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UNITED STATES
SECURITIES AND EXCHANGE COMMISSIONWashington, 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, 2009.oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For 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 registeredCommon 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 of
1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports, and (2) has been subject to such filing requirements for the past
90 days. Yes ý    No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes o    No o

Indicate by check mark if disclosure of delinquent filers in response to Item 405 of Regulation S-K is not contained herein and will not
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 $7.234 million.

The
number of shares of common stock outstanding as of March 19, 2010 was 6,452,631 shares.

Documents
incorporated by reference:

Proxy
StatementPart III



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FIRST MARINER BANCORP    Annual Report on Form 10-K  December 31, 2009    TABLE OF CONTENTS



PagePART IItem 1

Business

4Item 1A

Risk Factors

18Item 2

Properties

33Item 3

Legal Proceedings

35Item 4

[Removed and Reserved]

35PART IIItem 5

Market for the Registrant's Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities

36Item 6

Selected Financial Data

38Item 7

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

39Item 7A

Quantitative and Qualitative Disclosures About Market Risk

76Item 8

Financial Statements and Supplementary Data

77Item 9

Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure

127Item 9A

Controls and Procedures

127Item 9B

Other Information

129PART IIIItem 10

Directors, Executive Officers and Corporate Governance

130Item 11

Executive Compensation

130Item 12

Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters

130Item 13

Certain Relationships and Related Transactions, and Director
Independence

130Item 14

Principal Accounting Fees and Services

130PART IVItem 15

Exhibits and Financial Statement Schedules

131


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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Some of our statements contained in, or incorporated by reference into, this Annual Report on Form 10-K are "forward-looking
statements" within the meaning of the Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend such forward-looking statements to be covered by the
safe harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995 and are including this statement for purposes of invoking these safe harbor
provisions. Forward-looking statements are not guarantees of performance or results. When we use words like "may," "plan," "contemplate," "anticipate," "believe," "intend," "continue," "expect,"
"project," "predict," "estimate," "target," "could," "is likely," "should," "would," "will," and similar expressions, you should consider them as identifying forward-looking statements, although we
may use other phrasing. These forward-looking statements involve risks and uncertainties and are based on our beliefs and assumptions and on the information available to us at the time that these
disclosures were prepared. These forward-looking statements involve risks and uncertainties and may not be realized due to a variety of factors, including, but not limited to, the following:



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All
written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this Cautionary Note. Our actual results may differ significantly from
those we discuss in these forward-looking statements. For other factors, risks, and uncertainties that could cause our actual results to differ materially from estimates and projections contained in
these forward-looking statements, please read the "Risk Factors" in Item 1A in this section of this Form 10-K. Any forward-looking statement speaks only as of the date which such
statement was made, and, except as required by law, we expressly disclaim any obligation or undertaking to disseminate any updates or revisions to any forward-looking statement to reflect events or
circumstances after the date on which such statement is made or to reflect the occurrence of unanticipated events.

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") and FM Appraisals, LLC ("FM Appraisals"). First Mariner was formed in 1995 and has total assets in excess of $1.384 billion as of December 31,
2009. 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; and www.vamortgage.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").

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The
Bank is our largest operating subsidiary with assets exceeding $1.372 billion as of December 31, 2009 and is the largest bank headquartered in Baltimore, Maryland. 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").

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, Virginia, and North Carolina. First Mariner Mortgage originated $1.625 billion in loans
in 2009.

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 to unaffiliated parties (primarily Fannie Mae). The Bank does not originate any reverse
mortgage loans
for its portfolio, but does retain the servicing rights on reverse mortgage loans originated by NGFS and sold to Fannie Mae. The Bank has entered into a profit sharing agreement with a private company
related to NGFS, which may result in the acquisition of NGFS if certain requirements are satisfied by the end of the first quarter of 2011. The closing of the transaction is subject to numerous
conditions, including, without limitation, that the parties obtain consents and approvals from certain lenders and governmental agencies that license and supervise the Bank. Accordingly, there can be
no assurance that the closing will occur when expected, if at all. The Bank does not anticipate any benefit that results from the sale to be material.

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 subcontracted appraisers, appraisal ordering and administration, and appraisal review services. FM Appraisals provides
these services to First Mariner Mortgage and NGFS.

We
sold our consumer finance subsidiary, Mariner Finance, LLC, ("Mariner Finance") during 2009. See "Sale of Mariner Finance" in Item 7 of Part II of this
Form 10-K for additional information.

We
do not conduct any foreign operations.

We
operate in two business segmentscommercial and consumer banking and mortgage-banking. Financial information related to our operations in these segments for each of the
three years ended December 31, 2009 is provided in Note 20 to our Consolidated Financial Statements included in Item 8 of Part II of this Form 10-K.

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Our Business Strategy

We are currently focused on improving earnings, liquidity, and capital adequacy and controlling asset growth. In order to achieve our
objectives, our strategy is to:



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 of all age demographics. 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.

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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-lien 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 primarily 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 U.S. Department of Agriculture Rural Development Loans Program, the Federal Home Loan Bank of Atlanta Closing Cost Assistance Program, the Section 8 to
Home-Ownership Program, and the Settlement Expense Loan Program.

Our Lending Activities

Loan Portfolio Composition

At December 31, 2009, our loan portfolio totaled $890.951 million, representing approximately 64.3% of our total assets
of $1.385 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, 2009 over 88% 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 85% of the appraised value of the property for individuals and 80% of the appraised value of the property for developers. 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 75% 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 twelve 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

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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 preconstruction sales 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. The majority of our commercial loans are secured. 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 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 offers a variety of consumer loans, 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.

See
Item 7 of Part II of this Form 10-K for more detailed information concerning our loan portfolio, the individual portfolio types, and their effect on
2009 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

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underperforming
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.

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 $13.9 million as of December 31,
2009. We have established an in-house limit of $5.0 million, which is reviewed periodically by the Board of Directors, but 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 81% of our residential real estate
development and construction loan portfolio consisted of loans to Maryland customers; an additional 18% consisted of loans to customers in the surrounding states and the District of Columbia; and
approximately 1% consisted of loans to customers in other states in the country. Approximately 83% of our commercial loan portfolio (commercial, commercial real estate, and commercial construction)
consisted of loans to Maryland customers with an additional 11% 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.

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

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.

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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.

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.

Supervision and Regulation

General

First Mariner and the Bank are extensively regulated under federal and state law. As a registered bank holding company, First Mariner
is subject to supervision and examination by and reporting to the Federal Reserve Board ("FRB" or "Federal Reserve").

The
Bank is a member of the Federal Home Loan Bank System and, with respect to deposit insurance, of the Deposit Insurance Fund managed by the FDIC. The Bank must file reports with the
Maryland Commissioner of Financial Regulation ("Commissioner") and the FDIC concerning its activities and financial condition and obtain regulatory approvals prior to entering into certain
transactions such as mergers with, or acquisitions of, other banks. The Commissioner and/or the FDIC conduct periodic examinations to test the Bank's safety and soundness and compliance with various
regulatory requirements. This regulation and supervision is intended primarily for the protection of the insurance fund and depositors. The regulatory structure also gives the regulatory authorities
extensive discretion in connection with their supervisory and enforcement activities and examination policies, including with respect to the classification of assets and the establishment of adequate
loan loss reserves for regulatory purposes. Any change in such regulatory requirements and policies, whether by the Commissioner, the FDIC or legislative bodies, could have a material adverse impact
on First Mariner, the Bank, and their operations.

Certain
regulatory requirements applicable to First Mariner and the Bank are referred to below or elsewhere in this Form 10-K. The summary of statutory provisions and
regulations set forth below or elsewhere does not purport to be a complete description of such statutes and regulations and their effects on First Mariner and the Bank and is qualified in its entirety
by reference to the actual laws and regulations.

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Regulation of First Mariner

General

First
Mariner, as the sole shareholder of the Bank, is a bank holding company and is registered as such with the Federal Reserve. Bank holding companies are
subject to comprehensive regulation and examination by the FRB under the Bank Holding Company Act of 1956, as amended (the "BHCA"), and the regulations of the FRB. The Federal Reserve also has
extensive enforcement authority over bank holding companies, including, among other things, the ability to assess civil money penalties, issue cease and desist or removal orders, and require that a
holding company divest subsidiaries. In general, enforcement actions may be initiated for violations of law and regulations and unsafe or unsound practices. First Mariner has entered into a written
agreement with the FRB. See "We are subject to restrictions and conditions of Cease and Desist Orders issued by the FDIC and the Commissioner ("September Order"), and agreements with the FRB ("FRB
Agreement" and "New FRB Agreement") and have incurred and expect to continue to incur significant additional regulatory compliance expense in connection with these enforcement actions" in
Item 1A later in this Part of this Form 10-K. See also "Capital Resources" in Item 7 of Part II of this Form 10-K.

Under
the BHCA, a bank holding company must obtain Federal Reserve approval before: (i) acquiring, directly or indirectly, ownership or control of any voting shares of another
bank or bank holding company if, after such acquisition, it would own or control more than 5% of such shares (unless it already owns or controls the majority of such shares); (ii) acquiring all
or substantially all of the assets of another bank or bank holding company; or (iii) merging or consolidating with another bank holding company. In evaluating such applications, the Federal
Reserve considers a variety of financial, managerial, and competitive factors and the convenience and needs of the communities involved.

The
BHCA also prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which
is not a bank or bank holding company, or from engaging directly or indirectly in activities other than those of banking, managing, or controlling banks or providing services for its subsidiaries. The
principal exceptions to these prohibitions involve certain nonbanking activities which, by statute or by Federal Reserve Board regulation or order, have been identified as activities closely related
to the business of banking or managing or controlling banks. The list of activities includes, among others, operating a savings association, mortgage company, finance company, credit card company, or
factoring company; performing certain data processing operations; providing certain investment and financial advice; real estate and personal property appraising; providing tax planning and
preparation services; and, subject to certain limitations, providing securities brokerage services for customers.

The
Gramm-Leach-Bliley Act of 1999 authorized bank holding companies that meet certain management, capital, and other criteria to choose to become a "financial holding company" and
thereby engage in a broader array of financial activities including insurance underwriting and investment banking. First Mariner elected to become a financial holding company in 2002, but withdrew
that election in 2007.

Dividends

The
Federal Reserve has issued a policy statement on the payment of cash dividends by bank holding companies. That expresses the FRB's view that a bank holding
company should pay cash dividends only to the extent that the company's net income for the past year is sufficient to cover both the cash dividends and a rate of earning retention that is consistent
with the company's capital needs, asset quality, and overall financial condition. The Federal Reserve has indicated that it would be inappropriate for a company experiencing serious financial problems
to borrow funds to pay dividends. Furthermore, under the prompt corrective action regulations adopted by the Federal Reserve pursuant to the Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA"), the Federal

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Reserve
Board may prohibit a bank holding company from paying any dividends if the holding company's bank subsidiary is classified as "undercapitalized." See "Federal and State Bank
RegulationPrompt Corrective Regulatory Action" later in this section.

Capital
Requirements

The
Federal Reserve has established consolidated capital requirements, for bank holding companies that are structured similarly to the capital requirements for
FDIC-insured state banks described below. See "Federal and State Bank Regulation: Capital Requirements" later in this section.

Stock
Repurchases

A
bank holding company is required to give the FRB prior written notice of any purchase or redemption of its outstanding equity securities if the gross
consideration for the purchase or redemption, when combined with the net consideration paid for all such purchases or redemptions during the preceding 12 months, is equal to 10% or more of the
company's consolidated net worth. The Federal Reserve may disapprove such a purchase or redemption if it determines that the proposal would violate any law, regulation, Federal Reserve order,
directive, or any condition imposed by, or written agreement with, the FRB. This requirement does not apply to bank holding companies that are "well-capitalized," received one of the two
highest examination ratings at their last examination, and are not the subject of any unresolved supervisory issues.

Source
of Strength

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 generally 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.

