.

        All other information required by this item is incorporated herein by reference to First Mariner's definitive proxy statement to be filed in connection with the 2009 Annual Meeting of Stockholders.

ITEM 13    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

        The information required by this item is incorporated herein by reference to First Mariner's definitive proxy statement to be filed in connection with the 2009 Annual Meeting of Stockholders.

ITEM 14    PRINCIPAL ACCOUNTANT FEES AND SERVICES

        The information required by this item is incorporated herein by reference to First Mariner's definitive proxy statement to be filed in connection with the 2009 Annual Meeting of Stockholders.

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PART IV

ITEM 15    EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a)(1), (a)(2) and (c) Financial Statements

	Report of Independent Registered Public Accounting Firm
	Consolidated Statements of Financial Condition as of December 31, 2008 and 2007
	Consolidated Statements of Operations for the years ended December 31, 2008, 2007, and 2006
	Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2008, 2007, and 2006
	Consolidated Statements of Cash Flows for the years ended December 31, 2008, 2007, and 2006
	Notes to Consolidated Financial Statements for the years ended December 31, 2008, 2007, and 2006
(a)(3) and (b)	Exhibits Required to be filed by Item 601 of Regulation S-K.
	The exhibits that are filed or furnished with this report are listed in the Exhibit Index following the Signatures, which Exhibit Index is incorporated herein by reference.

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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: March 31, 2009	By:	/s/ EDWIN F. HALE SR. Edwin F. Hale Sr. Chairman and Chief Executive Officer

        Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant in their capacities as indicated on the 31^st day of March, 2009.

/s/ EDWIN F. HALE SR. Edwin F. Hale Sr., Chief Executive Officer and Director	/s/ MARK A. KEIDEL Mark A. Keidel, Chief Financial Officer
/s/ JOSEPH A. CICERO Joseph A. Cicero, President and Director	/s/ GEORGE H. MANTAKOS George H. Mantakos, Executive Vice President and Director
/s/ ANIRBAN BASU Anirban Basu, Director	/s/ JOHN MCDANIEL John McDaniel, Director
/s/ BARRY B. BONDROFF Barry B. Bondroff, Director	/s/ JOHN J. OLIVER John J. Oliver, Director
/s/ JOHN BROWN III John Brown III, Director	/s/ PATRICIA SCHMOKE Patricia Schmoke, Director
/s/ EDITH B. BROWN Edith B. Brown, Director	/s/ HECTOR TORRES Hector Torres, Director
/s/ ROBERT CARET Robert Caret, Director	/s/ MICHAEL R. WATSON Michael R. Watson, Director
/s/ GREGORY ALLEN DEVOU Gregory Allen Devou, Director

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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 First Mariner's Form 10-Q for the quarter ended September 30, 2002)
3.3	First Amendment to Amended and Restated Bylaws of First Mariner Bancorp (Incorporated by reference to Exhibit 3.2 of First Mariner's Form 8-K filed on December 18, 2007)
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 First Mariner'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 First Mariner's Definitive Proxy Statement filed on April 5, 2002)
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.)

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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.)
10.18	Lease Agreement dated June 2, 2003 between Canton Crossing LLC and First Mariner Bank (Incorporated by reference to Exhibit 10.18 to the Company's Form 10-Q for the quarter ended September 30, 2003)
10.19	First Mariner Bancorp 2004 Long-Term Incentive Plan (Incorporated by reference to Appendix B to First Mariner's Definitive Proxy Statement filed on April 1, 2004)
10.20	First Mariner Bancorp 2003 Employee Stock Purchase Plan (Incorporated by reference to Appendix C to First Mariner's Definitive Proxy Statement filed on April 1, 2004)
10.21	Purchase and Sale Agreement dated October 20, 2004 among First Mariner Bancorp, Canton Crossing LLC and Hale Canton, LLC (Incorporated by reference to Exhibit 10.1 to the Registrant's Report on Form 8-K filed on October 22, 2004)
10.22	Form of Non-Qualified Stock Option Agreement under the 2004 Long Term Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Registrant's Report on Form 8-K filed on January 31, 2005)
10.23	Form of Incentive Stock Option Award Agreement under the 2004 Long-Term Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Registrant's Report on Form 8-K filed on January 31, 2005)
10.24	Lease Agreement dated May 12, 2005 between First Mariner Bancorp and Hale Properties, LLC (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on May 17, 2005.)
10.25	First Amendment to Lease Agreement dated November 15, 2005 between First Mariner Bancorp and Canton Crossing Tower, LLC (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on November 15, 2005)
10.26	Description of Board Fees (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on July 21, 2008)
10.27	Description of 2006 Executive Bonus Plan (Incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on February 1, 2006)
10.28	Lease Agreement dated January 8, 2007 between First Mariner Bank and Canton Crossing Tower, LLC (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on March 14, 2007)
10.29	Description of 2007 Short-Term Incentive Plan (Incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on March 14, 2007)

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10.30	Description of 2008 Short-Term Incentive Plan (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on March 28, 2008)
10.31	Lease Agreement dated January 17, 2008 between Next Generation Financial Services and Canton Crossing Tower, LLC (Filed herewith)
21.1	Subsidiaries of Registrant (Filed herewith)
23.1	Consent of Stegman & Company (Filed herewith)
31.1	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended (Filed herewith)
31.2	Certification of 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)
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002 (Furnished herewith)

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EX-10.31

Exhibit 10.31

LEASE AGREEMENT

THIS LEASE AGREEMENT (“Lease”) is made this 17th day of January, 2008, by and between Canton Crossing Tower, LLC, a limited liability company (hereinafter referred to as “Landlord”) and Next Generation Financial Services, a division of First Mariner Mortgage, a division of First Mariner Bank, a Maryland Financial Institution (hereinafter referred to as “Tenant”).

W I T N E S S E T H:

In consideration of the premises hereof and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties do hereby mutually agree as follows:

1.Premises. Landlord does hereby lease to Tenant, and Tenant does hereby lease from Landlord, for the term and on the conditions hereinafter provided, approximately 8,500 rentable square feet of space on the 2nd floor, and known as Suite 210 (hereinafter referred to as the “Demised Premises”), of the building known as Canton Crossing Tower (“Building”), together with the right to the non-exclusive use, in common with others, of such footways, hallways, parking areas and other facilities designed for common use in the Building or on the land on which the Building is located (hereinafter collectively referred to as the “Property”). The Demised Premises are marked on the plan attached hereto as Exhibit A and incorporated herein by reference.

2.Term.

(a)The Demised Premises are leased for a term (hereinafter called the “Initial Term”) commencing on the first day of February, 2008, (or within ninety (90) days after receipt of written notice of Demised Premises being available for the Tenant’s use and occupancy) (hereinafter referred to as the “Lease Commencement Date”) and ending on the last day of January 2013 (hereinafter referred to as the “Expiration Date”), unless the Term shall sooner cease or expire as hereinafter provided.

Under the following terms and conditions, Tenant shall have the option to extend the Initial Term of this Lease for 1 additional term of 5 years (such additional term being hereinafter referred to as the “Extension Period”). Such option shall be null and void unless (a) Tenant notifies Landlord in writing, of Tenant’s election to exercise that option not more than twelve (12) months, nor less than six (6) months prior to the date this Lease would otherwise expire; and (b) at the time of such exercise and at all times thereafter prior to the commencement of any Extension Period, this Lease is in full force and effect, Tenant is in actual occupancy of the Premises, and Tenant is not

then in default of any of its obligations under this lease. Such Extension Period shall be upon the same terms and conditions as apply with respect to the Initial Term.

“Term” shall include each Extension Period for which the foregoing extension option shall be effective and has been duly exercised hereunder.

(b)Landlord shall give Tenant sixty (60) days prior written notice of the anticipated date of substantial completion of the work to be performed in the Demised Premises pursuant to the provisions of Exhibit B which is attached hereto and incorporated herein by reference, and Tenant agrees to accept the Demised Premises which shall be deemed available for Tenant’s use and occupancy after Tenant’s or Tenant’s designated representative on-site examination of the Demised Premises, when Landlord has (i) substantially completed the work required to be performed by Landlord, as described in the Exhibit B, and (ii) procured a certificate of occupancy for the Demised Premises for the purposes herein provided. The work to be done by Landlord shall be deemed substantially completed even though minor details or adjustments which shall not materially interfere with Tenant’s use other than ingress and egress of the Demised Premises to conduct its business in the ordinary course may not then have been completed, but which work Landlord shall complete within thirty (30) days thereafter.

(c)By taking of possession of the Demised Premises, Tenant shall be deemed to have accepted the same and to have acknowledged that Landlord’s work has been substantially completed subject to the Landlord’s completion of the items referenced in section 2 (b) above.

(d)After the Lease Commencement Date, upon request of either party, Landlord and Tenant shall promptly execute, acknowledge and deliver to one another a written instrument, in the form of Exhibit C which is attached hereto, certifying the Lease Commencement Date and Expiration Date.

(e)Tenant covenants and agrees to endeavor in good faith to comply with the time path to be established by Landlord in connection with the completion of the work to be performed by Landlord, as described in Exhibit B. If Tenant causes a delay in the delivery of possession of the Demised Premises by virtue of having failed to provide or approve plans and specifications, samples or other items which Tenant is required to provide or approve, within the deadlines required therefor, or by virtue of having requested changes in the work, or for any other material reason, then in such event, the Lease Commencement Date shall be on the date on which the Demised Premises would have been available for Tenant’s use and occupancy but for such Tenant delay, and Tenant’s obligations hereunder shall commence as of such date.

3.Rent.

(a)Tenant shall pay as Minimum Rent (hereinafter referred to as “Minimum Rent”) the amount of $25.00 per rental square foot or $212,500.00 per annum, payable in equal monthly installments of $17,708.34. Additionally, tenant shall pay the monthly common area maintenance charge of $6.50 per rental square foot or $55,250.00 per annum, payable in monthly installments of $4,604.17; provided, however, the monthly common area maintenance charge shall be deferred and forgiven for so long as Tenant remains a division of First Mariner Bank. If

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there occurs a change in ownership or control of Tenant, First Mariner Bank or First Mariner Bancorp, then, at the time of such change in control, the monthly common area maintenance charge described above shall be due and payable thereafter by Tenant, under the new ownership or control. The payments set forth in the preceding two (2) sentences shall commence on the earlier to occur of either (i) August 1, 2008, or (ii) the date of substantial completion of the Premises Work for the Demised Premises, in accordance with Section 12(d) and Exhibit B, at such time as Tenant takes possession of the Demised Premises, as set forth in Sections 2(b) and (c) above (the “Rent Commencement Date”). The first installment shall be payable upon the execution of this Lease, to be credited for the first (lst) month following the Rent Commencement Date, and the remaining installments of which shall be payable in advance on the first (1st) day of each month thereafter at the office of Landlord herein designated (or at such other place as Landlord may designate in a notice to Tenant), without prior demand therefor and without any setoff, deduction or counterclaim whatsoever.