Acquisitions
of Bank Holding Companies and Banks

Under
the BHCA, any company must obtain approval of the Federal Reserve prior to acquiring control of First Mariner or the Bank. For purposes of the BHCA,
control is defined as ownership of more than 25% of any class of voting securities of First Mariner or the Bank, the ability to control the election of a majority of the directors, or the exercise of
a controlling influence over management or policies of First Mariner or the Bank. Any bank holding company must secure Federal Reserve approval prior to acquiring 5% or more of the stock of the
Company or the Bank.

The
Change in Bank Control Act and the related regulations of the FRB require any person or persons acting in concert (except for companies required to make application under the BHCA),
to file a written notice with, and review the nonobjection of, the Federal Reserve before such person or persons may acquire direct or indirect control of First Mariner. The Change in Bank
Control Act implementing regulations presume control as the power, directly or indirectly, to vote 10% or more of any voting securities or to direct the management or policies of a bank holding
company, such as First Mariner, that has securities registered under the Securities Exchange Act of 1934.

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Maryland Bank Holding Company Regulation

Under Maryland law, acquisitions of 25% or more of the voting stock of a Maryland commercial bank or a Maryland bank holding company
and other acquisitions of voting stock of such entities which affect the power to direct or to cause the direction of the management or policy of a commercial bank or a bank holding company must be
approved in advance by the Commissioner. Any voting stock acquired without the approval required under the statute may not be voted for a period of five years. Certain acquisitions by bank holding
companies of 5% or more of the stock of Maryland banks or Maryland bank holding companies are governed by Maryland's holding company statute and also require prior approval of the Commissioner. Also,
a bank holding company and its Maryland chartered bank subsidiary, must generally obtain the prior approval of the Commissioner prior to, directly or indirectly, acquiring nonbanking subsidiaries or
affiliates.

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 Commissioner
and the FDIC.

Business
Activities

Maryland
law and Commissioner regulate the Bank's internal organization as well as deposit, lending, and investment activities. In its lending activities, the
maximum legal rate of interest, fees, and charges that may be charged 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 related interests to a financial institution's capital levels. Additionally, Maryland
law contains a parity statute by which Maryland institutions may, with the approval of the Commissioner, engage in any additional activity, service, or other practice that is permitted for national
banks.

The
FDIC also regulates many of the areas regulated by the Commissioner and federal law may limit some of the authority provided by Maryland law. Approval of the Commissioner and the
FDIC is required for, among other things, business combinations and the establishment of branch offices.

Branching
Activities

Any
Maryland-chartered bank meeting certain requirements may, with the approval of the Commissioner and the FDIC, establish and operate branches anywhere in
the state.

Interstate
Branching

Federal
law authorizes the responsible federal banking agencies to approve merger transactions between banks located in different states unless the state in
which the target is located has opted out. Accordingly, a Maryland bank may acquire branches in a state other than Maryland unless the other state has enacted legislation opting out. Federal law also
authorizesde novobranching into another state if the host state enacts a law expressly permitting out of state banks to establish such branches within
its borders.

Activities
and Investments

Since
the enactment of FDICIA, all state-chartered FDIC insured banks have generally been limited to activities as principal to those authorized for national
banks, notwithstanding any broader authority that may exist in state law. Additionally, FDICIA limits equity investments by state banks to the types and amounts permitted national banks. Certain
exceptions exist. For example, the FDIC is authorized to permit banks to engage in state-authorized activities or investments that are impermissible for national banks (other than nonsubsidiary equity
investments) if the bank meets all

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applicable
capital requirements and it is determined that the activities or investments do not pose a significant risk to the Deposit Insurance Fund.

Capital
Requirements

The
Bank is subject to the FDIC's regulatory capital requirements. The capital regulations currently require state banks to meet two minimum capital standards:
a 4% leverage
ratio (3% for institutions receiving the highest rating on the depository institution examination rating system) and an 8% risk-based capital ratio.

The
leverage ratio requires a minimum ratio of Tier 1 (or "core") capital to adjusted average assets of 4% (3% for institutions with the highest examination rating). Tier 1
capital is generally defined as common stockholders' equity (including retained earnings), certain noncumulative perpetual preferred stock, and related surplus and minority interests in equity
accounts of consolidated subsidiaries, less certain deferred tax assets and intangibles other than certain mortgage servicing rights and credit card relationships.

The
risk-based capital standard requires the maintenance of Tier 1 and total capital (which is defined as Tier 1 capital plus Tier 2 (or "supplementary")
capital) to risk-weighted assets of at least 4% and 8%, respectively. In determining risk-weighted assets, all assets, including certain off-balance sheet assets,
recourse obligations, residual interests, and direct credit substitutes, are multiplied by risk weightings of 0% to 200%, which are assigned by the FDIC capital regulation based on the risks believed
inherent in the type of asset. The components of Tier 2 capital currently include cumulative preferred stock, long-term perpetual preferred stock, mandatory convertible securities,
subordinated debt and intermediate preferred stock, the allowance for loan and lease losses up to a maximum of 1.25% of risk-weighted assets, and up to 45% of unrealized gains on
available-for-sale equity securities with readily determinable fair market values. Overall, the amount of Tier 2 capital included as total capital cannot exceed 100% of
Tier 1 capital.

The
FDIC also has authority to establish individual minimum capital requirements in appropriate cases upon a determination that an institution's capital level is or may become inadequate
in light of the particular circumstances. The FDIC has done so in the case of the Bank. See "We are subject to restrictions and conditions of Cease and Desist Orders issued by the FDIC and the
Commissioner ("September Order"), and agreements with the FRB ("FRB Agreement" and "New FRB Agreement") and have incurred and expect to continue to incur significant additional regulatory compliance
expense in connection with these enforcement actions" in Item 1A later in this Part of this Form 10-K. See also "Capital Resources" in Item 7 of Part II of this
Form 10-K.

Prompt
Corrective Regulatory Action

Federal
law requires the appropriate federal regulatory agency to take certain supervisory actions against undercapitalized institutions, the severity of which
depends upon the institution's degree of undercapitalization. Generally, a bank that has a ratio of total capital to risk weighted assets of less than 8%, a ratio of Tier 1 capital to
risk-weighted assets of less than 4% or a ratio of Tier 1 capital to total assets of less than 4% (3% or less for institutions with the highest examination rating) is considered to
be "undercapitalized." A bank that has a total risk-based capital ratio of less than 6%, a Tier 1 capital ratio of less than 3% or a leverage ratio that is less than 3% is
considered to be "significantly undercapitalized" and a bank that has a tangible capital to assets ratio equal to or less than 2% is deemed to be "critically undercapitalized." Subject to a narrow
exception, a receiver or conservator must be appointed within specified time frames for an institution that is "critically undercapitalized." The law also provides that an acceptable restoration plan
must be filed within 45 days of the date a bank receives notice that it is "undercapitalized," "significantly undercapitalized," or "critically undercapitalized." Compliance with the plan must
be guaranteed by any parent company up to the lesser of 5% of the Bank's total assets when deemed to be undercapitalized or the amount

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necessary
to achieve compliance with all applicable capital requirements. In addition, certain mandatory supervisory actions become applicable to any undercapitalized institution including, but not
limited to, increased monitoring by regulators and restrictions on growth, capital distributions (including dividends), and expansion. The FDIC could also take additional discretionary supervisory
actions, including the issuance of a capital directive, requiring the sale of the institution, and the replacement of senior executive officers and directors.

Safety
and Soundness Guidelines

Federal
law requires each federal banking agency to establish safety and soundness standards for institutions under its authority. The federal banking
agencies, including the FDIC, have released Interagency Guidelines Establishing Standards for Safety and Soundness. The guidelines specify basic standards for matters such as internal controls and
information systems, internal audit systems, loan documentation, credit underwriting, interest rate risk exposure and asset growth, asset quality, earnings, and employee compensation. If the
appropriate federal banking agency determines that a depository institution is not in compliance with the safety and soundness guidelines, it may require the institution to submit an acceptable plan
to achieve compliance with the guidelines. The institution must submit an acceptable compliance plan within 30 days of receipt of a request for such a plan. Failure to submit or implement a
compliance plan may result in regulatory sanctions.

Uniform
Lending Standards

Under
FDIC's regulations, state banks must adopt and maintain written policies that establish appropriate limits and standards for loans that are secured by
interests in real estate or are made for the purpose of financing permanent improvements to real estate. The policies must establish loan portfolio diversification standards, prudent underwriting
standards, including loan-to-value limits that are clear and measurable, loan administration procedures and documentation, and loan approval and reporting requirements. Such
real estate lending policies must reflect the Interagency Guidelines for Real Estate Lending Policies that have been adopted by the federal banking agencies.

Transactions
with Related Parties

Transactions
between a bank and any affiliate are governed by Sections 23A and 23B of the Federal Reserve Act. An affiliate is any company or entity,
which controls, is controlled by or is under common control with the bank. For example, First Mariner is an affiliate of the Bank's for purposes of those laws. Generally, Sections 23A and 23B:
(i) limit the extent to which an institution or its subsidiaries may engage in "covered transactions" with any one affiliate to an amount equal to 10% of such institution's capital stock and
surplus, and contain an aggregate limit on all such transactions with all affiliates to an amount equal to 20% of such capital stock and surplus, (ii) impose collateral requirements on certain
transactions with, including loans to, affiliates, and (iii) require that all such transactions be on terms substantially the same, or at least as favorable, to the institution or subsidiary as
those provided to a nonaffiliate. The term "covered transaction" includes loans to, purchases of assets from, and the issuance of guarantees on behalf of an affiliate and certain other transactions.

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Banks also are subject to the federal restrictions on loans to executive officers, directors, and greater than 10% stockholders (collectively, "insiders").
Generally, loans to insiders and certain related interests must be approved in advance by a majority of the board of directors of the institution, with any "interested" director not participating in
the voting, if the loan exceeds the greater of $25,000 or 5% of the bank's capital. Any loan which, combined with prior loans to the insider and their related interest, aggregates $500,000 or more are
subject to the board's approval requirements in all cases. Loans to insiders must be made on terms substantially the same as offered in comparable transactions to outside parties. There is an
exception for extensions of credit made to officers and directors as part of a bank-wide compensation or benefit program that does not favor directors or officers over other employees.
There are further restrictions on loans that can be made to executive officers.

Additionally,
Maryland law imposes restrictions on loans to directors, officers, or employees of Maryland commercial banks. Generally, a director, officer, or employee of a commercial
bank may not borrow, directly or indirectly, any money from the bank, unless the loan has been approved by the board of directors, or the executive committee of the bank, if that committee is
authorized to approve loans. Commercial loans made to nonemployee directors of a bank and certain consumer loans made to nonofficer and nondirector employees of a bank are exempted.

Dividend
Restrictions

A
Maryland bank's ability to pay dividends is governed by the Maryland law and the regulations of the FDIC. Under Maryland law, if the surplus of a commercial
bank is less than 100% of its capital stock then, until the surplus equals at least 100% of the capital stock, the commercial bank: (i) must transfer to its surplus annually at least 10% of its
net earnings and (ii) may not declare or pay any cash dividends that exceed 90% of its net earnings. Maryland law provides for dividends only out of undivided profits or, with the approval of
the Commissioner, surplus in excess of 100% of required capital stock. Also, under FDIC regulations, no bank may pay a dividend if it would be "undercapitalized" within the meaning of the prompt
corrective action laws, or if it is in default of any deposit insurance assessment. See also "Our ability to pay cash dividends is limited" in Item 1A later in this Part of this
Form 10-K.

Enforcement

The
Commissioner has extensive enforcement authority over Maryland banks. Such authority includes the ability to issue cease and desist orders and civil money
penalties and to remove directors or officers. The Commissioner may also take possession of a Maryland bank whose capital is impaired and seek to have a receiver appointed by a court.

The
FDIC has primary federal enforcement responsibility over state banks under its jurisdiction, including the authority to bring enforcement action against all "institution-related
parties," including stockholders, and any attorneys, appraisers and accountants who knowingly or recklessly participate in wrongful action likely to have an adverse effect on an institution. Formal
enforcement action may range from the issuance of a capital directive or cease and desist order to removal of officers and/or directors, receivership, conservatorship, or termination of deposit
insurance. Civil money penalties cover a wide range of violations and actions and range up to $25,000 per day or even up to $1 million per day (in the most egregious cases). Criminal penalties
for most financial institution crimes include fines of up to $1 million and imprisonment for up to 30 years.

The
Bank has entered into a Consent Order with the FDIC and the Commissioner. See "Capital Resources" in Item 7 of Part II of this Form 10-K.

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Community
Reinvestment Act

Under
the CRA, as implemented by FDIC regulations, a bank has a continuing and affirmative obligation, consistent with its safe and sound operation, to help
meet the credit needs of its entire community, including low and moderate income neighborhoods. The CRA does not establish specific lending requirements or programs for financial institutions, nor
does it limit an institution's discretion to develop the types of products and services that it believes are best suited to its particular community. The CRA requires the FDIC, in connection with its
examination of a bank, to assess the institution's record of meeting the credit needs of its community and to take the record into account in its evaluation of certain applications by the institution.

Assessments

Maryland
banks are required to pay annual assessments to the Commissioner's office to cover the cost of regulating Maryland institutions. The Bank's asset size
determines the amount of the assessment.

Insurance
of Deposit Accounts

The
Bank's deposits are insured up to applicable limits by the Deposit Insurance Fund of the FDIC. The Deposit Insurance Fund is the successor to the Bank
Insurance Fund and the Savings Association Insurance Fund, which were merged in 2006.

Under
the FDIC's risk-based assessment system, insured institutions are assigned to one of four risk categories based on supervisory evaluations, regulatory capital levels,
and certain other factors, with less risky institutions paying lower assessments. An institution's assessment rate depends upon the category to which it is assigned. For calendar 2008, assessments
ranged from five to forty-three basis points of each institution's deposit assessment base. Due to losses incurred by the Deposit Insurance Fund ("DIF") in 2008 as a result of failed institutions, and
anticipated future losses, the FDIC adopted an across the board seven basis point increase in the assessment range for the first quarter of 2009. The FDIC made further refinements to its
risk-based assessment that were effective April 1, 2009 and that effectively made the range 7.0 to 77.5 basis points. The FDIC may adjust rates uniformly from one quarter to the
next, except that no adjustment can deviate more than three basis points from the base scale without notice and comment rulemaking. No institution may pay a dividend if in default of the FDIC
assessment.

The
FDIC imposed on each insured institution a special emergency assessment of five basis points of total assets minus Tier 1 capital, as of June 30, 2009 (capped at ten
basis points of an institution's deposit assessment base on the same date) in order to cover losses to the Deposit Insurance Fund. That special assessment was collected on September 30, 2009.
The FDIC provided for similar special assessments during the last two fiscal quarters of 2009, if deemed necessary. However, in lieu of further special assessments, the FDIC required insured
institutions to prepay estimated quarterly risk-based assessments for the fourth quarter of 2009 through the fourth quarter of 2012. The Bank received an automatic waiver of the prepayment
requirement.

Due
to the recent difficult economic conditions, deposit insurance per account owner has been raised to $250,000 for all types of accounts until January 1, 2014. In addition, the
FDIC adopted an optional Temporary Liquidity Guarantee Program by which, for a fee, noninterest-bearing transaction accounts would receive unlimited insurance coverage until December 31, 2009,
subsequently extended until June 30, 2010. Certain senior unsecured debt issued by institutions and their holding companies between specified time frames could also be guaranteed by the FDIC
through June 30, 2012, or in some cases, December 31, 2012. The Bank made a business decision to participate in the unlimited noninterest-bearing transaction account coverage and the
Bank and First Mariner opted to participate in the unsecured debt guarantee program.

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The
Federal Deposit Insurance Corporation has authority to increase insurance assessments. A significant increase in insurance premiums would likely have an adverse effect on the
operating expenses and results of operations of the Company. Management cannot predict what insurance assessment rates will be in the future.

Insurance
of deposits may be terminated by the FDIC upon a finding that the institution has engaged in unsafe or unsound practices, is in an unsafe or unsound condition to continue
operations, or has violated any applicable law, regulation, rule, order or condition imposed by the FDIC.

Federal
Reserve System

Federal
Reserve regulations require depository institutions to maintain reserves against their transaction accounts (primarily NOW and regular checking
accounts). The regulations currently provide that reserves be maintained against aggregate transaction accounts as follows: a 3% reserve ratio is assessed on net transaction accounts up to and
including $55.2 million; a 10% reserve ratio is applied above $55.2 million. The first $10.87 million of otherwise reservable balances are exempted from the reserve requirements.
These amounts are adjusted annually.

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 First Mariner 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 FRB, which regulates the national money supply in order to
mitigate recessionary and inflationary pressures. Among the techniques available to the FRB 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
Form 10-K.

ITEM 1A    RISK FACTORS

We are subject to restrictions and conditions of a Cease and Desist Order issued by the FDIC and the Commissioner of the Maryland Division of Financial Regulation (the
"Commissioner") ("September Order"), and agreements with the FRB ("FRB Agreement" and "New FRB Agreement") and have incurred and expect to continue to incur significant additional regulatory
compliance expense in connection with these enforcement actions.

The FDIC and the Commissioner have issued Cease and Desist Orders against the Bank and the Company has entered into the FRB Agreement
and the New FRB Agreement. The September Order contains a number of significant directives, including higher capital requirements, requirements to reduce the level of our classified assets, operating
restrictions, and restrictions on dividend payments by

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the
Bank. These restrictions may impede our ability to operate our own business. If we fail to comply with the terms and conditions of the September Order or the New FRB Agreement, the appropriate
regulatory authority could take additional enforcement action against us, including the imposition of further operating restrictions and monetary penalties. We could also be directed to seek a merger
partner. We have incurred and expect to continue to incur significant additional regulatory compliance expense in connection with the enforcement actions, and we will incur ongoing expenses
attributable to compliance with the terms of the enforcement actions. Although we do not expect it, it is possible regulatory compliance expenses related to the enforcement actions could have a
material adverse impact on us in the future. In addition, our ability to independently make certain changes to our business is restricted by the terms of the September Order and the New FRB Agreement,
which could negatively impact the scope and flexibility of our business activities. While we believe that we will be able to take actions that will result in the September Order and the New FRB
Agreement being terminated in the future, we cannot guarantee that such actions will result in the termination of the September Order and/or the New FRB Agreement. Further, the imposition of the
September Order and the New FRB Agreement may make it more difficult to attract and retain qualified employees. For more information on the September Order and the New FRB Agreement, see "Capital
Resources" in Item 7 of Part II of this Form 10-K.

As of December 31, 2009, the Bank's capital levels were not sufficient to achieve compliance with the higher capital requirements we must meet by June 30,
2010, nor were they, on a consolidated basis, sufficient to satisfy the FRB's minimum capital requirements.

In the September Order, the FDIC and the Commissioner directed the Bank to raise its Tier 1 leverage and total
risk-based capital ratios to 6.5% and 10%, respectively, by March 31, 2010 and to 7.5% and 11%, respectively, by June 30, 2010. At December 31, 2009, we did not meet
these requirements and would have needed approximately $8.200 million in additional capital, based on assets at such date, to meet both of the March requirements and approximately
$15.000 million in additional capital to meet both of the June requirements. First Mariner currently does not have any capital available to invest in the Bank and any further increases to our
allowance for loan losses and operating losses would negatively impact our capital levels and make it
more difficult to achieve the capital levels directed by the FDIC and the Commissioner. When combined with the assets and liabilities that we are selling or of which we are otherwise disposing, the
amount of capital we may raise in any stock offerings (see "Subsequent Events" in Item 7 of Part II of this Form 10-K) may not be sufficient to achieve and maintain compliance
with the capital requirements mandated by our regulators. The failure to meet these capital requirements could result in further action by our regulators.

Additionally,
on November 24, 2009, First Mariner's primary regulator, the FRB, required the Company to enter into the New FRB Agreement. The New FRB Agreement required the
Company to submit a written plan by January 25, 2010 to maintain sufficient capital at the holding company level, such that First Mariner satisfies the FRB's requirements to be considered
"adequately capitalized." To be considered adequately capitalized, First Mariner's consolidated Tier 1 capital to average assets, Tier 1 capital to risk-weighted assets and
total capital to risk-weighted assets ratios must be at least 4.0%, 4.0% and 8.0%, respectively. As of December 31, 2009, the Company's consolidated capital ratios did not meet the
FRB's requirements to be considered "adequately capitalized." If the Company does not satisfy the requirements of an FRB approved written plan, the FRB could take additional enforcement action against
us, including the imposition of monetary penalties, as well as further operating restrictions.

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If the amount of capital we raise in stock offerings and other actions we are taking to reduce assets is insufficient to satisfy capital requirements, we may need to take
additional actions to reduce the amounts of our assets and liabilities or we may need to raise additional capital through a share issuance in the future that could dilute your ownership interest.

Should we in the future need to raise additional capital, we might seek to do so through one or more offerings of our common stock,
securities convertible into common stock, or rights to acquire such securities of our common stock. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets
at that time and on our financial performance. Our stock price has declined in recent periods and was $ 0.95 at December 31, 2009. Moreover, the volatility and disruption in the capital and
credit markets have reached unprecedented levels, producing downward pressure on stock prices and credit availability for numerous issuers. If current levels of market disruption and volatility
continue or worsen, and if our stock price remains at its current level, we may be unable to raise additional capital, or we may be able to raise capital only at prices that would be unfavorable and
dilutive to our shareholders. If we cannot raise additional capital when needed, our results of operations and financial condition may be adversely affected, and our banking regulators may subject the
Bank and the Company to further regulatory enforcement action.

The
issuance of any additional shares of common stock or convertible securities could be substantially dilutive to shareholders of our common stock, particularly those who are not able
to or choose not to participate in such additional issuances. Holders of our shares of common stock have no preemptive
rights that entitle them to purchase their pro-rata share of any offering of shares of any class or series and, therefore, our shareholders may not be permitted to invest in future
issuances of our common stock and as a result will be diluted. See "Subsequent Events" in Item 7 of Part II of this Form 10-K for additional information on shares of our common
stock that may be issued in our current rights offering and that are expected to be issued in the Exchange. (See description of the Exchange in "Subsequent Events" in Item 7 of Part II
of this Form 10-K.)

We have taken actions, and may take additional actions, to help us meet immediate needs for capital, including reducing our assets and liabilities.

In December, 2009, we completed the sale of our consumer finance company subsidiary, Mariner Finance, for a purchase price of
approximately $10.459 million. We received $8.734 million in cash at closing and a 5% ownership stake in the new Mariner Finance entity. Under terms of the sale, $1.1 million was
placed in an escrow account to be paid to First Mariner no later than 18 months after the closing, after deducting any indemnification claims. While this transaction provided First Mariner with
$8.734 million in cash to invest in the Bank to increase the Bank's capital, we will realize only 5% of any future income generated by Mariner Finance. During 2009, we realized a net loss of
$9.060 million (including the loss on sale of $11.110 million) from the operations of Mariner Finance. For the years ended December 31, 2008 and 2007, we earned
$1.721 million and $1.640 million of net income from our investment in Mariner Finance.

We
have also identified certain Bank branches that we intend to close or sell in 2010. The successful completion of these actions is expected to reduce overhead costs by approximately
$3.0 million and support our strategy of prudently reducing assets and liabilities. Total aggregate deposits in the branches identified for sale and closure are approximately
$50.000 million. The Bank has not entered into any agreement to sell any branch office and no guarantee can be made that any such agreement will be entered into and if such agreement is entered
into, whether such sale will be consummated. The approval of the FDIC and the Commissioner will also need to be obtained by any acquirer before buying any of our branch offices. While we anticipate
that such approvals would be received, there can be no guarantee that such approvals will be received. While these branch sales, if completed, will reduce our assets and liabilities and thereby
increase our Bank capital ratios, we expect

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that
our net income in the future will be reduced as a result of the loss of income generated by these branches.