(b)Upon signing this Lease, Tenant shall deposit with the Landlord the sum of $17,708.34, which shall be retained by the Landlord as security for the Tenant’s payment of Rent and performance of all of its obligations under the provisions of this lease. On the occurrence of an Event of Default (as defined herein), the Landlord shall be entitled, at its sole discretion, to (i) apply any or all of such sum in payment of any Rent then due and unpaid, any expense incurred by the Landlord in curing any such default, and/or any damages incurred by the Landlord by reason of such default (including but not limited to reasonable attorneys’ fees), in which event Tenant shall immediately restore the amount so applied, and/or (ii) to retain any or all of such sum in liquidation of any or all damages suffered by the Landlord by reason of such default. However, the foregoing shall not serve in any event to limit the rights, remedies and damages accruing to the Landlord in any provision of this Lease on account of default by Tenant. The security deposit shall not be applied to the last month’s installment of Rent; rather, upon the termination of this Lease, any of such security deposit then remaining shall be returned to the Tenant. Such security deposit shall not bear interest while being held by the Landlord hereunder.

(c)Tenant shall pay as additional rent (“Additional Rent”) all such other amounts as shall become due and payable by Tenant to Landlord under this Lease. Except as specified elsewhere in this Lease, Additional Rent shall be paid by Tenant with the next monthly installment of Minimum Rent falling due upon receipt of an itemized statement. Landlord shall have the same remedies for default in the payment of Additional Rent as are available to Landlord in the case of default in the payment of Minimum Rent. (Hereinafter, the term “Rent” shall collectively refer to Minimum Rent and Additional Rent.)

(d)If the Term of this Lease begins on a date other than the first day of a month, Rent from such other date to the first day of the following month shall be prorated at the rate of one-thirtieth (1/30th) of the fixed monthly rental for each day, payable in advance.

4.Landlord’s Costs.

(a)With the commencement of the Lease, and continuing for each subsequent calendar year or portion thereof during the Term, Tenant agrees to pay Landlord as Additional Rent, Tenant’s Pro Rata Share (as hereinafter defined) of the Landlord’s Costs (as hereinafter defined).

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(b)For purpose of this Lease:

(i)“Tenant’s Pro Rata Share” shall mean 1.78% representing the ratio that the rentable area of the Demised Premises (i.e., 8,500 rentable square feet) bears to the total rentable area in the Building (i.e., 476,915 rentable square feet).

(ii)“Landlord’s Costs” shall mean the sum of Taxes and Assessments and Operating Expenses.

(iii)“Taxes and Assessments” shall mean all taxes, assessments and governmental charges (including personal property and real estate taxes), whether federal, state, county or municipal, and whether they be by taxing districts or authorities presently taxing the Property or by others subsequently created, and any other taxes and assessments (including franchise taxes) attributable to the Property or its operation, whether or not directly paid by Landlord, excluding, however, federal and state taxes on income (unless such income taxes replace, in whole or in part, real estate taxes). Taxes and Assessments shall be the amount due in cash for any year and shall not be determined on an accrual or fiscal year basis. It is agreed that Tenant shall be responsible for ad valorem taxes on its personal property.

(iv)Commencing after the calendar year in which the Commencement Date falls, Tenant shall pay to Landlord in each year of the Term a Pro Rata Share of the amount by which the Operating Expenses other than those charges covered in paragraph 3A and denominated as “common area maintenance charge”(defined below) for each such year exceed the Base Operating Expenses (defined below). “Operating Expenses” shall mean all expenses, costs and disbursements of every kind and nature incurred in conjunction with the ownership, management, maintenance, repair and operation of the Building and Property, including but not limited to the following: (1) cost of wages and salaries of all employees engaged in the operation and maintenance of the Building and surrounding grounds and common areas, including but not limited to payroll taxes, insurance and benefits; (2) cost of all supplies and materials used in the operation, maintenance and repair of the Building and all other portions of the Property; (3) cost of all utilities (including surcharges) including but not limited to water, sewer, HVAC Facilities Charges electricity and gas for both the rentable space and common areas of the Building; (4) costs incurred under all maintenance and service agreements for the Building, including but not limited to access control, energy management services, window cleaning, elevator maintenance, janitorial service and landscaping; (5) cost of insurance relating to all of such property, including but not limited to the cost of casualty and liability insurance; (7) property management fees and expenses; (8) cost of audit and accounting services solely for the Property; (9) the costs of any repairs, replacements or capital improvements required or made necessary by law or changes in law; (10) cost of any capital improvements made to the Building that, in the Landlord’s reasonable judgment, will reduce other operating expenses or increase energy efficiency; (11) cost of any licenses or permits required by any public authority; (12) all real property taxes, assessments, sewer rates, ad valorem charges, rents and charges, front foot benefit charges, all other governmental impositions in the nature of any of the foregoing, and all costs and expenses (including attorneys’ fees and court costs or other proceedings) incurred in contesting property tax assessments or any other such governmental impositions. For the purposes of this provision, operating Expenses shall not include (a) the cost of capital improvements (except as expressly

4

provided above), (b) the cost of tenant improvements within tenant spaces, (c) ground rent or debt service, or (d) depreciation. The “Base Operating Expenses” shall be defined in the form of an Expense Stop equal to $6.50 per rentable square foot (the “Expense Stop”). Operating Expenses applicable during any calendar year during the Term of this lease that exceed the Expense Stop will be billed to the Tenant as Additional Rent. Tenant shall not be entitled to any credit or rebate in the event Operating Expenses in any one-year during the term are lower than the Expense Stop, unless Landlord has offered another Office Space tenant a lesser amount.

(c)Landlord shall endeavor to give to Tenant, on or before the first day of April of each year, a written statement prepared by Landlord setting forth the increase, if any, in the Additional Rent payable by Tenant hereunder; provided, however that Landlord’s failure to give such statement by said date shall not constitute a waiver by Landlord of its right to require an increase in Additional Rent. An amount equal to 110% of any such increase shall be used as an estimate of the increase in Additional Rent for the then current year. The amount of the estimate shall be divided into twelve (12) equal monthly installments, and Tenant shall pay to Landlord concurrently with the regular Minimum Rent payment next due following the receipt of such statement, an amount equal to one (1) monthly installment multiplied by the number of months from January in the calendar year in which said statement is submitted to the month of such payment, both months inclusive. Subsequent installments shall be payable concurrently with the regular Minimum Rent payments for the balance of that calendar year, and shall continue until the next year’s statement is rendered. If during the next or any succeeding year the actual increase exceeds the estimated increase in Additional Rent, then upon receipt of a statement thereof from Landlord, Tenant shall pay a lump sum equal to the difference between the actual increase and the total of the monthly installments of estimated increases paid in the previous calendar year for which comparison is then being made. If in any year the estimated increase shall exceed the actual increase, then Landlord shall provide Tenant with a credit toward the next installment of Minimum Rent in an amount equal to the difference between the estimated increase and the actual increase. Upon termination of this Lease, any money owed by one party to the other shall be promptly paid. The foregoing obligation shall survive the termination or expiration of this Lease. Failure of Landlord to provide the timely written statements, on three separate occasions, setting forth the increase shall constitute waiver. Upon each failure of Landlord to provide said statement, Tenant must provide written notification of such failure, and provide Landlord 30 days to cure default.

(d)Each statement provided by Landlord pursuant to this Section shall be conclusive and binding upon Tenant unless, within thirty (30) days after receipt of the statement, Tenant shall notify Landlord that it disputes the correctness of the statement, specifying the respects in which Tenant considers the statement to be incorrect. If Landlord and Tenant are unable to resolve the dispute, Tenant shall then have the right to inspect Landlord’s books and records relating to the statement. Landlord agrees to cooperate and make the books and records available for Tenant inspection, upon prior written notification from Tenant giving Landlord 30 days to comply. Pending determination of the dispute, Tenant shall pay, within ten (10) days after notice thereof, any amounts due from Tenant in accordance with the statement, but such payment shall be without prejudice to Tenant’s position.

5.Annual Adjustment to Rent. Commencing on the first (1st) anniversary of the Lease Commencement Date, and on each such anniversary thereafter during the Term (each of such

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dates being hereinafter referred to as “Adjustment Date”), the Minimum Rent shall be increased by an amount equal to the product of (i) the Minimum Rent in effect immediately preceding the Adjustment Date then at hand (disregarding any rental concessions or abatements then in effect), and (ii) CPI not to exceed three percent (3%). The Minimum Rent, as adjusted, shall be due and payable as of such Adjustment Date and on the first (1st) day of each month thereafter until the next Adjustment Date or the end of the Term, as applicable.

6.Past Due Rent and Late Charges. Each payment of Rent shall be made promptly when due, without any demand, deduction or setoff whatsoever, at the place directed by the Landlord. Any payment of Rent not made when due shall, at Landlord’s sole option, bear interest at the rate of 18% per annum from the due date until paid. Additionally, any payment of Rent not paid within 10 days of when due shall be considered delinquent and subject to a late payment charge, for each occurrence of delinquency, of 5% of the amount overdue and payable. This late payment shall be in addition to the interest provided for above and shall be due and payable with the next succeeding Rent payment. The obligation to pay Rent shall survive the termination of the Lease.

7.Use of Demised Premises. Tenant shall continuously use and occupy the Demised Premises solely for providing financial services and products subject to, and in accordance with, all applicable zoning and other governmental regulations. Tenant shall not abandon or substantially abandon the Demised Premises. Tenant shall not obstruct, interfere or conflict with the rights of other tenants, nor perform or fail to perform any action which would conflict with the fire laws or regulations, or with any insurance policy for the Property, or with any local, state or federal statutes, rules or regulations now existing or subsequently enacted, nor shall Tenant use or permit the Demised Premises (or any part thereof) to be used for any disorderly, unlawful or hazardous purposes, or for any purpose other than that specified herein. Tenant shall not generate trash or other refuse in form different, or quantity greater, than customarily generated by a normal office use for an area the size of the Demised Premises.

8.Common Area. All common areas and facilities not within the Demised Premises which Tenant is hereby permitted to use are to be used and occupied under arevocable license, on a non-exclusive basis in common with other tenants and their respective employees, agents and invitees; and if the amount of such areas shall be diminished, Landlord shall not be subject to any liability nor shall Tenant be entitled to any compensation or diminution or abatement of Rent, nor shall such diminution of such areas be deemed constructive or actual eviction; provided however, that such diminution shall not impair ingress or egress nor impair Tenant’s ability to conduct business in the ordinary manner.