The Company and the Bank are deemed to be in "troubled condition" within the meaning of federal statutes and regulations.

The Company and Bank are deemed to be in "troubled condition" within the meaning of federal statutes and regulations. As a result,
certain limitations and regulatory requirements apply to the Company and the Bank with respect to future changes to senior executive management and directors and the payment of, or the agreement to
pay, certain severance payments to officers, directors, and employees. The Bank must also comply with specified recordkeeping requirements in connection with transactions involving certain securities
contracts, commodities contracts, repurchase agreements, and other "Qualified Financial Contracts."

Liquidity risk could impair our ability to fund operations and jeopardize our financial viability.

Liquidity is essential to our business. An inability to raise funds through deposits, borrowings, the sale of loans, and other sources
could have a material adverse effect on our liquidity. Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the
financial services industry in general. The Federal Home Loan Bank of Atlanta ("FHLB") has reduced our line of credit from $202.21 million to $107.00 million, our outstanding balance as
of December 31, 2009. The FRB has also notified the Bank that it will permit the Bank to draw on its line of credit with the Federal Reserve Bank only in limited circumstances and for a short
duration. Factors that could further detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to a market downturn or adverse regulatory action
against us. As part of the September Order, we are not allowed to purchase brokered deposits without first obtaining a regulatory waiver. We are also required to comply with restrictions on deposit
rates that we may offer. These factors could significantly affect our ability to fund normal operations. Our ability to acquire deposits or borrow could also be impaired by factors that are not
specific to us, such as a severe disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole as the recent turmoil faced
by banking organizations in the domestic and worldwide credit markets deteriorates. At December 31, 2009, management considered the Bank's liquidity level to be sufficient for the purposes of
meeting the Bank's cash flow requirements.

We have elected to defer the payment of interest on $73.724 million in face amount of outstanding trust preferred securities issued by trust subsidiaries of our
holding company and expect to continue to defer the payment of interest for the foreseeable future.

Though we have deferred the payment of interest on the subordinated debentures related to the trust preferred securities, we continue
to accrue interest expense related to the trust preferred securities. First Mariner recognized interest expense of $3.127 million and
$4.640 million on the trust preferred securities during the years ended December 31, 2009 and 2008, respectively.

Under
the terms of the subordinated debentures, our deferral of interest payments for up to 20 consecutive quarters does not constitute an event of default. During the deferral period,
the deferred interest payments continue to accrue. To the extent applicable law permits interest on interest, the deferred interest payments also accrue interest at the rates specified in the
corresponding indentures, compounded quarterly. All of the deferred interest and the compound interest are due in full at the end of the applicable deferral period. If we fail to pay the deferred and
compound interest at the end of the deferral period, each trustee of the various trusts, or in most cases the holders of 25% of the outstanding principal amount of any issue of trust preferred
securities, would have the right, after any applicable grace period, to declare an event of default. The occurrence of an event of default on the

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subordinated
debentures would entitle the trustees and holders of the trust preferred securities to exercise various remedies, including demanding immediate payment in full of the entire outstanding
principal amount of the subordinated debentures.

Currently
we have no cash available at First Mariner to resume the payment of interest on the subordinated debentures, and the September Order prohibits our use of the proceeds from any
stock offerings for this purpose. Accordingly, our ability to resume the payment of interest on the subordinated debentures will depend on the Bank's ability to generate earnings and pay dividends to
First Mariner. In addition, the terms of the September Order currently prohibits the payment of dividends by the Bank without regulatory approval. As a result, if by January 2014 the September Order
is not terminated, or if we do not achieve sufficient profitability for the Bank so that our regulators would grant approval for the Bank to pay dividends, we will be unable to resume the payment of
interest on the subordinated debentures. Even if the Bank is able to resume paying dividends, we cannot be assured that the amount of dividends would be sufficient to pay the entire amount of interest
due under the subordinated debentures at the end of the deferral period.

See
"Subsequent Events" in Item 7 of Part II of this Form 10-K for information regarding the subsequent event related to the Trust Preferred Securities.

We have had losses in recent periods.

We incurred a net loss of $22.284 million for the year ended December 31, 2009, including a one-time charge
of $11.110 million relating to the sale of Mariner Finance. For the year ended December 31, 2008, we incurred a net loss of $15.088 million. Our earnings in these periods have
been hurt by adverse economic conditions, including falling home prices, increasing foreclosures, and increasing unemployment, in our markets, and our losses for the years
ended December 31, 2009 and 2008 included $11.660 million and $10.856 million, respectively, of provisions for loan losses. Our ability to return to profitability will depend on
whether we are able to reduce credit losses in the future, which will depend, in part, on whether economic conditions in our markets improve. Our management believes that our current 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
continue to incur significant operating losses, our stock price may further decline. Even if we raise enough capital in the current offering (See "Subsequent Events" in Item 7 of Part II
of this Form 10-K) to allow us to meet the Bank and consolidated capital levels mandated by our regulators, if we incur further operating losses, we may in the future need to raise additional
capital to maintain Bank and consolidated capital levels that meet or exceed the levels mandated by our regulators.

Higher loan losses could require us to increase our allowance for loan losses through a charge to earnings.

When we loan money we incur the risk that our borrowers do not repay their loans. We reserve for loan losses by establishing an
allowance through a charge to earnings. The amount of this allowance is based on our assessment of loan losses inherent in our loan portfolio. The process for determining the amount of the allowance
is critical to our financial results and condition. It requires subjective and complex judgments about the future, including forecasts of economic or market conditions that might impair the ability of
our borrowers to repay their loans. We might underestimate the loan losses inherent in our loan portfolio and have loan losses in excess of the amount reserved. We might increase the allowance because
of changing economic conditions. For example, in a rising interest rate environment, borrowers with adjustable-rate loans could see their payments increase. There may be a significant
increase in the number of borrowers who are unable or unwilling to repay their loans,

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resulting
in our charging off more loans and increasing our allowance. In addition, when real estate values decline, the potential severity of loss on a real estate-secured loan can increase
significantly, especially in the case of loans with high combined loan-to-value ratios. The recent decline in the national economy and the local economies of the areas in which
the loans are concentrated could result in an increase in loan delinquencies, foreclosures, or repossessions resulting in increased charge-off amounts and the need for additional loan loss
allowances in future periods. In addition, our determination as to the amount of our allowance for loan losses is subject to review by regulatory authorities, as part of their examination process,
which may result in the establishment of an additional allowance after a review of the information available at the time of their examination. Our allowance for loan losses amounted to
$11.639 million, or 1.31% of total loans outstanding and 17.5% of nonperforming assets ($57.429 million) and loans past-due 90 days or more and accruing
($9.224 million), as of December 31, 2009. Our allowance for loan losses at December 31, 2009 may not be sufficient to cover future loan losses. A large loss could deplete the
allowance and require increased provisions to replenish the allowance, which would decrease our earnings. As of December 31, 2009, we had outstanding loan balances exceeding
$833.000 million that were performing according to their original terms. However, the deterioration of one or more of these
performing loans could result in a significant increase in our nonperforming loans and our provision for loan losses, which would negatively impact our results of operations.

We have a high percentage of commercial real estate and real estate construction loans in relation to our total loans.

At December 31, 2009, we had $339.794 million in loans secured by commercial real estate and $146.869 million in
real estate construction loans, which included $47.379 million in residential construction loans and $99.490 million for the construction of commercial properties. Commercial real estate
loans and construction loans represented 38.1% and 16.5%, respectively, of our net loan portfolio. While commercial real estate and construction loans are generally more interest rate sensitive and
carry higher yields than do residential mortgage loans, these types of loans generally expose a lender to greater risk of nonpayment and loss than single-family residential mortgage loans because
repayment of the loans often depends on the successful operation of the property, the income stream of the borrowers, and, for construction loans, the accuracy of the estimate of the property's value
at completion of construction and the estimated cost of construction. Such loans typically involve larger loan balances to single borrowers or groups of related borrowers compared to single-family
residential mortgage loans.

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, 2009, 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 originating residential mortgage loans through our mortgage division, which accounted
for approximately 57.0% and 54.6% of our noninterest income for the years ended December 31, 2009 and 2008, respectively. Real estate loan origination activity, including refinancing, is
generally greater during periods of low or declining interest rates and favorable economic conditions. 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. 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 the 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 ineffective 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. 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
value. Any deterioration in value of the loan during the period held in the portfolio is charged to the allowance.

Declines in asset values may result in impairment charges and adversely impact the value of our investments, financial performance, and capital.

We maintain an investment portfolio that includes, but is not limited to, mortgage-backed securities and pooled trust preferred
collateralized debt obligations. The market value of investments may be affected by factors other than the underlying performance of the issuer, such as adverse changes in business climate and lack of
liquidity for the resale of certain investment securities. As of

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December 31,
2009, we had $28.275 million, representing 72.5% of our securities portfolio, classified as available for sale pursuant to Financial Accounting Standards Board ("FASB")
guidance. Unrealized gains and losses in the estimated value of the available-for-sale ("AFS") portfolio are "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 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 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. Included in our investment portfolio as of December 31, 2009 is $7.869 million in capital stock of the FHLB. The FHLB is experiencing a
potential capital shortfall, has suspended its quarterly cash dividend, and could possibly require its members, including First Mariner, to make additional capital investments in the FHLB. There can
be no guarantee that the FHLB will declare future dividends. In order to avail itself of correspondent banking services offered by the FHLB, we must remain a member of the FHLB. If the FHLB were to
cease operations, or if we were required to write-off our investment in the FHLB, our business, financial condition, liquidity, capital, and results of operations may be materially and
adversely affected.

We
periodically, but not less than quarterly, evaluate investments and other assets for impairment indicators. We may be required to record additional impairment charges if investments
suffer a decline in value that is considered other than temporary. If we determine that a significant impairment has occurred, we would be required to charge against earnings the credit-related
portion of the other-than-temporary impairment ("OTTI"), which could have a material adverse effect on results of operations in the period in which the write-off
occurs. 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 analysis of the
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.

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Negative conditions in the general economy and financial services industry may limit our access to additional funding and adversely impact liquidity.

An inability to raise funds through deposits, borrowings, and other sources could have a substantial negative effect on our liquidity.
Our access to funding sources in amounts adequate to finance our activities could be impaired by factors that affect us specifically or the financial services industry in general. Factors that could
detrimentally impact our access to liquidity sources include a decrease in the level of our business activity due to a market down turn or adverse regulatory action against it. Our ability to borrow
could also be impaired by factors that are nonspecific to us, such as severe disruption of the financial markets or negative news and expectations about the prospects for the financial services
industry as a whole as evidenced by recent turmoil in the domestic and worldwide credit markets.

Increased and/or special FDIC assessments will hurt our earnings.

Beginning in late 2008, the economic environment caused higher levels of bank failures, which dramatically increased FDIC resolution
costs and led to a significant reduction in
the DIF. As a result, the FDIC has significantly increased the initial base assessment rates paid by financial institutions for deposit insurance. The base assessment rate was increased by seven basis
points (7 cents for every $100 of deposits) for the first quarter of 2009. The FDIC made further refinements to its risk-based assessment that were effective April 1, 2009 and that effectively
made the range seven to 77.5 basis points. These increases in the base assessment rate have increased our deposit insurance costs and negatively impacted our earnings. In addition, in May 2009, the
FDIC imposed a special assessment on all insured institutions due to recent bank and savings association failures. The emergency assessment amounted to 5 basis points on each institution's assets
minus Tier one (core) capital as of June 30, 2009, subject to a maximum equal to 10 basis points times the institution's assessment base. Our special assessment, which was reflected in earnings
for the quarter ended June 30, 2009, was $638,000. The FDIC may impose additional emergency special assessments if necessary to maintain public confidence in federal deposit insurance or as a
result of deterioration in the deposit insurance fund reserve ratio due to institution failures. Any additional emergency special assessment imposed by the FDIC will negatively impact our earnings.

On
November 12, 2009, the FDIC adopted a final rule requiring that all institutions prepay their assessments for the fourth quarter of 2009 and all of 2010, 2011, and 2012. This
prepayment was due on December 30, 2009. However, the FDIC may exempt certain institutions from the prepayment requirement if the FDIC determines that the prepayment would adversely affect the
safety and soundness of the institution. We have been granted an exemption to this prepayment requirement.

Our ability to pay cash dividends is limited.

Holders of shares of our common stock are entitled to dividends if declared by our 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 our future earnings, capital requirements, regulatory constraints, and
our financial condition, as well as that of the Bank.

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,

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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.

Our
ability to pay dividends is further subject to our 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 "Trust Preferred Securities"). The terms of debentures permit us to defer interest payments for up to 20 quarterly periods. We have elected to defer interest payments on
the debentures, beginning with the January 2009 payments. 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, which may not exceed 20 consecutive
quarters, and prior to the declaration of any 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 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.

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 $34.773 million as of December 31, 2009. 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.

Fluctuating interest rates can adversely affect our profitability.

Our profitability is dependent to a large extent upon net interest income, which is the difference, or spread, between the interest
earned on loans, securities, and other interest-earning assets and the interest paid on deposits, borrowings, and other interest-bearing liabilities. Because of the differences in maturities and
repricing characteristics of our interest-earning assets and interest-bearing liabilities, changes in interest rates do not produce equivalent changes in interest income earned on interest-earning
assets and interest paid on interest-bearing liabilities. We principally manage interest

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rate
risk by managing our volume and mix of our earning assets and funding liabilities. In a rapidly changing interest rate environment, we may not be able to manage this risk effectively. Changes in
interest rates also can affect: (1) our ability to originate and/or sell loans; (2) the value of our interest-earning assets, which would negatively impact shareholders' equity, and our
ability to realize gains from the sale of such assets; (3) our ability to obtain and retain deposits in competition with other available investment alternatives; and (4) the ability of
our borrowers to repay adjustable or variable rate loans. Interest rates are highly sensitive to many factors, including government monetary policies, domestic and international economic and political
conditions, and other factors beyond our control. If we are unable to manage interest rate risk effectively, our business, financial condition, and results of operations could be materially adversely
affected.

We operate in a highly regulated environment and may be adversely affected by changes in federal and state laws and regulations, including changes that may restrict our
ability to foreclose on single-family home loans and offer overdraft protection.

We are subject to extensive regulation, supervision, and examination by federal and state banking authorities. Any change in applicable
regulations or laws could have a substantial impact on us and our operations. Additional legislation and regulations that could significantly affect our powers, authority, and operations may be
enacted or adopted in the future, which could have a material adverse effect on our financial condition and results of operations. New legislation proposed by Congress may give bankruptcy courts the
power to reduce the increasing number of home foreclosures by giving bankruptcy judges the authority to restructure mortgages and reduce a borrower's payments. Property owners would be allowed to keep
their property while working out their debts. Other similar bills placing additional temporary moratoriums on foreclosure sales or otherwise modifying foreclosure procedures to the benefit of
borrowers and the detriment of lenders may be enacted by either Congress or the State of Maryland in the future. These laws may further restrict our collection efforts on
one-to-four single-family mortgage loans. Additional legislation proposed or under consideration in Congress would give current debit and credit card holders the chance to opt
out of an overdraft protection program and limit overdraft fees, which could result in additional operational costs and a reduction in our noninterest income.

Further,
our regulators have significant discretion and authority to prevent or remedy unsafe or unsound practices or violations of laws by financial institutions and holding companies
in the performance of their supervisory and enforcement duties. In this regard, banking regulators are considering additional regulations governing compensation, which may adversely affect our ability
to attract and retain employees. On June 17, 2009, the Obama Administration published a comprehensive regulatory reform plan that is intended to modernize and protect the integrity of the
United States financial system. The President's plan contains several elements that would have a direct effect on the Company and the Bank. The reform plan proposes the creation of a new federal
agency, the Consumer Financial Protection Agency, which would be dedicated to protecting consumers in the financial products and services market. The creation of this agency could result in new
regulatory requirements and raise the cost of regulatory compliance. In addition, legislation stemming from the reform plan could require changes in regulatory capital requirements and compensation
practices. If implemented, the foregoing regulatory reforms may have a material impact on our operations. However, because the final legislation may differ significantly from the legislation proposed
by the Administration, we cannot determine the specific impact of regulatory reform at this time.

We face 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

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outside
of the Company and the Bank, 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.

Our management controls a significant percentage of our common stock.

At December 31, 2009, our directors and executive officers beneficially owned approximately 1,844,780 shares of our common stock
(amount includes shares that could be acquired pursuant to immediately exercisable stock options), or 26.0% 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 1,451,483 shares of common stock, including exercisable options to purchase common stock, or 20.4% of our
outstanding shares of common stock, including exercisable options to purchase common stock as of December 31, 2009. 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 shareholders.

See
"Subsequent Events" in Item 7 of Part II of this Form 10-K for additional information on shares of all common stock that are expected to be issued in the
Exchange.

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Contracts with our officers may discourage a takeover or adversely affect our takeover value.

We have entered into change in control agreements with four 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. Notwithstanding the foregoing, because the Company and the bank are considered to be in "troubled
condition" for regulatory purposes, payments made under any change of control agreement are subject to certain regulatory restrictions and limitations. The Company and the Bank must apply for and
receive the approval of the FRB and the FDIC, respectively, in order to make payments under these agreements. See "The Company and the Bank are deemed to be in troubled condition" above.

Our Articles and Bylaws and Maryland law may discourage a corporate takeover.

Our 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 us. 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% 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 our 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 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 our common stock.

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A continuation of recent turmoil in the financial markets could have an adverse effect on our financial position or results of operations.

Beginning in 2008, United States and global financial markets have experienced severe disruption and volatility, and general economic
conditions have declined significantly. Adverse developments in credit quality, asset values, and revenue opportunities throughout the financial services industry, as well as general uncertainty
regarding the economic, industry, and regulatory environment, have had a marked negative impact on the industry. Dramatic declines in the U.S. housing market over the past two years, with falling home
prices, increasing foreclosures, and increasing unemployment, have negatively affected the credit performance of mortgage loans and resulted in significant write-downs of asset values by many
financial institutions. The United States and the governments of other countries have taken steps to try to stabilize the financial system, including investing in financial institutions, and have also
been working to design and implement programs to improve general economic conditions. Notwithstanding the actions of the United States and other governments, these efforts may not succeed in restoring
industry, economic, or market conditions and may result in adverse unintended consequences. Factors that could continue to pressure financial services companies, including First Mariner, are numerous
and include (i) worsening credit quality, leading among other things to increases in loan losses and reserves, (ii) continued or worsening disruption and volatility in financial markets,
leading among other things to continuing reductions in asset values, (iii) capital and liquidity concerns regarding financial institutions generally, (iv) limitations resulting from or
imposed in connection with governmental actions intended to stabilize or provide additional regulation of the financial system, or (v) recessionary conditions that are deeper or last longer
than currently anticipated.

Our financial condition and results of operations are dependant on the economy in the Bank's market area.

First Mariner Bank's primary market area for its core banking operations consists of central Maryland and portions of Maryland's
eastern shore. Because of the Bank's concentration of business activities in its market area, our financial condition and results of operations depend upon economic conditions in the Bank's market
area. Adverse economic conditions in our market area could reduce our growth rate, affect the ability of our customers to repay their loans and generally affect our financial condition and results of
operations. Conditions such as inflation, recession, unemployment, high interest rates, short money supply, scarce natural resources, international disorders, terrorism, and other factors beyond our
control may adversely affect our profitability. We are less able than a larger institution to spread the risks of unfavorable local economic conditions across a large number of diversified economies.
Any sustained period of increased payment delinquencies, foreclosures, or losses caused by adverse market or economic conditions in the State of Maryland could adversely affect the value of our
assets, revenues, results of operations, and financial condition. Moreover, we cannot give any assurance we will benefit from any market growth or favorable economic conditions in our primary market
areas if they do occur.

We currently have a significant amount of deferred tax assets.

We had $28.214 million of deferred tax assets as of December 31, 2009. 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.

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We could, as a result of a stock offering or future trading activity in our common stock, experience an "ownership change" for tax purposes that could cause us to
permanently lose a portion of our U.S. federal deferred tax assets.

The completion of any stock offering could cause us to experience an "ownership change" as defined for U.S. federal income tax
purposes. Even if these transactions do not cause us to experience an "ownership change," these transactions materially increase the risk that we could experience an "ownership change" in the future.
As a result, issuances or sales of common stock or other securities in the future (including common stock issued in the stock offering), or certain other direct or indirect changes in ownership, could
result in an "ownership change" under Section 382 of the Internal Revenue Code of 1986, as amended. In the event an "ownership change" were to occur, we could realize a permanent loss or a
portion of our U.S. federal deferred tax assets as a result of limitations on certain built-in losses that have not been recognized for tax purposes, including, for example, losses on
existing nonperforming assets. The amount of the permanent loss would depend on the size of the annual limitation (which is in part a function of our market capitalization at the time of an
ownership change) and the applicable carryforward period (U.S. federal net operating losses generally may be carried forward for a period of 20 years). Any permanent loss could have a material
adverse effect on our results of operations and financial condition.

We
have not established a valuation allowance against our U.S. federal deferred tax assets of December 31, 2009, as we believed, based on our analysis as of that date, that it was
more likely than not that all of these assets would be realized. Section 382 of the Internal Revenue Code imposes restrictions on the use of a corporation's net operating losses, certain
recognized built-in losses, and other carryovers after an "ownership change" occurs. An "ownership change" is generally a greater than 50 percentage point increase by certain "5%
shareholders" during the testing period, which is generally the three year-period ending on the transaction date. Upon an "ownership change," a corporation generally is subject to an
annual limitation on its prechange losses and certain recognized built-in losses equal to the value of the corporation's market capitalization immediately before the "ownership change"
multiplied by the long-term tax-exempt rate (subject to certain adjustments). The annual limitation is increased each year to the extent that there is an unused limitation in a
prior year. Since U.S. federal net operating
losses generally may be carried forward for up to 20 years, the annual limitation also effectively provides a cap on the cumulative amount of prechange losses and certain recognized
built-in losses that may be utilized. Prechange losses and certain recognized built-in losses in excess of the cap are effectively lost.

The
relevant calculations under Section 382 of the Internal Revenue Code are technical and highly complex. Any stock offering, combined with other ownership changes, could cause
First Mariner to experience an "ownership change." If an "ownership change" were to occur, we believe it could permanently lose the ability to realize a portion of its deferred tax asset, resulting in
reduction to total shareholders' equity. This could also decrease the Bank's regulatory capital. We do not believe, however, that any such decrease in regulatory capital would be material because,
among other things, only a small portion of the federal deferred tax asset is currently included in the Bank's regulatory capital.

Although publicly traded, our common stock has substantially less liquidity than the average liquidity of stocks listed on the NASDAQ Global Market.

Although our common stock is listed for trading on the Nasdaq Global Market our common stock has substantially less liquidity than the
average liquidity for companies listed on the Nasdaq Global Market. A public trading market having the desired characteristics of depth, liquidity, and orderliness depends on the presence in the
marketplace of willing buyers and sellers of our common stock at any given time. This marketplace depends on the individual decisions of investors and general economic and market conditions over which
we have no control. This limited market may affect your ability to

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sell
your shares on short notice and the sale of a large number of shares at one time could temporarily depress the market price of our common stock. For these reasons, our common stock should not be
viewed as a short-term investment.

The
market price of our common stock may fluctuate in the future and this volatility may be unrelated to our performance. General market price declines or overall market swings in the
future could adversely affect the price of our common stock and the current market price may not be indicative of future market prices.