9.Parking. Parking for the Property includes the non-exclusive right to use the surface parking areas, as directed by Landlord. The parking areas and surface lot are referred to as the “Parking Facilities.” The use of the Parking Facilities by Tenant, and Tenant’s employees, visitors, invitees and licensees, shall be at their sole risk and expense, and in no event shall Landlord have any liability for damage, to or theft or loss of, property of Tenant or of Tenant’s employees, visitors, invitees or licensees sustained in or about the Parking Facilities. The Parking Facilities shall be subject to reasonable rules and regulations governing the use thereof and from time to time be relocated with reasonable notice to Tenant. Tenant agrees to keep, observe and comply with all such rules and regulations, and will direct and require its

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employees, visitors, invitees and licensees to comply therewith. No one is authorized to accept possession of any vehicle from Tenant or from Tenant’s employees, visitors, invitees or licensees, or to accept custody of any articles from Tenant. Tenant agrees to keep, observe and comply with all such rules and regulations, and will direct and require its employees, visitors, invitees and licensees to comply therewith. No one is authorized to accept possession of any vehicle from Tenant or from Tenant’s employees, visitors, invitees or licensees, or to accept custody of any articles from Tenant.

10.Subletting and Assignment. Other than to it’s wholly owned subsidiaries and affiliates, Tenant shall not sublet the Demised Premises or any part thereof, nor transfer possession or occupancy thereof to any person, firm or corporation, nor transfer or assign this Lease, without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed, nor shall any subletting or assignment hereof be effected by operation of law or otherwise without the prior written consent of Landlord, which consent shall not be unreasonably withheld or delayed. If Tenant is a non-public corporation, any transfer of a majority of Tenant’s issued and outstanding capital stock shall be deemed an assignment under this Section. If Tenant is a partnership, any transfer of any interest in the partnership or other change in the composition of the partnership which results in a change in the management of Tenant from the person(s) managing the partnership on the date hereof shall be deemed an assignment under this Section. In the event Tenant desires to assign this Lease or sublet all or any portion of the Demised Premises, Tenant shall give to Landlord thirty (30) days prior written notice of Tenant’s intention to do so. Within thirty (30) days after receipt of said notice, Landlord shall have the right to sublet the Demised Premises from Tenant at the same Minimum Rent and Additional Rent stipulated herein. In the event Landlord has not exercised its right to sublet the Demised Premises as provided above in this paragraph, Tenant may assign this Lease or sublet all or a portion of the Demised Premises as set forth in the notice after first obtaining the written consent of Landlord, as aforesaid, which consent shall not be unreasonably withheld or delayed. If Tenant does not so assign or sublet within sixty (60) days of the original notice to Landlord pursuant to this paragraph, then Tenant shall again be required to comply with the notice provision hereof, and Landlord shall again have the right to sublet. The consent by Landlord to any assignment or subletting by Tenant to another party shall not be construed as a waiver or release of Tenant from the terms of any covenant or obligation under this Lease, nor shall the collection or acceptance of rent from any such assignee or subtenant constitute a waiver or release of Tenant from any covenant or obligation contained in this Lease, nor shall any such assignment or subletting relieve Tenant from the requirement to give Landlord thirty (30) days prior written notice or from obtaining Landlord’s prior written consent to any future assignment or subletting. Tenant shall pay as Additional Rent all costs including reasonable attorney’s fees, incurred by Landlord, in connection with the approving and documenting any subletting/or assignment. In the event of a default of Tenant under Section 26, Tenant hereby assigns to Landlord the rent due from any subtenant of Tenant, and hereby authorizes each such subtenant to pay said rent directly to Landlord. Such assignment shall cease upon the curing of the default.

11.Upkeep of Demised Premises and Surrender.

(a)Tenant shall keep the Demised Premises and the fixtures and equipment therein in a clean, safe and sanitary condition, shall take good care thereof and shall permit no waste or injury thereto. Tenant shall make all repairs to the Demised Premises necessitated by the acts or

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omissions of Tenant, or its agents, employees, contractors, licensees or invitees.

(b)Tenant shall, at the expiration or termination of the Term of this Lease, surrender and deliver the Demised Premises to Landlord broom clean, and in the same order and condition as the same now is or shall be in at the commencement of the Term together with all equipment and built-ins such as refrigerator, microwave oven, and cabinets, ordinary wear and tear and casualties for which Tenant is not responsible hereunder excepted. Upon the expiration or termination of this Lease, Landlord shall have the right to re-enter and resume possession of the Demised Premises.

12.Alterations.

(a)The Landlord shall have the right to perform all Premises Work (as hereinafter defined) reasonably requested by Tenant, at Tenant’s expense under the conditions as defined in Section 12d below, during the Term of the Lease. Tenant understands and agrees that any work requiring a building permit will necessitate preparation of drawings and Tenant agrees to pay for same, including the cost of the building permit. The Landlord shall charge Tenant a fee equal to ten percent (10%) of the total cost of alterations in the event it elects to perform said work. In the event that Landlord does not elect to perform said Premises Work, then Tenant shall obtain Landlord’s prior written consent, which consent shall not be unreasonably withheld or delayed, prior to performing any Premises Work and shall use contractors that are reasonably acceptable to Landlord. Tenant shall provide such drawings, plans and specifications as are requested by Landlord in reviewing any such proposed improvements. If Landlord consents to such Premises Work, it shall be made at Tenant’s sole cost and expense and at such time and in such manner so as to not unreasonably interfere with the use and enjoyment of the Building by any other tenant. Tenant shall not make any alteration,. addition or improvement to the Premises, whether structural or nonstructural, without Landlord’s prior written consent, which shall not be unreasonably withheld or delayed. Tenant shall provide such drawings, plans and specifications as are requested by Landlord in reviewing any such proposed improvements. If Landlord consents to any such proposed alteration, addition or improvement, it shall be made at Tenant’s sole cost and expense and at such time and in such manner as to not unreasonably interfere with the use and enjoyment of the remainder of the Premises by any other tenant or other person. Landlord may, as a condition of granting its consent or approval hereunder, require Tenant to post such payment and performance bonds as Landlord deems reasonable to protect Landlord, any Mortgagee, and the Premises. In making any alteration, addition or improvement to the Premises, Tenant shall use materials equal or exceeding in quality and kind the original construction, as certified by the architect who designed the Premises or by such other architect as is designated by Landlord. All such alterations, additions and improvements shall be performed (a) in a good and workmanlike manner; (b) in accordance with all applicable laws and regulations, including but not limited to the ADA (Americans with Disabilities Act); (c) in accordance with all applicable insurance requirements and requirements of any Mortgagee; and (d) in accordance with the drawings, plans and specifications approved by Landlord. All work performed by Tenant shall be subject to Landlord’s inspection and approval to determine whether it complies with the requirements of this Lease. Prior to the commencement of any such work by Tenant, Tenant shall obtain all necessary endorsements to the insurance required by Section 22 hereof to be sure the same covers the performance of such work. Furthermore, Tenant shall defend, indemnify and hold harmless Landlord from and against any and all damages, losses or liability arising from such alterations or improvements or the construction thereof by

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Tenant, its agents, servants, invitees and employees other than Landlord. For purposes hereof, the term “Premises Work” shall mean the following: any construction, repair, refurbishment or restoration, including without limitation, tenant improvements, build-out, alterations, additions, improvements, renovations, repairs, remodeling, painting and installations of fixtures, mechanical, electrical, plumbing, data, security, telecommunications, low voltage or elevator equipment or systems or other equipment, or with respect to any other construction work in or to the Demised Premises.

(b)All alterations, installations, fixtures, changes, replacements, additions or improvements, including wall-to-wall carpet, within the Demised Premises shall, at the election of Landlord, remain upon the Demised Premises and be surrendered with the Demised Premises at the expiration or termination of the Lease without disturbance, molestation or injury. Should Landlord elect that alterations, installations, changes, replacements, additions to or improvements made by Landlord at Tenant’s request after the commencement of the Term be removed upon the expiration or termination of this Lease, then Landlord shall so notify Tenant at the time Tenant requests such alterations and Landlord, at Tenant’s expense, shall remove the same and shall restore the Demised Premises to their original condition. The cost of such removal and restoration shall be deemed to be Additional Rent.

(c)If during the Term of this Lease, Tenant, with or without the consent of Landlord, shall make any improvements or alterations to the Demised Premises, any mechanic’s lien is filed against the Demised Premises or the Property for work or material claimed to have been done for or furnished to Tenant, such mechanic’s lien shall be discharged by Tenant within ten (10) days thereafter or action seeking its dismissal, at Tenant’s sole cost and expense, by payment thereof or by posting such bond or paying such amount as will effect a release of such lien. If Tenant shall fail to discharge or obtain the release of any such mechanic’s lien, Landlord may, at its option, discharge or release the same and treat the cost thereof (including reasonable attorneys’ fees incurred by Landlord) as Additional Rent payable with the monthly installment of Minimum Rent next becoming due; and such discharge or release by Landlord shall not be deemed to waive the default of Tenant in not discharging or releasing the same. Tenant shall indemnify and hold Landlord and the holders of any mortgages or deeds of trust on the Property harmless from and against any and all expenses, liens, claims or damages to person or property, which may arise by reason of Tenant having made any alterations.

(d.)All costs and expenses of designing and constructing improvements and alterations to the Demised Premises as outlined in Exhibit B and described in this section shall be paid as follows:

(i)Regardless of whether the Space Improvements (i.e., Premises Work) are being constructed by Landlord or by Tenant, Landlord shall provide and pay an allowance (the “Allowance”) of $25 per rentable square foot of the Premises towards (1.) the costs of designing the space plan in Exhibit B and all of the plans and specifications for the Space Improvements, including mechanical and electrical drawings and (2.) the costs of constructing the Space Improvements, including but not limited to all fees, costs and expenses paid under construction contracts and subcontracts, construction managers’ fees, costs and expenses, the cost of materials, supplies, permits and other items and any other out-of-pocket expenditures incurred in any connection with such construction. Such Allowance shall not be paid for any other costs or

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purposes. Tenant shall pay any and all costs of designing and constructing the Space Improvements, which are in excess of the Allowance.

(ii)If the Space Improvements are to be constructed by Landlord, Tenant shall pay to Landlord the amount of designing and constructing the Space Improvements within 15 days after receiving Landlord’s written statement of such costs. Tenant shall, prior to Landlord’s beginning construction of the improvements, provide a bond, letter of credit or other security satisfactory to Landlord or Tenant’s performance of the foregoing obligation in the event the costs of the Space Improvements (including any modifications requested by Tenant) are significant in the estimation of Landlord. Tenant shall provide this required security within 15 days after request by Landlord.

(iii)If the Space Improvements are to be constructed by Tenant, Tenant shall then provide the following to Landlord (1.) a requisition substantially in the form of AIA Requisition Forms G702 and G703, including a description of all completed work for which payment is requested, the amount requested with a breakdown by each trade comprising the work, and the percentage of the entire project completed after taking into account all such work, (2.) approval by Landlord’s construction manager or other designated person of the requisition, (3.) conditional lien waivers from all parties for whom such payment is requested releasing all liens which may arise on account of the work performed by such parties to the date of the request for payment, and (4.) unconditional lien waivers covering all work up to and including the immediate preceding payment. Withheld from each disbursement shall be the applicable retainage, not to be less than 10% as provided, which retainage shall be paid and disbursed upon (1.) completion of the Space Improvements as required by the applicable contract(s), (2.) delivery of unconditional lien waivers as described above for all work comprising the improvements, and (3.) issuance of a certificate of occupancy or other applicable approval by the local authorities permitting occupancy of the Demised Premises by Tenant for business.