If we are unable to satisfy the continued listing standards of NASDAQ, our stock may be delisted from the NASDAQ Stock Market, which could adversely affect its market price
and liquidity.

We are required to meet NASDAQ's continued listing requirements in order to remain listed on The NASDAQ Stock Market. We are listed on
The NASDAQ Global Market. On December 10, 2009, the Company received a letter from The NASDAQ Stock Market providing notice that, for 30 consecutive business days, the Company's common stock
had not maintained a minimum market value of publicly held shares ("MVPHS") of $5 million as required for continued inclusion on The NASDAQ Global Market by Listing Rule 5450(b)(1)(c).
For NASDAQ purposes, MVPHS is the market value of the Company's publicly held shares, which is calculated by subtracting all shares held by officers, directors or beneficial owners of 10% or more of
the total shares outstanding. NASDAQ provided the Company until March 10, 2010 to regain compliance with Listing Rule 5450(b)(1)(c). Also on December 10, 2009, the Company
received a letter from The NASDAQ Stock Market providing notice that, for 30 consecutive business days, the Company's common stock had not maintained a minimum bid price of $1.00 per share as required
for continued inclusion on The NASDAQ Global Market by Listing Rule 5450(a)(1). NASDAQ provided the until June 8, 2010 to regain compliance with Listing Rule 5450(a)(1). On
February 3, 2010, the NASDAQ provided us with a letter that our common stock had regained compliance with these Listing Rules and both matters were now closed.

In
the future, if our common stock were unable to satisfy The NASDAQ Stock Market's listing standards and we were not able to regain compliance with the listing standards, our stock
could be delisted from The NASDAQ Stock Market. If our common stock is delisted, it could be more difficult to buy or sell our common stock and to obtain accurate quotations, and the price of our
stock could suffer a material decline. Delisting may also impair our ability to raise capital. Furthermore, if our common stock is delisted, we would apply to have our common stock quoted on the OTC
Bulletin Board, and our common stock would become subject to the SEC's penny stock regulations. A penny stock, as defined by the Penny Stock Reform Act, is any equity security not traded on a national
securities exchange that has a market price of less than $5.00 per share. The penny stock regulations generally require that a disclosure schedule explaining the penny stock market and the risks
associated therewith be delivered to purchasers of penny stocks and impose various sales practice requirements on broker-dealers who sell penny stocks to persons other than established customers and
accredited investors. The broker-dealer must make a suitability determination for each purchaser and receive the purchaser's written agreement prior to the sale. In addition, the broker-dealer must
make certain mandated disclosures, including the actual sale or purchase price and actual bid offer quotations, as well as the compensation to be received by the broker-dealer and certain associated
persons. The regulations applicable to penny stocks may severely affect the market liquidity for our common stock and could limit your ability to sell your securities in the secondary market.

ITEM 2    PROPERTIES

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

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

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 Drive-Thru (1) (4)3301 Boston Street
Baltimore, MD 21224 Canton Tower/Headquarters (2)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)(5)300 N. Charles Street
Baltimore, 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 (1)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)(6)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(5)Branch
closed in February, 2010(6)Branch
to be closed during the second quarter of 2010


For more information on our lease commitments and costs see Note 6 of the Notes to Consolidated Financial Statements, included in
Item 8 of Part II of this Form 10-K.

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Table of Contents

We
operate mortgage offices at the following locations:

Maryland: Annapolis (2)2661 Riva Road
Annapolis, MD 21401 Canton/Former Headquarters (1)3301 Boston Street
Baltimore, MD 21224 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 Virginia: Ashburn (2)44081 Pipeline Plaza Ste 215
Ashburn, VA 20147


(1)Company
owns office(2)Company
leases office(3)Company
owns office, but leases related land


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

ITEM 3    LEGAL PROCEEDINGS

We are party to certain 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    [Removed and Reserved]

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Table of Contents

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 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 Market. On
March 19, 2010, the closing sales price of First Mariner common stock was $1.24 per share.

Low

High2009 Quarter ended:Fourth quarter

$
0.55

$
1.36Third quarter


1.10


2.20Second quarter


0.65


4.50First quarter


0.50


1.302008 Quarter ended:Fourth quarter

$
0.50

$
2.50Third quarter


0.22


3.95Second quarter


3.11


5.99First quarter


5.06


8.05


We
do not pay cash dividends on our shares of common stock. Currently, we have no plans to resume the payment of cash dividends on our common stock. For a discussion of the limitations
on First Mariner's ability to pay dividends, see Item 1 of Part I of this Form 10-K under the heading "Supervision and Regulation."

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, 2009:

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


668,593

$
12.20


300,107Equity compensation plans not approved by security holders








Total


668,593

$
12.20


300,107


See
"Subsequent Events" in Item 7 of Part II of this Form 10-K for modifications to our Long-Term Incentive Plan.

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Table of Contents

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, 2004 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.

GRAPHIC

Period Ending12/31/2004

12/31/2005

12/31/2006

12/31/2007

12/31/2008

12/31/2009First Mariner Bancorp

$
100

$
99.66

$
105.64

$
32.29

$
4.10

$
5.41NASDAQ Bank Index


100


95.67


106.20


82.76


62.96


51.31NASDAQ Market Index


100


101.37


111.03


121.92


72.49


104.31


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Table of Contents

ITEM 6    SELECTED FINANCIAL DATA

2009

2008

2007

2006

2005(dollars in thousands, except per share data)Consolidated Statement of Operations Data:Net interest income

$
27,112

$
28,440

$
32,195

$
38,502

$
39,261Provision for loan losses


11,660


10,856


6,700


150


1,575Noninterest income


28,271


17,227


20,757


20,706


20,488Noninterest expense


67,834


65,252


67,297


59,874


48,637Income tax (benefit) expense before discontinued operations


(10,887
)

(13,632
)

(9,342
)

(1,282
)

2,681(Loss) income from discontinued operations (1)


(9,060
)

1,721


1,640


1,458


966Net (loss) income


(22,284
)

(15,088
)

(10,063
)

1,924


7,822Consolidated Statement of Financial Condition Data:Total assets

$
1,384,551

$
1,307,497

$
1,246,822

$
1,263,290

$
1,362,478Loans receivable, net


879,312


961,919


842,131


854,060


839,843Deposits


1,146,504


950,233


904,953


924,938


876,010Long-term borrowings


95,672


177,868


155,130


132,557


131,000Junior subordinated deferrable interest debentures


73,724


73,724


73,724


73,724


73,724Stockholders' equity


26,987


46,015


64,570


78,629


72,375Per Share Data:Number of shares of common stock outstanding at year end


6,452,631


6,452,631


6,351,611


6,427,725


6,262,442Net (loss) income per common share:Basic

$
(3.45
)
$
(2.36
)
$
(1.57
)
$
0.30

$
1.28Diluted


(3.45
)

(2.36
)

(1.57
)

0.29


1.20Cash dividends declared














Performance and Capital Ratios:Return on average assets


(1.69
)%

(1.16
)%

(0.79
)%

0.14
%

0.59
%Return on average equity


(53.81
)%

(24.37
)%

(13.83
)%

2.53
%

11.44
%Net interest margin


2.43
%

2.74
%

3.12
%

3.22
%

3.30
%Average equity to average assets


3.15
%

4.78
%

5.75
%

5.50
%

5.09
%Year-end Tier 1 leverage ratio (Bank)


6.2
%

5.8
%

7.1
%

7.3
%

6.8
%Tier 1 capital to risk-weighted assets (Bank)


7.9
%

6.8
%

8.6
%

9.6
%

9.0
%Total capital to risk-weighted assets (Bank)


9.1
%

8.8
%

10.4
%

11.7
%

10.7
%Asset Quality Ratios:Nonperforming assets to total assets


4.15
%

4.42
%

3.48
%

0.52
%

0.29
%Allowance for loan losses at year-end to:Total loans, net of unearned income


1.31
%

1.71
%

1.50
%

1.43
%

1.38
%Nonperforming assets and 90 day past-due loans


17.46
%

24.88
%

27.57
%

36.61
%

244.14
%Net charge-offs to average total loans, net of unearned income


1.37
%

1.35
%

1.09
%

0.21
%

0.15
%


(1)Reflects
(loss) income from discontinued operations of Mariner Finance. See "Sale of Mariner Finance" in Item 7 of Part II of this
Form 10-K for additional information.


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Table of Contents

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 and FM Appraisals, LLC. The Company had over 1,100 employees
(approximately 950 full-time equivalent employees) as of December 31, 2009.

The
Bank, which is the largest operating subsidiary of the Company with assets exceeding $1.372 billion at December 31, 2009 and the largest bank headquartered in
Baltimore, Maryland, 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, 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. 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, Virginia, 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 unaffiliated third parties (primarily Fannie Mae). The Bank does not originate any reverse mortgages for its portfolio, but it does retain
the servicing rights on reverse mortgages originated by NGFS and sold to Fannie Mae. The Bank has entered into a profit sharing agreement with a private company related to NGFS, which may result in
the acquisition of NGFS if certain requirements are satisfied by the end of the first quarter of 2011. The closing of the transaction is subject to numerous conditions, including, without limitation,
that the parties obtain consents and approvals from certain lenders and governmental agencies that license and supervise the Bank. Accordingly, there can be no assurance that the closing will occur
when expected, if at all. The Bank does not anticipate any benefit that results from the sale to be material.

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 subcontracted appraisers, appraisal ordering and administration, and appraisal review services. FM Appraisals provides
these services to First Mariner Mortgage and NGFS.

Sale of Mariner Finance

In December, 2009, we completed the sale of our consumer finance company subsidiary, Mariner Finance, for a purchase price of
approximately $10.459 million. We received $8.734 million in cash at closing and a 5% ownership stake in the new Mariner Finance entity. Under terms of the sale, $1.1 million was
placed in an escrow account to be paid to First Mariner no later than 18 months after

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Table of Contents

the
closing, after deducting any indemnification claims. In accordance with FASB guidance, the results of Mariner Finance operations are not included in our consolidated continuing operations, but are
shown on the consolidated statement of operations as discontinued operations. We recorded a loss on the sale of Mariner Finance of $11.110 million during 2009. See additional information on the
discontinued operations of Mariner Finance in Note 2 to the Consolidated Financial Statements in Item 8 of Part II of this Form 10-K.

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") detailed in the FASB Accounting Codification ("Codification") 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 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.

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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, our intent to sell the investment, and if it is more likely than not that we will be required to
sell the security before recovery of its amortized cost basis. 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 OTTI 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 security is segmented
into credit- and noncredit-related componenets. Any impairment adjustment due to indentified credit-related components is recorded as an adjustment to current period earnings, while noncredit-related
fair value adjustments are recorded through other comprehensive income. In situations where we intend to sell or it is more likely than not that we will be required to sell the security, the entire
OTTI loss must be recognized in earnings.

Income Taxes

Income taxes are provided based on the liability method of accounting, which includes the recognition of deferred tax assets and
liabilities for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. In general, we record deferred tax assets when the event
giving rise to the tax benefit has been recognized in the Consolidated Financial Statements.

A
valuation allowance is recognized to reduce any deferred tax assets that, based upon available information, it is more likely than not all, or any portion, of the deferred tax asset
will not be realized. Assessing the need for, and amount of, a valuation allowance for deferred tax assets requires significant judgment and analysis of evidence regarding realization of the deferred
tax assets. In most cases, the realization of deferred tax assets is dependent upon us generating a sufficient level of taxable income in future periods, which can be difficult to predict. Given the
nature of our deferred tax assets, management determined no valuation allowances were needed at either December 31, 2009 or 2008.

The
calculation of tax liabilities is complex and requires the use of estimates and judgment since it involves the application of complex tax laws that are subject to different
interpretations by us and the various tax authorities. These interpretations are subject to challenge by the tax authorities upon audit or to reinterpretation based on management's ongoing assessment
of facts and evolving case law.

Periodically
and in the ordinary course of business, we are involved in inquiries and reviews by tax authorities that normally require management to provide supplemental information to
support certain tax positions we take in our tax returns. Uncertain tax positions are initially recognized in the financial statements when it is more likely than not the position will be sustained
upon examination by the tax authorities. Such tax positions are initially and subsequently measured as the largest amount of tax benefit that is greater than 50% likely of being realized upon ultimate
settlement with the tax authority assuming full knowledge of the position and all relevant facts. Management believes it has taken appropriate positions on its tax returns, although the ultimate
outcome of any tax review cannot be
predicted with certainty. Still, no assurance can be given that the final outcome of these matters will not be different than what is reflected in the current and historical financial statements.

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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.

Real estate acquired through foreclosure

We record foreclosed real estate assets at the lower of cost or estimated fair value on the acquisition date 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, 2009 to the financial condition at December 31,
2008 and results of operations for the years ended December 31, 2009, 2008, and 2007. 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 $22.284 million for 2009 compared to net loss of $15.088 million for 2008, with diluted losses
per share totaling $(3.45) for 2009 compared to diluted losses per share of $(2.36) in 2008. The decrease in net income and earnings per share was primarily a result of a loss on the discontinued
operations of Mariner Finance of $9.060 million in 2009, compared to income from those operations of $1.721 million in 2008. Our net loss from continuing operations decreased by
$3.585 million, with increased noninterest income that was partially offset by decreased net interest income, increased provision for loan losses, increased noninterest expenses, and a
decreased income tax benefits.

Our
results for 2009 were significantly impacted by persistent negative trends in both commercial and residential real estate markets. We experienced significant charge offs in those
loan types in 2009 ($4.546 million in residential real estate, $871,000 in commercial real estate, and $3.863 million in real estate construction) and a substantial amount of these loans
were moved to real estate acquired through foreclosure ($1.324 million of residential real estate loans, $2.658 million in commercial real estate loans, and $9.539 million in real
estate construction loans). In addition, as declines in real estate values have continued, we recorded additional write-downs and losses on and expenses related to real estate acquired through
foreclosure of $6.832 million in 2009. The Company provided for additional loan loss reserves throughout 2008 and 2009 for the anticipated loss exposure caused by the depressed real estate
market. In addition to these losses, earnings were further impacted by the loss of interest

42

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Table of Contents

income
on loans placed on nonaccrual status, the cost of carrying foreclosed properties, and higher legal and collection expenses relating to these loans.

Our
largest category of revenue, net interest income, decreased $1.328 million or 4.7% due to lower yields earned on average earning assets, coupled with a lower level of
noninterest-bearing liabilities. Noninterest income increased $11.044 million or 64.1% due primarily to increased mortgage-banking
revenue, decreased OTTI charges, and a recovery in value on our assets and liabilities carried at fair value.

Our
increase in total expenses resulted primarily due to increased deposit insurance premiums and increased expenses related to loan collections and foreclosures, including related
professional fees. The increase of $804,000 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 residential mortgage and residential construction and development loans. We recorded a loss on the
discontinued operations of Mariner Finance of $9.060 million in 2009, compared to income from those operations in 2008 of $1.721 million. We recorded an income tax benefit from
continuing operations of $10.887 million in 2009 compared to $13.632 million in 2008.

The
return on average assets was (1.69)% for 2009 compared to (1.16)% for 2008. The return on average equity for 2009 was (53.81)% compared to (24.37)% for 2008. Average equity to
average assets was 3.15% for 2009 compared to 4.78% for 2008. The decrease in the return on average assets reflected the continuing effect of nonperforming assets and loan charge-offs. The
decrease in the return on average equity was the result of the higher net loss in 2009.

Our
total assets increased by $77.054 million or 5.9% during 2009, a result of increased deposits, which increased cash and due from Banks. Earning assets decreased
$77.168 million or 6.7% from $1.144 billion in 2008 to $1.067 billion in 2009. Deposits increased by $196.271 million to $1.147 billion at December 31, 2009
from $950.233 million at December 31, 2008. Stockholders' equity decreased $19.028 million or 41.4%, reflecting the 2009 loss, partially offset by a decrease in other
comprehensive loss due to the increase in the market value of securities classified as available for sale.

Our
asset quality showed improvement at December 31, 2009 compared to December 31, 2008. At December 31, 2009, our allowance for loan losses amounted to
$11.639 million, which totaled 20.3% of nonperforming assets as of December 31, 2009, compared to 29.1% as of December 31, 2008. Our level of nonperforming assets decreased to
4.15% of total assets at December 31, 2009 from 4.42% of total assets at December 31, 2008 and our level of loans 90 days delinquent and still accruing interest decreased to
$9.224 million from $9.679 million in 2008. Our ratio of net chargeoffs to average total loans was 1.37% in 2009 compared to 1.35% in 2008.

Bank
capital adequacy levels (as defined by banking regulation) improved slightly from 2008 to 2009 and the Bank was still considered "adequately capitalized." The ratios for the Bank as
of December 31, 2009 for our capital leverage, Tier 1 capital to risk weighted assets, and total capital to risk weighted assets were 6.2%, 7.9%, and 9.1%, respectively, compared to
5.8%, 6.8%, and 8.8%, respectively, at December 31, 2008. Our regulatory capital levels increased due primarily to the sale of Mariner Finance, which provided First Mariner with the ability to
infuse additional capital into the Bank. As a result of being below "well-capitalized" levels, the Bank may not place brokered certificates of deposits without the granting of a waiver
from its regulators. We are under agreements with regulators to raise our capital levels as described in additional detail later in this Item under
"Capital Resources." See also "Subsequent Events" later in this Item for information on our attempts to raise additional capital.

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Table of Contents

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 2009 decreased by $1.328 million to $27.112 million compared to $28.440 million for 2008 due to an increase in volume of interest-bearing
liabilities, combined with a decrease in the yield on interest-earning assets from 6.11% in 2008 to 5.36% in 2009 and a decrease in our level of noninterest-bearing deposits. Partially offsetting this
decrease was a decline in the rate paid on interest-bearing liabilities from 3.45% in 2008 to 2.84% in 2009.

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) decreased to 2.43% for 2009, compared
to 2.74% for 2008. The decrease in the rates paid on interest-bearing sources of funds slightly mitigated the net interest margin decline.

Interest income

Total interest income decreased by $3.515 million from 2008 to 2009 due primarily to the decreased yield on average earning
assets. Yields on earning assets for the year decreased to 5.36% from 6.11%, while average earning assets increased $80.605 million. We experienced decreased yields on most major earning asset
categories, primarily a result of the lower interest rate environment in 2009. Additionally, our interest income was negatively affected by increased interest reversals on and increased average
balances of nonaccrual loans. The yields on interest-bearing deposits and restricted stock investments were particularly affected by the low rate environment in 2009. The yield on loans decreased from
6.55% for 2008 to 5.81% for 2009, due to lower rates and higher nonperforming assets.

Average
loans outstanding for 2009 increased by $67.646 million when compared to 2008. We experienced increases in commercial loans and lines of credit (+$7.889 million),
commercial mortgages (+$38.940 million), residential mortgages (+$48.113 million), and consumer loans (+$17.479 million), which were partially offset by decreases in commercial
and consumer construction loans (-$15.442 million and -$29.333 million, respectively). Average loans held for sale increased $39.578 million.

The
decrease in both commercial and consumer residential construction loans was due primarily to the deterioration of the real estate market, which has led to the reduction of new
construction, as well as increased write-downs of nonperforming loans and increased foreclosures in these sectors, which have caused management to strategically reduce lending in these areas. The
increases in commercial loans and lines of credit and in commercial mortgages were due to a focus on commercial lending in 2008, which was altered in 2009 away from loan growth towards improved asset
quality. The increase in residential mortgage loans was due primarily to increased mortgage lending activity, which reflected management's strategic decision to focus on mortgage lending while
stabilizing the asset quality of the commercial loan portfolio. The increased mortgage lending activity was also reflected in the increase in average loans held for sale. Consumer loans increased due
to increased demand for consumer products in 2009. Average securities decreased by $27.227 million, due primarily to normal principal repayments on mortgage-backed securities and deteriorations
in value on certain securities due to the current economic conditions.

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Table of Contents

Interest expense

Interest expense decreased by $2.187 million to $32.698 million for 2009, compared to $34.885 million for the same
period in 2008. We experienced a decrease in the average rate paid on interest-bearing liabilities, from 3.45% for 2008 to 2.84% for 2009, which was partially offset by a higher level of
interest-bearing liabilities. The decrease in the rate paid on interest-bearing deposits from 3.06% in 2008 to 2.65% in 2009 was driven primarily by decreases in the rates on money market accounts and
time deposits, partially offset by increases in the rates on NOW accounts. Average interest-bearing deposits increased by $135.822 million primarily due to an increase in the volume of time
deposits, including brokered deposits. In addition, during the second quarter of 2009, we began a national certificate of deposit campaign (nonbrokered) which offers certificates of deposit for terms
from six months to five years at a maximum of 75 basis points above the national average. This campaign has brought in approximately $217.542 million in new time deposits. An increase in
average borrowings of $4.916 million was due primarily to increases in our short-term FHLB advances. We experienced a decrease in the costs of borrowed funds from 4.95% for 2008 to
3.67% for 2009 due to the decline in variable-rate trust preferred security costs, as well as lower short-term borrowing costs.

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 2009,
2008, and 2007.

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Table of Contents

Comparative Average Balances Yields and Rates

2009

2008

2007(dollars in thousands)

Average
Balance (4)

Interest (1)

Yield/
Rate

Average
Balance (4)

Interest (1)

Yield/
Rate

Average
Balance (4)

Interest (1)

Yield/
RateASSETSLoans (2):Commercial loans and lines of credit

$
87,421

$
4,415


5.05%

$
79,532

$
4,780


6.01%

$
78,182

$
5,933


7.59%Commercial construction


102,097


5,352


5.24%


117,539


7,320


6.23%


134,521


10,632


7.90%Commercial mortgages


337,803


22,743


6.73%


298,863


22,111


7.40%


292,612


21,662


7.40%Consumer residential construction


58,498


3,352


5.73%


87,831


5,497


6.26%


91,472


7,565


8.27%Residential mortgages


152,280


8,937


5.87%


104,167


6,165


5.92%


65,917


3,238


4.91%Consumer


151,246


6,860


4.54%


133,767


7,979


5.96%


119,139


8,867


7.44%Total loans


889,345


51,659


5.81%


821,699


53,852


6.55%


781,843


57,897


7.41%Loans held for sale


99,503


5,080


5.11%


59,925


3,447


5.75%


77,580


5,285


6.81%Securities, trading and available for sale


48,274


2,955


6.12%


75,501


4,486


5.94%


99,121


5,372


5.42%Interest-bearing deposits


71,963


108


0.15%


72,701


1,303


1.79%


68,694


3,411


4.97%Restricted stock investments, at cost


7,770


8


0.10%


6,424


237


3.69%


6,123


363


5.93%Total earning assets


1,116,855


59,810


5.36%


1,036,250


63,325


6.11%


1,033,361


72,328


7.00%Allowance for loan losses


(11,979
)







(10,301
)