(iv)If the Space Improvements are to be constructed by Landlord, Landlord shall use commercially reasonable efforts to complete such improvements on or before the Target Date (i.e., date of completion as agreed to be Tenant and Landlord), but Landlord shall have no liability to the Tenant hereunder if prevented from doing so due to strike or other labor troubles, governmental restrictions, failure or shortage of utility service, national or local emergency, accident, flood, fire or other casualty, adverse weather condition, other act of God, inability to obtain a building permit or a certificate of occupancy, or any other cause beyond Landlord’s reasonable control. In such event, the Commencement Date and Expiration Date shall be postponed for a period equaling the length of such delay, but in no event beyond. However, if any delay in completion of the Space Improvements or in delivering possession of the Premises to Tenant are caused by Tenant, all terms herein shall be effective and binding, on that date reasonably calculated by Landlord or it’s contractor as the date on which Landlord would have substantially completed the Space Improvements if not for such delay.

13.Floor Loading. Landlord shall have the right to prescribe the weight, method of installation and position of safes or other heavy fixtures or equipment. Tenant shall not install in the Demised Premises any fixtures, equipment or machinery that shall place a load upon any floor exceeding the floor load per square foot of area which the floor was designed to carry. Tenant

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agrees that all damage done to the Property by taking in or removing a safe or any other article of Tenant’s equipment, or due to its being in the Demised Premises, shall be repaired at the expense of Tenant. No freight furniture or other bulky matter of any kind shall be received on the Property or carried in the elevators, except as approved by Landlord, which approval will not be unreasonably withheld or delayed (who shall in no event be responsible for any damage to or charges for moving the same). Tenant agrees promptly to remove from the public area any of Tenant’s property there delivered or deposited. The floor load per square foot area is 100 pounds.

14.Tenant’s Equipment.

(a)Tenant shall not install or operate in the Demised Premises (i) any electrically operated equipment or other machinery, other than, typewriters, personal computers with low electrical consumption, adding machines, copying machines and such other electrically operated office machinery and equipment normally used in general office space; or (ii) any electrically operated equipment or other machinery using more than 120 volts, without first obtaining the prior written consent of Landlord. Such consent by Landlord may be conditioned upon the payment by Tenant of Additional Rent in compensation for such excess consumption of electricity and for the cost of installation and maintenance of additional wiring and/or submeters as may be necessitated by said equipment or machinery. Landlord hereby consents to the installation of a computer room in the Demised Premises provided that the Tenant pays the costs set forth in the preceding sentences and complies with the requirements of the remainder of this Section 14. Tenant shall not install any other equipment of any kind or nature which may necessitate any changes, replacements, additions to, or use of, the water, heating, air conditioning, plumbing or electrical systems of the Property, without first obtaining the prior written consent of Landlord, which may be given or withheld in Landlord’s sole and absolute discretion. Permitted machinery and equipment belonging to Tenant which cause noise or vibrations that may be transmitted to any part of the Property to such a degree as to be objectionable to Landlord or to any tenant of the Property shall be installed and maintained by Tenant, at Tenant’s expense, on vibration eliminators or other devices sufficient to eliminate such noise and vibrations.

(b)Maintenance and repair of equipment such as kitchen fixtures, separate air conditioning equipment, or any other type of special equipment or lighting, whether installed by Tenant or by Landlord on behalf of Tenant, shall be the sole responsibility of Tenant, and Landlord shall have no obligation in connection therewith.

15.Notice of Defects. Tenant shall give Landlord prompt notice of any defects or breakage in the structure, equipment or fixtures of the Demised Premises or Property.

16.Liability.

(a)Landlord assumes no liability or responsibility whatsoever with respect to the conduct and operation of the business to be conducted in the Demised Premises. Landlord shall not be liable for any accident or injury to any person(s) or property in or about the Demised Premises or the Property which are caused by the conduct and operation of Tenant’s business or by virtue of equipment or property of Tenant in the Demised Premises.

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(b)Landlord shall not be liable for any accident or damage caused by electric light or wires, or any accident or damage which may occur through the operation of elevators, heating, air conditioning, lighting or plumbing apparatus, or any accident or injury occurring in connection with the Property and its services unless caused by Landlord’s negligence. All personal property of Tenant in the Demised Premises or on the Property shall be at the sole risk of Tenant. Landlord shall not be liable for loss or damage to property of Tenant caused by rain, snow, water or steam that may leak into or flow from any part of the Property through any defects in the roof or plumbing or from any other source, including but not limited to acts or omissions of other tenants or occupants of the Building or persons using the Property. It is understood and agreed that Tenant covenants to save Landlord and the holders of any mortgages or deeds of trust on the Property harmless and indemnified from all loss, damage, liability or expense (including, without limitation, court costs and reasonable attorneys’ fees) incurred by reason of Tenant’s neglect in its use of the Demised Premises or the Property or any part thereof including the use of the water, steam, electric or other systems, and from all injury, loss or damage to any person or party upon the Demised Premises.

(c)All injury to the Demised Premises or the Property caused by moving the property of Tenant into or out of the Property, and all breakage done by Tenant, or the agents, servants, employees or visitors of Tenant, shall be promptly repaired by Landlord, at Tenant’s expense. Landlord shall have the right to make such necessary repairs, alterations and replacements (structural, non-structural or otherwise) and any charge or cost so incurred by Landlord shall be paid by Tenant and shall be considered Additional Rent payable with the installment of Minimum Rent next becoming due under this Lease. This provision shall be construed as an additional remedy granted to Landlord and not in limitation of any other rights and remedies which Landlord may have in said circumstances.

(d)Tenant shall indemnify Landlord and its agents and employees, and the holders of any mortgages or deeds of trust on the Property, and save them harmless from and against any and all claims, actions, damages, liabilities and expense (including, without limitation, court costs and reasonable attorneys’ fees) in connection with loss of life, personal injury or damage to property arising from or out of any occurrence in, upon or at the Demised Premises, or the occupancy or use by Tenant of the Demised Premises, or any part thereof, or occasioned wholly or in part by any act or omission of Tenant, its agents, contractors, employees, servants, permitted subtenants, licensees or invitees, or resulting from any default, breach, violation or non-performance of this Lease by Tenant. In the event that Landlord or its agents and employees shall, without fault on their part, be made a party to any litigation commenced by or against Tenant, then Tenant shall defend and hold Landlord and the holders of any mortgages or deeds of trust on the Property harmless and shall pay all costs, expenses and reasonable attorney’s fees incurred or paid in connection with such litigation. Tenant shall pay, satisfy and discharge any and all judgments, orders and decrees which may be recovered against Landlord in connection with the foregoing.

17.Signs. Other than the agreed upon signage on the top of the building, Tenant agrees that no sign, advertisement or notice shall be inscribed, painted or affixed on any part of the outside or inside of the Demised Premises or the Property, except on the directories and adjacent to the doors of the offices, and then only in such size, color and style as Landlord in its discretion shall approve. Landlord shall have the right to prohibit any sign, advertisement or notice on the

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Property of Tenant which in the Landlord’s opinion tends to impair the reputation of the Property or its desirability as a building for general offices, or for use by financial, insurance or other institutions and businesses of like nature, and, upon written notice from Landlord, Tenant shall refrain from and discontinue such advertisement and Landlord, in addition to its other remedies for default hereunder, shall have the right to remove the same, and Tenant shall be liable for any and all costs and expenses incurred by Landlord to effect said removal.

18.Ordinances, Regulations, and Rules.

(a)Tenant shall, at Tenant’s cost, promptly comply with and carry out all orders, requirements or conditions now or hereafter imposed upon Tenant by the ordinances, laws, or regulations of local, state or federal governments, or by any of their various departments or agencies, whether required of Landlord or otherwise to be done or performed during the Term of this Lease, insofar as they are occasioned by or required for the conduct of business by Tenant or Tenant’s occupancy of the Demised Premises. Tenant shall indemnify, defend and save Landlord and the holders of any mortgages or deeds of trust on the Property harmless from all penalties, claims, demands and judgments resulting from failure or negligence in this respect.

(b)Tenant, its agents, employees, contractors, licensees or invitees, shall abide by and observe the rules and regulations set forth below and such other reasonable rules and regulations as may be promulgated from time to time for the operation and maintenance of the Property and the Parking Facilities, provided a copy thereof is sent to Tenant 30 days prior to its effective date. Nothing contained in this Lease shall be construed to impose upon Landlord any duty or obligation to enforce such rules and regulations, or the terms, conditions or covenants contained in any other lease, and Landlord shall not be liable to Tenant for violation of the same by any other tenant, its employees, agents or invitees.

(i)The sidewalks, entries, passages, elevators, public corridors, staircases and other parts of the Property which are not occupied by Tenant shall not be obstructed or used for any purpose other than ingress and egress.

(ii)Tenant shall not install or permit the installation of any awnings, shades or the like other than those approved by Landlord in writing.

(iii)     Other than that required by any regulatory agency, no additional locks shall be placed upon any doors of the Demised Premises; and the doors leading to the corridors or main halls shall be kept closed during business hours except for ingress and egress.

(iv)     Tenant shall keep all areas visible through glass entry doors neat, clean, attractive and aesthetically in keeping with professional office suites.

(v)      Tenant shall not construct, maintain, use or operate within the Demised Premises or elsewhere on the Property any equipment or machinery which produces music, sound or noise which is audible beyond the Demised Premises.

(vi)     Electric and telephone distribution boxes and air conditioning equipment must remain accessible at all times.

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(vii)    Bicycles, motor scooters or any other types of vehicle shall not be brought into the lobby or elevators or into the Demised Premises.

(viii)   Tenant shall not install or authorize the installation of any coin-operated vending machines except within the Demised Premises.

(ix)     No animals of any kind shall be brought into or kept about the Building by any tenant.

19.Environmental.

(a)Tenant’s use and occupancy of the Demised Premises shall at all times be in strict compliance with any and all federal, state and local statutes, laws, rules, regulations, orders, ordinances and standards, as they may now or hereafter exist, relating in any way to the protection of the environment, such as, but not limited to, the Comprehensive Environmental Response, Compensation and Liability Act, as amended, 42 U.S.C. Sections 9601, et seq. (“CERCLA”), the Resource Conservation and Recovery Act, as amended, 42 U.S.C. Sections 6901, et seq. (“RCRA”), the Toxic Substances Control Act, as amended, 15 U.S.C. Sections 2601, et seq., the Clean Water Act, as amended, 33 U.S.C. Sections 1251, et seq., the Clean Air Act, as amended, 42 U.S.C. Sections 7401, et seq., and analogous state statutes, and regulations promulgated thereunder (collectively, “Environmental Laws”).

(b)In the event of any Release (as hereinafter defined) or threat of a Release or the presence of any Hazardous Substance (as hereinafter defined) affecting the Demised Premises or surrounding areas, Tenant shall immediately notify Landlord in writing thereof, and, to the extent that such Release or presence of any Hazardous Substance shall have been caused by Tenant, or its agents, employees, contractors, licensees or invitees, then Tenant shall immediately take all measures necessary to contain, remove and dispose off the Demised Premises, or surrounding areas, all such materials present or released or contaminated by the Release, and shall remedy and mitigate, at Tenant’s sole cost and expense, all threats to public health or the environment relating to such presence or Release or threat of Release. If Tenant shall fail to take the measures described above or fail to comply with any of the requirements of any Environmental Laws, Landlord may, at its election, but without the obligation to do so, give such notice and/or cause such work to be performed at the Demised Premises or surrounding areas, as applicable, and/or take any and all other actions as Landlord shall deem necessary to restore the Demised Premises or surrounding areas, as applicable, to the original condition existing as of the date of this Lease. Such actions by Landlord do not affect, nor cause to be waived, any of Tenant’s obligations under the Lease, nor cure any default by Tenant.

(c)Tenant shall indemnify, defend and hold harmless Landlord from and against any and all claims, liens, suits, actions, debts, damages, costs, losses (including, without limitation, any loss of value of, loss of use of, or loss of income from, the Demised Premises or the Property), liabilities, obligations, judgments and expenses (including, without limitation, court costs and attorneys’ fees), arising from or relating to any of the following occurrences caused by the acts or omissions of Tenant, its agents, employees, contractors, licensees or invitees: (i) a failure to comply with any Environmental Laws, or (ii) a Release, threat of a Release or the

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presence of any Hazardous Substance affecting the Demised Premises or surrounding areas. Tenant’s obligations under this Lease shall arise whether or not any governmental authority or individual has taken or threatened to take any action in connection with the presence of any Hazardous Substance.

(d)As used herein, the term “Hazardous Substance” shall mean any material that is or contains “hazardous substances” as defined pursuant to CERCLA or “petroleum” as defined pursuant to RCRA, or other material or substance that requires special handling by Federal, state or local law, or industry practice, without regard to the quantity or location of such material. The term Hazardous Substances shall include building materials and building components including, without limitation, asbestos contained in or comprising building materials or building components. The term “Release” shall have the same meaning as set forth in Section 101(22) of CERCLA.

(e)Tenant will not engage in operations during the Term or any extension or renewal thereof which involve the generation, manufacturing, refining, transportation, treatment, storage, disposal or handling of any Hazardous Substance, except that office equipment and cleaning solutions that are customarily found in first-class office buildings and which are or contain a Hazardous Substance may be used, generated, handled or stored on the Demised Premises, provided such is incident to and reasonably necessary for the operation and maintenance of the Demised Premises as permitted pursuant to the terms of this Lease and is in compliance with applicable laws. Tenant shall not cause or allow a Release of a Hazardous Substance or solid waste in, on or under the Property.

(f)Tenant agrees to permit Landlord and its authorized representatives to enter, inspect and assess the Demised Premises at reasonable times for the purpose of determining Tenant’s compliance with the provisions of this Section of the Lease. Such inspections and assessments may include obtaining samples and performing tests of building materials, soil, surface water, groundwater or other media.

(g)Tenant shall not install, apply, or otherwise use or introduce asbestos or any substance containing asbestos in or about the Demised Premises. In the event that asbestos is located in the Building, Tenant shall comply with any Operations and Maintenance Program adopted by Landlord in connection therewith.

(h)This entire Section 19 shall survive expiration or termination of the Lease.

20.Entry for Repairs and Inspections.

(a)Tenant shall permit Landlord, or its representatives, to enter the Demised Premises at all reasonable times, without diminution of the Minimum Rent payable by Tenant, to examine, inspect and protect the same, and to make such alterations and/or repairs as Landlord may deem necessary or desirable, or to exhibit the same to prospective tenants, mortgagees or purchasers.

(b)If Tenant refuses or neglects, after a request by Landlord, to repair the Demised Premises as required hereunder to the reasonable satisfaction of Landlord as soon as is

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reasonably possible, Landlord may, after written notice to Tenant (except in an emergency), make such repairs without liability to Tenant for any loss or damage that may occur to Tenant’s merchandise, fixtures or other property, or to Tenant’s business as a result thereof, and upon completion thereof, Tenant shall pay, as Additional Rent, the cost incurred by Landlord to make such repairs, plus twenty percent (20%) for overhead, upon presentation of a bill therefore.

(c)Landlord shall at all times have an easement and the right to enter in and through the Demised Premises for installation and maintenance of utility connections and facilities reasonably necessary to provide services to other portions of the Property and the common areas; provided, however, that Landlord shall endeavor to exercise such rights in a manner which will not unreasonably interfere with the operation of the Tenant’s business.

(d)Landlord’s entrance upon the Demised Premises pursuant to this paragraph shall not constitute an eviction of Tenant in whole or in part, and the Minimum Rent and Additional Rent due hereunder shall in no way abate while said repairs, alterations, improvements or additions are being made, unless such entrance prevents Tenant from conducting its business in the Demised Premises.

21.Services and Utilities.

(a)As long as Tenant is not in default under any of the provisions in Section 26 of this Lease, Landlord shall provide the following utilities and services to Tenant:

(i)Central heating and cooling, at such temperatures and in such amounts as set forth on Exhibit B. Monday through Friday, from 8:00 a.m. to 6:00 p.m. and on Saturday from 9:00 a.m. to noon, except on the following holidays: New Year’s Day, Memorial Day, Martin Luther King Day, President’s Day, July 4, Labor Day, Thanksgiving and Christmas, during such seasons of the year when such services are normally and usually furnished in comparable office buildings in the jurisdiction where the Property is located.

(ii)Automatically operated elevator service from 6:00 a.m. to 8:00 p.m., and at least one (1) elevator on call at all other times.

(iii)Reasonably adequate electricity, supplied by a supplier selected solely by Landlord, seven days a week for normal office purposes to furnish sufficient electrical power to machines of low electrical consumption; provided, however, that Tenant shall bear the costs occasioned by high electrical consumption machines such as special copiers and electronic data processing machines (including the air conditioning costs thereof) and multiple shifts of employees working hours other than those specified in 22 (a)(i) above. Landlord’s obligation to furnish electrical and other utility services, shall be subject to the rules and regulations of the supplier of such electricity or other utility services and the rules and regulations of any municipal or other governmental authority regulating the business of providing electricity and other utility services.

(iv)Restroom facilities and lavatory supplies, including hot and cold running water, provided for the general use of tenants of the Property; and routine maintenance, painting, and electric lighting service for all public areas and special service areas of the Property in the

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manner and to the extent deemed by Landlord to be standard for comparable office buildings in the jurisdiction where the Property is located.

(b)Any failure by Landlord to furnish the foregoing services shall not render Landlord liable in any respect for damages to either person or property, nor be construed as an eviction of Tenant, nor work an abatement of Rent, nor relieve Tenant from Tenant’s obligations hereunder. If the equipment or machinery should cease to function properly, Landlord shall use reasonable diligence to repair the same.

(c)If Tenant requires air-conditioning, heating or other services routinely supplied by Landlord for hours or days in addition to the hours and days specified in Section 21(a)(i) hereof, Landlord shall make reasonable efforts to provide such additional service after reasonable prior written request therefor from Tenant, and Tenant shall reimburse Landlord for such additional service at such rates therefor as may be established by Landlord, and the amount thereof shall be considered Additional Rent.

(d)Landlord agrees to grant Tenant permission to install security devices in the demised premises to limit ingress and egress as required by any regulatory agency.

22.Insurance.

(a)Landlord agrees to obtain and maintain in effect at all times during the Term of this Lease fire and extended coverage insurance insuring the Property. Such insurance shall be issued by an insurance company licensed to do business in the State of Maryland.

(b)Tenant, at Tenant’s sole cost and expense, shall obtain and maintain in effect at all times during the Term of this Lease, policies providing for the following coverage:

(i)Tenant shall obtain a policy of insurance covering Tenant’s fixtures and equipment installed and located in the Demised Premises, and in addition thereto, covering all of the furnishings, merchandise and other contents in the Demised Premises, for the full replacement value of said items. Coverage should at least insure against any and all perils included within the classification “Fire and Extended Coverage” under insurance industry practice in the State of Maryland, together with insurance against theft, vandalism, malicious mischief and sprinkler leakage or other sprinkler damage. Any and all proceeds of such insurance, so long as the Lease shall remain in effect, shall be used only to repair, replace or pay for the items so insured.

(ii)Tenant shall obtain a comprehensive policy of general liability insurance, naming Landlord and any mortgagee of the Property as additional insureds, protecting against any liability occasioned by any occurrence on or about any part of the Property, including theft, the Demised Premises or appurtenances thereto, and containing contractual liability coverage, with such policies to be in the minimum amount of Five Million and 00/100 Dollars ($5,000,000.00), combined single limit, written on an occurrence basis. In the event that it becomes customary for a significant number of tenants of commercial office buildings in the area to be required to provide liability insurance policies to their landlords with coverage limits higher than the foregoing limits, then Tenant shall be required on demand of Landlord to obtain

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insurance policies the limits of which are not less than the then customary limits.

(iii)Tenant shall obtain worker’s compensation or similar insurance affording statutory coverage and containing statutory limits as required under the local worker’s compensation or similar statutes.

(c)All insurance policies herein to be procured by Tenant shall (i) be issued by good and solvent insurance companies licensed to do business in the State of Maryland and having a rating by the Best Company of A:XII or better; (ii) be written as primary policy coverage and not contributing with or in excess of any coverage which Landlord may carry; (iii) insure and name Landlord and any mortgagee of the property as additional insureds as their respective interests may appear; and (iv) shall contain an express waiver of any right of subrogation by the insurance company against Landlord or Landlord’s agents and employees. Neither the issuance of any insurance policy required hereunder, nor the minimum limits specified herein with respect to Tenant’s insurance coverage, shall be deemed to limit or restrict in any way Tenant’s liability arising under or out of this Lease. At the request of Landlord, with respect to each and every one of the insurance policies herein required to be procured by Tenant, on or before the Commencement Date and before any such insurance policy shall expire, Tenant shall deliver to Landlord a certificate of insurance for each such policy or renewal thereof, as the case may be, together with evidence of payment of all applicable premiums. Any insurance required to be carried hereunder may be carried under a blanket policy covering the Demised Premises and other locations of Tenant, and if Tenant includes the Demised Premises in such blanket coverage, Tenant shall deliver to Landlord, as aforesaid a certificate evidencing such insurance coverage on the Demised Premises. Each insurance policy required to be carried hereunder by or on behalf of Tenant shall provide (and any certificate evidencing the existence of each such insurance policy shall certify) that, unless Landlord shall first have been given thirty (30) days prior written notice thereof: (i) such insurance policy shall not be canceled and shall continue in full force and effect, (ii) the insurance carrier shall not, for any reason whatsoever, fail to renew such insurance policy, and (iii) no material changes may be made in such insurance policy. The term “insurance policy” as used herein shall be deemed to include any extensions or renewals of such insurance policy. In the event that Tenant shall fail promptly to furnish any insurance coverage hereunder required to be procured by Tenant, Landlord, at its sole option, shall have the right to obtain the same and pay the premium therefor for a period not exceeding one (1) year in each instance, and the premium so paid by Landlord together with an administrative fee of fifteen percent (15%) of such premium shall be immediately payable by Tenant to Landlord as Additional Rent.

(d)Tenant shall not do or permit to be done any act or thing upon the Demised Premises that will invalidate or be in conflict with fire insurance policies covering the Property or any part thereof, or fixtures and property therein, or any other insurance policies or coverage referred to above in this Section; and Tenant shall promptly comply with all rules, orders, regulations or requirements of the Insurance Underwriters Code, as amended from time to time, having jurisdiction, or any similar body, in the case of such fire insurance policies, and shall not do, or permit anything to be done, in or upon the Demised Premises, or bring or keep anything therein, which shall increase the rate of fire insurance on the Property or on any property located therein, or increase the rate or rates of any other insurance referred to hereinabove applicable to the Property or any portion thereof. If by reason of failure of Tenant to comply with the provisions of this Section, the fire insurance rate, or the rate(s) of any other insurance coverage

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referred to above, shall at any time be higher than it otherwise would be, and if Landlord, at such time is obligated to, or has elected to, obtain and maintain in effect any such insurance coverage, then Tenant shall reimburse Landlord on demand as Additional Rent for that part of the premiums for any insurance coverage that shall have been charged because of such violation by Tenant and which Landlord shall have paid on account of an increase in the rate(s) in its own policies of insurance. In any action or proceeding wherein Landlord and Tenant are parties, a schedule or “make-up” of rate(s) for the Demised Premises issued by the Insurance Underwriters Code, as amended from time to time, having jurisdiction, or similar body establishing fire insurance rates for the Demised Premises or Property, in the case of the aforesaid fire insurance policies, and the respective body or bureau establishing rates in the case of all of the other aforesaid insurance policies, shall be conclusive evidence of the facts therein stated.

23.Damage by Fire or Other Casualty. Tenant shall give prompt notice to Landlord of any fire or other damage to the Demised Premises or the Building of which Tenant becomes aware. If (i) twenty percent (20%) or more of the Demised Premises or the Building shall be damaged by fire or other casualty, or (ii) any damage to the Demised Premises or Building cannot reasonably be repaired within ninety (90) days after the damage occurred, or (iii) any mortgagee of the Demised Premises shall require that the insurance proceeds under the policies referred to in Section 22 hereof be used to pay down the mortgage, or (iv) the Demised Premises or Building shall be damaged as a result of a risk which is not covered by Landlord’s insurance, or (v) less than one (1) year remains before the expiration of the Term, then Landlord or Tenant may terminate this Lease by notice given within thirty (30) days after the date of such damage. In addition, Landlord shall notify Tenant, in writing, within thirty (30) days after the date the damage occurred, if Landlord has reasonably determined that it will take more than ninety (90) days from the date the damage occurred to rebuild the Demised Premises, Tenant shall have the right to terminate this Lease upon written notice to Landlord delivered not more than thirty (30) days after Landlord delivers said notice to Tenant. If the Demised Premises are damaged by fire or other casualty and this Lease is not terminated pursuant to this Section 23, then all insurance proceeds under the policies referred to in Section 22 hereof that are recovered on account of any such damage shall be made available to pay for the cost of repairing such damage, and, as soon as practicable after such damage occurs, Landlord shall repair or rebuild the Demised Premises to a condition substantially similar to their condition immediately prior to such occurrence . However, in no event shall Landlord be obligated to repair or replace Tenant’s trade fixtures, equipment or personalty. In the event of any repair or rebuilding pursuant to this Section 23, then an equitable portion of the Rent shall be abated during the existence of such damage, based upon the portion of the Demised Premises which is rendered untenantable and the duration thereof. Except as expressly set forth in this Section 23, Landlord shall not be liable or obligated to Tenant if the Demised Premises are damaged by fire or other casualty. Tenant hereby waives any and all rights, other than those expressly set forth herein, that Tenant may have pursuant to any presently existing or hereafter enacted law, to terminate this Lease by reason of damage to the Demised Premises by fire or other casualty; provided, however, Tenant can terminate this Lease Agreement as the result of the damage substantially impairing the ingress and egress to the Demised Premises.

24.Condemnation.

(a)If the whole, or substantially the whole, of the Property or the Demised Premises

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is taken or condemned by eminent domain or by any conveyance in lieu thereof (“condemnation”), then the obligations of the Landlord and Tenant hereunder shall terminate on the earlier to occur of: (i) the date the condemning authority takes possession, or (ii) the date title vests in the condemning authority, or (iii) the date the condemning authority obtains an order of Court of Condemnation.

(b)If any portion of the Property shall be taken by condemnation (whether or not such condemnation includes any portion of the Demised Premises), and as a result thereof, Landlord in its discretion, determines that the Property cannot be restored in an economically feasible manner for a use substantially similar to its use immediately prior to such condemnation, than Landlord shall have the right, without liability to Tenant, upon written notice to Tenant, to terminate this Lease, with such notice to be given promptly after the Landlord has so determined.

(c)If a portion, but less than substantially the whole, of the Demised Premises shall be taken by condemnation, then the obligation of Landlord and Tenant hereunder shall terminate as of the date of such condemnation as to the portion of the Demised Premises so taken, and unless (i) Landlord elects to terminate this Lease pursuant to Section 24(b) hereof, or (ii) the Demised Premises shall no longer be reasonably suitable for the operation of Tenant’s business therein in which case this Lease shall terminate with respect to the entirety of the Demised Premises), whereupon this Lease shall remain in full force and effect with respect to the remainder of the Demised Premises.

(d)If the obligations of Landlord and Tenant are terminated as provided above, the Rent payable hereunder shall be adjusted as of the date of such termination. Any such termination, however, shall not serve to release Landlord or Tenant from any obligations contained herein, which expressly, or by their nature are deemed to, survive such termination of this Lease.

(e)All compensation awarded or paid upon condemnation of any portion of the Property, including the Demised Premises, shall belong to Landlord without participation by Tenant. Nothing contained herein shall be construed, however, to prevent Tenant from prosecuting any claim directly against the condemning authority for loss of business, loss of good will, moving expenses, damage to, and cost of removal of, any trade fixtures, furniture and personal property, to the extent such items belong to Tenant; provided, however, that Tenant shall make no claim which shall diminish or adversely affect any award claimed or received by Landlord.

25.Assignment Under Bankruptcy Code. Any person or entity to which this Lease is assigned pursuant to the provisions of the Bankruptcy Code shall be deemed, without further act or deed, to have assumed and be subject to all of the obligations, conditions and provisions under this Lease as of the date of such assignment. Notwithstanding the foregoing, to the extent allowed by law, this Lease shall not be assignable by voluntary or involuntary bankruptcy, insolvency or reorganization proceedings, nor shall this Lease, or any rights or privileges hereunder, be an asset of Tenant under any bankruptcy, insolvency or reorganization proceedings.

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26.Defaults and Remedies.

(a)The following events shall be a “Default” of Tenant under this Lease:

(i)Failure of Tenant to make any payment of Minimum Rent or Additional Rent when due, where such failure shall continue for a period of ten (10) days after receipt of written notice thereof by Landlord to Tenant; provided, however, that Tenant shall not be entitled to notice and an opportunity to cure upon the second (2nd) such default in any lease year or upon the fifth (5th) such default during the Term of this Lease;

(ii)Failure of Tenant to perform or comply with any provision of this Lease to be performed or complied with by Tenant (other than failure to pay Minimum Rent or Additional Rent pursuant to paragraph 26(a)(i) above), where such failure shall continue for a period of fifteen (15) days after receipt of written notice setting forth with particularity the nature of the breach and required code thereof by Landlord to Tenant;

(iii)If any execution, levy, attachment or other process of law shall occur upon Tenant’s goods, fixtures or interests in the Demised Premises which is not cured or removed by Tenant within 15 days thereof;

(iv)If Tenant fails to take possession of the Demised Premises within a reasonable period after the Lease Commencement Date, or if Tenant substantially vacates or abandons the Demised Premises prior to the normal expiration of the Term;

(v)The involvement of Tenant, or any guarantor of Tenant’s obligation hereunder, in financial difficulties as evidence by (A) its admitting in writing its inability to pay its debts generally as they become due, or (B) its filing a petition in bankruptcy or for reorganization or for the adoption of an arrangement under the Bankruptcy Act (as now or hereafter existing), or an answer or other pleading admitting the material allegations of such a petition or seeking, consenting to or acquiescing in the relief provided for under the Bankruptcy Act, or (C) its making an assignment of all or a substantial part of its property for the benefit of its creditors or (D) its seeking or consenting to or acquiescing in the appointment of a receiver or trustee for all or a substantial part of its property or of the Demised Premises, or (E) its being adjudicated a bankrupt or insolvent, or (F) the filing of a bankruptcy petition against Tenant or the entry of a court order without its consent, which order shall not be vacated, set aside or stayed within sixty (60) days from the date of filing or entry, or appointing a receiver or trustee for all or a substantial part of its property, or approving a petition filed against it for the effecting of an arrangement in bankruptcy or for a reorganization pursuant to the Bankruptcy Act, or for any other judicial modification or alteration of the rights of creditors.

(b)The provisions of this paragraph shall apply notwithstanding the payment by Tenant of the security deposit and/or the continued willingness and ability of Tenant to pay Rent or otherwise perform hereunder. The receipt by Landlord of payments of Rent accruing subsequent to the time of Tenant’s default under this paragraph, shall not be deemed a waiver by Landlord of Landlord’s rights hereunder.

(c)Upon the occurrence of a Default, Landlord shall have the right, at its election, then or at any time thereafter either:

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(i)To give Tenant written notice of Landlord’s intention to terminate this Lease as of the date specified in said notice, and on such date Tenant’s right to possession of the Demised Premises shall cease and this Lease shall be terminated; or

(ii)Without demand or notice, to re-enter and take possession of all or any part of the Demised Premises and expel Tenant and those claiming through Tenant, and remove the property of Tenant and any other person, either by summary proceedings or by action at law or in equity or otherwise, without being deemed guilty of trespass and without prejudice to any remedies for nonpayment or late payment of Rent or breach of covenant. If Landlord elects to re-enter under this provision, Landlord may, with or without terminating this Lease, re-let all or any part of the Demised Premises (as agent for Tenant if Landlord elects not to terminate this Lease) upon such terms and conditions as Landlord may deem advisable, with the right to make alterations and repairs to the Demised Premises. No such re-entry or taking of possession of the Demised Premises by Landlord shall be construed as an election on Landlord’s part to terminate this Lease unless a written notice of termination is given to Tenant by Landlord or unless the termination be decreed by a court of competent jurisdiction at the instance of Landlord.

(d)If Landlord terminates this Lease pursuant to the preceding paragraph, Tenant shall remain liable (in addition to all accrued liabilities) for (I) Minimum Rent and Additional Rent until the date this Lease would have expired had such termination not occurred, and any and all expenses (including attorney’s fees, disbursements and brokerage fees) incurred by Landlord in re-entering and repossessing the Demised Premises in making good any Default of Tenant, in painting, altering, repairing or dividing the Demised Premises, in protecting and preserving the Demised Premises by use of watchmen and caretakers, and in re-letting the Demised Premises, and any and all expenses which Landlord may incur during the occupancy of any new tenant; less (ii) the net proceeds of any re-letting prior to the date this Lease would have expired if it had not been terminated. Tenant agrees to pay to Landlord the difference between items (i) and (ii) above for each month during the Term, at the end of each such month. Any suit brought by Landlord to enforce collection of such difference for any one month shall not prejudice Landlord’s right to enforce the collection of any difference for any subsequent month. In addition to the foregoing, and without regard to whether this Lease has been terminated, Tenant shall pay to Landlord all costs incurred by Landlord, including reasonable attorney’s fees, with respect to any lawsuit or action instituted or taken by Landlord to enforce the provisions of this Lease. Tenant’s liability shall survive the institution of summary proceedings and the issuance of any writ of restitution thereunder.

(e)If Landlord terminates this Lease pursuant to this Section 27, Landlord shall have the right at any time, at Landlord’s option, to require Tenant to pay to Landlord the following amount, as liquidated and agreed final damages (which the parties hereto agree shall not be deemed a penalty) in lieu of Tenant’s liability for Rent hereunder, which amount shall be due and payable upon delivering written notice thereof to Tenant: the sum of (i) all past-due Rent through the date on which this Lease was terminated by Landlord, plus (ii) the amount of Leasing Costs (hereinafter defined) incurred by Landlord, plus (iii) the lesser of (a) the amount of Minimum Rent due for the remainder of the Term, or (b) the amount of Minimum Rent due for the two (2) year period immediately following the date on which this Lease was terminated by Landlord. Landlord and Tenant acknowledge that they have agreed to the foregoing amount

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as liquidated damages because of the difficulty of ascertaining in advance the amount of damages Landlord is likely to incur as a result of Tenant’s Default and Landlord’s subsequent termination of this Lease. For purposes hereof, the term “Leasing Costs” shall refer to the sum of (i) all real estate brokerage commissions incurred by Landlord in connection with the Lease, (ii) all costs and expenses incurred by Landlord in connection with the construction and/or installation of any leasehold improvements, (iii) any rental abatements, (iv) any allowances granted to Tenant, and (v) any other costs and expenses incurred by Landlord in connection with the Lease. In addition to any other damages for which Tenant shall be liable hereunder, Tenant shall be liable for all attorneys’ fees and court costs incurred by Landlord as a result of Tenant’s Default.

(f)Tenant, on its own behalf and on behalf of all persons claiming through Tenant, including all creditors, does hereby waive any and all rights and privileges, so far as is permitted by law, which Tenant and all such persons might otherwise have under any present or future law (i) to the service of any notice of intention to re-enter which may otherwise be required to be given, (ii) to redeem the Demised Premises, (iii) to re-enter or repossess the Demised Premises, or (iv) to restore the operation of this Lease, with respect to any dispossession of Tenant by judgment or warrant of any court, or otherwise, whether such dispossession, re-entry, expiration or termination be by operation of law or pursuant to the provisions of this Lease. In the event Landlord commences any proceeding for non-payment of Rent, Tenant shall not interpose any counterclaim of whatever nature or description in any such proceeding. This shall not, however, be construed as a waiver of Tenant’s right to assert such claim in any separate action(s) brought by Tenant.

(g)In the event of any breach by Tenant, or any person or persons claiming through Tenant, of any of the provisions contained in this Lease, Landlord shall be entitled to enjoin such breach and shall have the right to invoke any right or remedy allowed at equity as if the remedies under this Lease were not specified herein.

(h)Landlord shall, to the extent permitted by law, have (in addition to all other rights) a right of distress for Rent and a lien on all Tenant’s personal property as security for all Rent due under this Lease, and Tenant agrees not to remove such property from the Demised Premises without Landlord’s consent.

(i)If Tenant defaults in the making of any payment or in the doing of any act herein required to be made or done by Tenant, then after ten (10) days notice from Landlord, Landlord may, but shall not be required to, make such payment or do such act, and, if made or done by Landlord, the cost thereof (with interest thereon) shall be paid by Tenant to Landlord and shall constitute Additional Rent due and payable with the next monthly installment of Minimum Rent; but the making of such payment or the doing of such act by Landlord shall not operate to cure such Default or to stop Landlord from the pursuit of any remedy to which Landlord would otherwise be entitled.

(j)All rights and remedies of Landlord under this Lease shall be cumulative and shall not be exclusive of any other rights and remedies provided to Landlord now or hereafter at law or in equity, or under this Lease.

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27.Waiver of Jury Trial. Landlord and Tenant hereby waive all right to trial by jury in any claim, action, proceeding or counterclaim by either Landlord or Tenant against each other on any matter arising out of or in any way connected with this Lease, the relationship of Landlord and Tenant, and/or Tenant’s use and occupancy of the Demised Premises.

28.Subordination.

(a)This Lease and all rights of Tenant hereunder are subject and subordinate to all current and future underlying leases, deeds of trust, mortgages or other security instruments covering any portion of the Property or any interest of Landlord therein, as the same may be amended from time to time. This provision is declared by Landlord and Tenant to be self-operative and no further instrument shall be required to effect such subordination of this Lease. Upon demand, however, Tenant shall execute, acknowledge, and deliver to Landlord any further instruments evidencing such subordination as Landlord, and any mortgagee or lessor of Landlord shall reasonably require, and if Tenant fails to so execute, acknowledge and deliver such instruments within ten (10) days after the Landlord’s request, Landlord is hereby empowered to do so in Tenant’s name and on Tenant’s behalf; Tenant hereby irrevocably appoints Landlord as Tenant’s agent and attorney-in-fact for the purpose of executing, acknowledging and delivering any such instruments, such appointment being coupled with an interest and therefore irrevocable.

(b)Notwithstanding the generality of the foregoing provisions of Section 28(a), any mortgagee or lessor of Landlord shall have the right at any time to subordinate any such deed of trust or mortgage or underlying lease to this Lease, or to any of the provisions hereof, on such terms and subject to such conditions as such mortgagee or lessor of Landlord may consider appropriate in its discretion. At any time, before or after any transfer of Landlord’s interest in the Property, Tenant shall, upon request of such transferee (“Successor Landlord”), automatically attorn to and become the Tenant (or if the Demised Premises has been validly subleased, the subtenant) of the Successor Landlord, without change in the terms or other provisions of this Lease (or, in the case of a permitted sublease, without change in this Lease or in the instrument setting forth the terms of such sublease); provided, however, that the Successor Landlord shall not be bound by any subsequent modifications to this Lease without the consent of the Successor Landlord or by any payment made by Tenant of Rent for more than one (1) month in advance. This agreement of Tenant to attorn to a Successor Landlord shall survive any foreclosure sale, trustee’s sale, conveyance in lieu thereof or termination of any underlying lease. Tenant shall upon demand at any time, before or after any such foreclosure or termination, execute, acknowledge, and deliver to the Successor Landlord any written instruments evidencing such attornment as such Successor Landlord may reasonably require.

29.Estoppel Certificate. Tenant agrees, at any time and from time to time, upon not less than five (5) days prior written notice by Landlord, to execute, acknowledge and deliver to Landlord a statement in the form attached hereto as Exhibit D, or in such other form as Landlord may reasonably request, certifying: (i) that this Lease is unmodified (or if modified, stating the modifications) and in full force and effect (or if not in full force and effect, the reasons therefor), (ii) the dates to which the Minimum Rent, Additional Rent and other charges hereunder have been paid by Tenant, (iii) whether or not to the best knowledge of Tenant, Landlord is in default in the performance of any covenant, agreement or condition contained in this Lease, and if so, specifying each such default of which Tenant may have knowledge, and (iv) the address to

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which notices to Tenant should be sent. Any such statement delivered pursuant hereto may be relied upon by an owner of the Property, any prospective purchaser of the Property, any mortgagee or prospective mortgagee of the Property, any prospective assignee of any such mortgagee, or any lessor or prospective lessor of the land which is a part of the Property. Tenant’s failure to execute and deliver such statement within the time specified shall be deemed the equivalent of the delivery of a statement to the effect that Landlord is in full compliance with the terms of the Lease.

30.No Recourse to Landlord. The obligations of Landlord under this Lease do not constitute personal obligation of the individual partners, directors, officers or shareholders of Landlord, and Tenant shall look solely to the Property, and to no other assets of Landlord or the holders of any mortgages or deeds of trust on the Property, for satisfaction of any liability in respect of this Lease, and Tenant shall not seek recourse against the individual partners, directors, officers or shareholders of Landlord or the holders of any mortgages or deeds of trust on the Property or any of their personal assets for such satisfaction.

31.Holding Over. If Tenant shall, with the knowledge and consent of Landlord, continue to remain in the Demised Premises after the expiration of the Term of this Lease and any extensions thereof, then Tenant shall be deemed a month-to-month tenant at a monthly rental equal to twice the monthly installment of Rent which was due immediately prior to the expiration of the Term, the first (1st) installment of which shall be due and payable on the first day following the end of the Term and on the first (1st) day of each month thereafter until the termination of such month-to-month tenancy. Tenant shall give to Landlord at least thirty (30) days prior written notice of any intention to quit the Demised Premises, and Tenant shall be entitled to thirty (30) days written notice to quit the Demised Premises, except in the event of non-payment of Rent or of the breach of any other covenant by Tenant, in which event Tenant shall not be entitled to any notice to quit, the usual thirty (30) days notice to quit being hereby expressly waived. Notwithstanding the foregoing, in the event that Tenant shall hold over after the expiration of the Term, and if Landlord shall desire to regain possession of the Demised Premises promptly at the expiration of the Term, then at any time prior to Landlord’s acceptance of Rent from Tenant as a monthly tenant hereunder, Landlord, at its option, may forthwith re-enter and take possession of the Demised Premises without process, or by any legal process in force.

32.Submission of Lease. The submission of this Lease for examination by Tenant does not constitute a reservation of, or option for, the Demised Premises, and this Lease shall become effective only upon execution and delivery thereof by Landlord and Tenant.

33.Covenant of Landlord. Landlord covenants that it has the right to enter into this Lease, and that if Tenant shall pay the Minimum Rent and Additional Rent and shall perform all of Tenant’s obligation under this Lease, Tenant shall, during the Term hereof, have the right to peaceably and quietly occupy and enjoy the Demised Premises without molestation or hindrance by Landlord or any party claiming through or under Landlord, subject, however, to the mortgages and deeds of trust described in Section 28 and except as otherwise provided herein. The term “Landlord” as used herein shall mean solely the owner of Landlord’s interest in the Property, whoever that may be at the relevant time, so that in the event of any sale or transfer of Landlord’s interest in the Property, any prior landlord shall be freed and relieved of all covenants and obligations of Landlord hereunder.

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34.Force Majeure. If Landlord fails to provide any service or to perform any obligation on its part to be performed hereunder as the result of any (i) strikes, lockouts, or labor disputes; (ii) inability to obtain labor, materials, fuel, electricity, services or reasonable substitutes therefore; (iii) acts of God, civil commotion, fire or other casualty; (iv) governmental action of any kind; or (v) other conditions similar to those enumerated above and beyond Landlord’s reasonable control, then, such failure shall be excused and shall not be deemed a breach hereunder, provided immediately commences it’s obligation upon the cessation of the conditions.

35.Delay in Possession. If Landlord shall be unable to give possession of the Demised Premises on the date on which Landlord and Tenant expected the Term to commence by reason of the fact that the Property or the Demised Premises are being constructed and have not been sufficiently completed to make the Demised Premises ready for occupancy, or by reason of the fact that a certificate of occupancy has not been procured, or if Landlord is unable to give possession by reason of the holding over or retention of possession of a previous tenant or occupant, or its repairs, improvements or decoration of the Demised Premises, or of the Property are not completed, Landlord shall not be subject to any liability for the failure to give possession on said date. Under such circumstances, and except as otherwise provided herein, the rent reserved and covenanted to be paid herein shall not commence until the possession of Demised Premises is given or the Demised Premises are available for occupancy by Tenant and no such failure to give possession of the date of commencement shall in any other respect affect the validity of this Lease or the obligations of Tenant hereunder, nor shall same be construed in any way to extend the Term of this Lease. If permission is given to Tenant to enter into the possession of the Demised Premises prior to the date specified as the commencement of the Term of this Lease, Tenant covenants and agrees that such occupancy shall be deemed to be under all of the terms, conditions, covenants and provisions of this Lease.

36.Financial Statements. Tenant shall, provide Landlord annually with a current financial statement. Such statements shall be prepared in accordance with generally accepted accounting principles consistently applied, and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant. If it is not the normal practice of Tenant to prepare audited statements, then the unaudited statements shall be certified to by the Tenant’s chief financial officer.

37.Attorney’s Fees. If either party hereto initiates legal action to resolve a dispute under the terms of this Lease, then the substantially prevailing party shall be entitled to reimbursement from the other party of the prevailing party’s reasonable attorneys’ fees and court costs.

38.Brokers. Landlord and Tenant each represent and warrant that except as hereinafter set forth neither of them has employed any broker in carrying on the negotiations relating to this Lease. Landlord shall indemnify and hold Tenant harmless, and Tenant shall indemnify and hold Landlord harmless, from and against any claim for brokerage or other commission arising from and out of any breach of the foregoing representation and warranty.

39.Notices. All notices or other communications hereunder shall be in writing and shall be deemed duly given if sent via hand delivery, next-day express delivery, or certified or registered mail (return receipt requested, first class, postpaid prepaid), (i) if to Landlord at:

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Canton Crossing Tower, LLC

1501 South Clinton Street, 16th Floor

Baltimore, Maryland 21224

Attention: David H. Berman

and (ii) if to Tenant at:

Next Generation Financial Services

1501 South Clinton Street, 3rd Floor

Baltimore, MD 21224

Attention:

prior to the Lease Commencement Date and at the Demised Premises after the Lease Commencement Date, unless notice of a change of address is given pursuant to the provisions of this Section. Notice shall be deemed given on the day the same is dispatched for hand delivery, or one (1) day after the same is sent via next-day express delivery, or three (3) days after the same is sent via certified or registered mail.

40.Miscellaneous.

(a)This Lease and the exhibits attached hereto contain and embody the entire agreement of the parties hereto, and no representations, inducements or agreements, oral or otherwise, between Landlord and Landlord’s agents and Tenant not contained in this Lease and exhibits shall be of any force or effect. This Lease may not be modified, changed or terminated in whole or in part in any manner other than by an agreement in writing duly signed by both parties hereto.

(b)The terms, covenants and conditions hereof shall be binding upon and inure to the permitted successors in interest and assigns of the parties hereto. Landlord may freely and fully assign its interest hereunder.

(c)If any provisions of this Lease or the application thereof to any person or circumstances shall to any extent be held void, unenforceable or invalid, then the remainder of this Lease or the application of such provision to persons or circumstances other than those as to which it is held void, unenforceable or invalid shall not be affected thereby, and each provision of this Lease shall be valid and enforceable to the fullest extent permitted by law.

(d)Tenant shall not record this Lease without the written consent of Landlord, which may be given or denied in Landlord’s sole discretion. If Landlord consents to such recordation, the cost thereof shall be paid by Tenant.

(e)The captions and headings throughout this Lease are for convenience and reference only and the words contained therein shall in no way be held or deemed to define, limit, describe, explain, modify, amplify or add to the interpretation, construction or meaning of any provision of, or the scope of the intent of, this Lease, nor in any way affect this Lease.

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(f)Nothing contained in this Lease shall be deemed or construed to create a partnership or joint venture of or between Landlord and Tenant, or to create any other relationship between the parties hereto other than that of Landlord and Tenant.

(g)Feminine or neuter pronouns shall be substituted for those of the masculine form, the plural shall be substituted for singular number and vice versa in any place or places herein in which the context may require such substitute or substitutions.

(h)This Lease is to be construed under the laws of the jurisdiction in which the property is located.

41.No Waiver. If under the provisions hereof Landlord shall institute proceedings and a compromise or settlement thereof shall be made, the same shall not constitute a waiver of any covenant herein contained nor of any of Landlord’s rights hereunder. No waiver by Landlord of any breach of any covenant, condition or agreement herein contained shall operate as a waiver of the same. Any installment of Rent paid by Tenant shall be first applied against any past-due installments of Rent, beginning with the earliest installment then due. No endorsement or statement on any check or letter accompanying a check for payment of Rent be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the balance of such Rent or to pursue any other remedy at law or in equity, or as provided in this Lease. No re-entry by Landlord, and no acceptance by Landlord of keys from Tenant, shall be considered an acceptance of a surrender of the Demised Premises or termination of this Lease.

42.Authority of Landlord and Tenant. Each individual executing this Lease on behalf of Landlord and Tenant represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of Landlord or Tenant in accordance with a partnership agreement, bylaws or a duly adopted resolution of the Board of Directors, and that this Lease is binding upon Landlord and Tenant in accordance with its terms.

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IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease under seal as of the day and year first hereinabove written.

WITNESS/ATTEST:	LANDLORD:
	Canton Crossing Tower, LLC
/s/ Megan Wilson	By:	/s/ Duane R Rhine
Megan Wilson		Duane R Rhine - V.P.
WITNESS:	TENANT:
	Next Generation Financial Services,
	A Division of First Mariner Mortgage,
	A Division of First Mariner Bank
/s/ Megan Wilson	By:	/s/ Joseph A. Cicero
Megan Wilson

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EX-21.1

Exhibit 21.1

SUBSIDIARIES

1.  Wholly owned subsidiaries of First Mariner Bancorp

First Mariner Bank

FM Appraisals, LLC

Mariner Capital Trust II

Mariner Capital Trust III

Mariner Capital Trust IV

Mariner Capital Trust V

Mariner Capital Trust VI

Mariner Capital Trust VII

Mariner Capital Trust VIII

Mariner Finance, LLC

Hale Canton, LLC

Canton Borrowing, LLC

2.  Wholly owned subsidiaries of First Mariner Bank

First Mariner Mortgage Corporation (inactive)

Compass Properties, Inc.

First Mariner Financial Services, Inc. (inactive)

FMB Holdings, Inc. (inactive)

Canton Crossing II, LLC

3.  Wholly owned subsidiary of Canton Crossing II, LLC

Canton Crossing Borrower, LLC

4.  Wholly owned subsidiaries of Mariner Finance, LLC

Mariner Finance of Virginia, LLC

Mariner Finance Mortgage, LLC

EX-23.1

Exhibit 23.1

Consent of Stegman & Company

CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Stockholders
First Mariner Bancorp
Baltimore, Maryland

We consent to the incorporation by reference in the Registration Statements (Nos. 333-60961, 333-60963, 333-60967, 333-107669, 333-114073 and 333-122464) on Form S-8 and (No. 333-107670) on Form S-3 of First Mariner Bancorp of our report dated March 25, 2009, relating to the 2008 consolidated financial statements included in the annual report on Form 10-K of First Mariner Bancorp, for the year ended December 31, 2008.

	/s/ Stegman & Company
Baltimore, Maryland
March 30, 2009

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Edwin F. Hale, Sr., certify that:

(1)I have reviewed this annual report on Form 10-K of First Mariner Bancorp;

(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5)The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2009	By:	/s/ EDWIN F. HALE., SR.
		Edwin F. Hale, Sr.
		Chairman and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER PURSUANT TO
SECURITIES EXCHANGE ACT RULES 13a-14(a) AND 15d-14(a)
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark A. Keidel, certify that:

(1)I have reviewed this annual report on Form 10-K of First Mariner Bancorp;

(2)Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statement made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5)The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of registrant’s board of directors (or persons performing the equivalent functions):

a.All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize, and report financial information; and

b.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 31, 2009	By:	/s/ MARK A. KEIDEL
		Mark A. Keidel
		Chief Financial Officer

EX-32.1

Exhibit 32.1

FIRST MARINER BANCORP
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to, and for purposes only of, 18 U.S.C. § 1350, I, Edwin F. Hale, Sr., Chief Executive Officer of First Mariner Bancorp (the “Company”) hereby certify that (i) the Annual Report of the Company on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 31, 2009	/s/ Edwin F. Hale, Sr.
	Edwin F. Hale, Sr.
	Chief Executive Officer

EX-32.2

Exhibit 32.2

FIRST MARINER BANCORP
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

Pursuant to, and for purposes only of, 18 U.S.C. § 1350, I, Mark A. Keidel, Chief Financial Officer of First Mariner Bancorp (the “Company”) hereby certify that (i) the Annual Report of the Company on Form 10-K for the year ended December 31, 2008 filed with the Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and (ii) information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: March 31, 2009	/s/ Mark A. Keidel
	Mark A. Keidel
	Chief Financial Officer