(8,838
)Cash and other nonearning assets


211,014








270,303








242,002Total assets

$
1,315,890


59,810




$
1,296,252


63,325




$
1,266,525


72,328LIABILITIES AND STOCKHOLDERS' EQUITYInterest-bearing deposits:NOW deposits

$
6,784


44


0.65%

$
13,249


77


0.58%

$
9,858


21


0.21%Savings deposits


55,122


178


0.32%


54,897


180


0.33%


56,935


178


0.31%Money market deposits


163,910


1,376


0.84%


210,003


3,085


1.47%


287,837


10,127


3.52%Time deposits


713,855


23,275


3.26%


525,700


21,242


4.04%


384,157


17,446


4.54%Total interest-bearing deposits


939,671


24,873


2.65%


803,849


24,584


3.06%


738,787


27,772


3.76%Borrowings


213,011


7,825


3.67%


208,095


10,301


4.95%


211,205


12,361


5.85%Total interest-bearing liabilities


1,152,682


32,698


2.84%


1,011,944


34,885


3.45%


949,992


40,133


4.22%Noninterest-bearing demand deposits


116,508








131,242








163,011Other noninterest-bearing liabilities


5,285








91,150








80,750Stockholders' equity


41,415








61,916








72,772Total liabilities and stockholders' equity

$
1,315,890


32,698




$
1,296,252


34,885




$
1,266,525


40,133Net interest income/net interest spread




$
27,112


2.52%




$
28,440


2.66%




$
32,195


2.78%Net interest margin (3)








2.43%








2.74%








3.12%


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Table of Contents

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)

2009 Compared to 2008

2008 Compared to 2007Change Due to Variance In

Change Due to Variance In(dollars in thousands)

Rates

Volume

Total

Rates

Volume

TotalINTEREST INCOMELoans:Commercial loans and lines of credit

$
(810
)
$
445

$
(365
)
$
(1,254
)
$
101

$
(1,153
)Commercial construction


(1,075
)

(893
)

(1,968
)

(2,076
)

(1,236
)

(3,312
)Commercial mortgages


(2,095
)

2,727


632


(14
)

463


449Consumer residential construction


(433
)

(1,712
)

(2,145
)

(1,777
)

(291
)

(2,068
)Residential mortgages


(52
)

2,824


2,772


764


2,163


2,927Consumer


(2,073
)

954


(1,119
)

(1,894
)

1,006


(888
)Total loans


(6,538
)

4,345


(2,193
)

(6,251
)

2,206


(4,045
)Loans held for sale


(425
)

2,058


1,633


(746
)

(1,092
)

(1,838
)Securities, trading and available for sale


125


(1,656
)

(1,531
)

482


(1,368
)

(886
)Interest-bearing deposits


(1,182
)

(13
)

(1,195
)

(2,296
)

188


(2,108
)Restricted stock investments, at cost


(270
)

41


(229
)

(143
)

17


(126
)Total interest income


(8,290
)

4,775


(3,515
)

(8,954
)

(49
)

(9,003
)INTEREST EXPENSEInterest-bearing deposits:NOW deposits


8


(41
)

(33
)

47


9


56Savings deposits


(3
)

1


(2
)

8


(6
)

2Money market deposits


(1,130
)

(579
)

(1,709
)

(4,809
)

(2,233
)

(7,042
)Time deposits


(4,616
)

6,649


2,033


(2,087
)

5,883


3,796Total interest-bearing deposits


(5,741
)

6,030


289


(6,841
)

3,653


(3,188
)Borrowings


(2,712
)

236


(2,476
)

(1,880
)

(180
)

(2,060
)Total interest expense


(8,453
)

6,266


(2,187
)

(8,721
)

3,473


(5,248
)Net interest income

$
163

$
(1,491
)
$
(1,328
)
$
(233
)
$
(3,522
)
$
(3,755
)


---

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"), and income from BOLI. Our noninterest income for the year ended December 31, 2009 totaled $28.271 million, compared to $17.227 million for
the year ended December 31, 2008, an increase of $11.044 million or 64.1%, due primarily to an increase in mortgage-banking revenue, an insurance recovery of $850,000, a recovery in
value on our assets and liabilities carried at fair value, and a decrease in net OTTI charges of $2.669 million.

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Table of Contents

Mortgage-banking
revenue increased from $9.410 million in 2008 to $16.112 million in 2009 due to a larger volume of originations of loans and higher margins on loans sold.
The volume of loans sold increased from $1.149 billion in 2008 to $1.625 billion in 2009 and reflects strong reverse mortgage originations and continued customer refinance activity.

We
recognized $420,000 in gains on sales of securities in 2009, compared to $229,000 during 2008. During 2009, we also recognized $2.936 million in net OTTI charges on securities
available for sale, compared to $5.605 million in net OTTI charges recorded in 2008. See "Securities" discussion later in this Item for more information on these OTTI charges and the related
securities.

Deposit
service charges declined to $5.261 million in 2009 from $6.319 million in 2008 due to lower overdraft income and to a decline in the number of accounts. During
2009, we experienced a recovery of value of our trading assets and certain long-term borrowings of $3.038 million, compared to a loss in value of $814,000 for 2008.

Other
income increased $27,000 for 2009. Included in this line item for 2009 is an insurance recovery of $850,000 related to high loan-to-value ratio/low
documentation ("ALT A") loans originated in 2006 and 2007. Other income for 2008 included Visa IPO income of $156,000 and we recorded $819,000 in gains on the sales of two former branch facilities.

The
following table shows the detail of our noninterest income for the years ended December 31:

(dollars in thousands)

2009

2008

2007Net OTTI charges on securities available for sale

$
(2,936
)
$
(5,605
)
$
Origination fees and gain on sale of mortgage loans


12,169


6,730


4,430Other mortgage-banking revenue


3,943


2,680


2,295ATM fees


3,072


3,188


3,219Service fees on deposits


5,261


6,319


6,463Gain (loss) on financial instruments carried at fair value


3,038


(814
)

(702
)Gain on sales of securities, net


420


229


943Gain on sale of branches





819


Commissions on sales of nondeposit investment products


540


816


1,049Income from bank-owned life insurance


1,377


1,505


1,439Other


1,387


1,360


1,621$
28,271

$
17,227

$
20,757


Noninterest
Expense

Our
noninterest expenses increased $2.582 million, or 3.9%, to $67.834 million compared to $65.252 million for the same period of 2008,
primarily due to increased costs related to real estate acquired through foreclosure, deposit insurance premiums, loan collections, and professional services.

Write-downs
and costs of real estate acquired through foreclosure increased $1.030 million, as nonperforming commercial, commercial construction, consumer construction, and ALT A
loans moved through the foreclosure process. Management regularly updates its values of foreclosed properties and continued declines in the value of residential real estate have required further
write-downs in our carrying value. Professional fees increased primarily due to legal fees associated with the sale of Mariner Finance, regulatory issues, and loan workouts. Loan collection expenses,
included in other noninterest expenses, increased $930,000 due to costs associated with loan workouts.

Deposit
insurance costs increased due to an increase in our rates assessed by the FDIC, including total special assessments of approximately $638,000 in 2009. Our regular FDIC rates have
increased

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Table of Contents

due
to our capital adequacy levels and financial condition. See "Capital Resources" later in this Item for additional information on capital adequacy.

The
following table shows the detail of our noninterest expense for the years ended December 31:

(dollars in thousands)

2009

2008

2007Salaries and employee benefits

$
26,469

$
27,901

$
28,925Occupancy


8,974


9,369


8,615Furniture, fixtures, and equipment


2,941


3,425


3,223Professional services


3,866


1,669


1,409Advertising


915


921


1,219Data processing


1,880


2,149


1,941ATM expenses


944


1,014


1,030Write-downs, losses, and costs of real estate acquired through foreclosure


6,832


5,802


4,477Secondary marketing valuation





355


3,934FDIC insurance premiums


3,480


887


605Service and maintenance


2,437


2,216


2,098Office supplies


504


539


606Printing


332


437


394Corporate insurance


1,035


720


560Consulting fees


1,049


766


789Marketing/promotion


286


404


717Postage


763


600


660Overnight delivery/courier


525


735


788Security


259


195


258Dues and subscriptions


490


468


505Loan collection expenses


1,394


464


618Regulatory compliance settlement





1,040


Loan origination expense





254


863Director fees


276


289


254Employee education and training


161


193


184Automobile expense


144


172


163Travel and entertainment


332


435


502Other


1,546


1,833


1,960$
67,834

$
65,252

$
67,297


Income
Tax Expense

We
recorded an income tax benefit of $10.887 million on a net loss before taxes and discontinued operations of $24.111 million, resulting in an
effective tax rate before discontinued operations of (45.2)% for 2009 in comparison to an income tax benefit of $13.632 million on a net loss before taxes and discontinued operations of
$30.441 million, resulting in an effective tax rate before discontinued operations of (44.8)% for 2008.

The
Bank has earned significant state tax incentives totaling $5.5 million through its participation in the One Maryland Economic Development ("One Maryland") and Job Creation Tax
Credit programs. 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 2009 and 2008, we utilized $591,000 and $585,000, respectively, in credit related to this

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Table of Contents

incentive
program as a portion of the credits earned are funded 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, 2009, we had approximately $64.000 million in state operating loss carryforwards, representing a deferred income tax asset of $3.437 million, and
approximately $30.000 million in federal operating loss carryforwards, representing a deferred income tax asset of $10.635 million. Management has determined that a valuation allowance
for deferred tax assets was not required as of December 31, 2009.

Discontinued
Operations

In
accordance with FASB guidance, the operating results of Mariner Finance, along with the loss recognized on the sale are included in the Consolidated
Statement of Operations as discontinued operations. Such discontinued operations are detailed as follows for the years ended December 31:

(dollars in thousands)

2009

2008

2007Interest income

$
24,262

$
20,987

$
16,574Interest expense


(3,147
)

(3,381
)

(4,089
)Net interest income


21,115


17,606


12,485Provision for loan losses


(4,865
)

(3,927
)

(2,215
)Noninterest income


4,467


3,959


3,482Noninterest expenses


(17,332
)

(14,796
)

(11,080
)Net income before income taxes


3,385


2,842


2,672Income tax expense


(1,335
)

(1,121
)

(1,032
)Net income


2,050


1,721


1,640Loss on write-down of Mariner Finance to fair value


(9,485
)




Write-off of deferred taxes related to Mariner Finance


(1,625
)




Net loss on disposal of Mariner Finance


(11,110
)




Net (loss) income from discontinued operations

$
(9,060
)
$
1,721

$
1,640


Financial Condition

At December 31, 2009, our total assets were $1.385 billion compared to $1.307 billion at December 31, 2008,
an increase of 5.9%. Earning assets decreased $77.168 million or 6.7% to $1.067 billion at December 31, 2009 from $1.144 billion at December 31, 2008. We experienced
growth in cash and due from banks (+$145.329 million) and loans held for sale (+$61.882 million), partially offset by decreases in total securities (-$13.208 million),
net loans receivable (-$82.607 million), and federal funds sold and interest-bearing deposits (-$38.965 million). We funded the growth in overall assets with
increases in deposits (+$196.271 million).

Securities

Our
investment portfolio at December 31, 2009 is comprised of marketable securities. The maturity structure of our investment portfolio is significantly
influenced by the level of prepayment activity on mortgage-backed securities. At December 31, 2009, the average duration of our investment portfolio was 2.68 years, significantly shorter
than the average duration of 4.98 years at December 31, 2008, primarily due to the decrease in the projected lives of mortgage-backed securities.

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Table of Contents

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, 2009, we held
$10.749 million in securities classified as trading and $28.275 million in securities classified as AFS. As of December 31, 2008, we held $12.566 million in securities
classified as trading and $39.666 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 security 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.

Trading Securities

Trading securities decreased $1.817 million or 14.5% from the December 31, 2008 level of $12.566 million due to
principal repayments. The entire trading portfolio consisted of mortgage-backed securities at December 31, 2009 and 2008.

The
estimated fair values and weighted average yields of trading debt securities at December 31, 2009, 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
YieldMortgage-backed securitiesDue five to ten years

$
9,240


4.15
%Due after ten years


1,509


4.30
%$
10,749


4.17
%


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

Securities Available for Sale

Securities AFS declined $11.391 million due to normal principal payments on mortgage-backed securities, scheduled maturities of
other securities, $9.279 million in securities sales, and a decline in market values of certain securities, partially offset by purchases of securities of $1.749 million during 2009. In
addition, we recorded $2.936 million in net OTTI charges during 2009, most of which was related to pooled trust preferred obligations. At December 31, 2009, our net unrealized loss on
securities classified as available for sale totaled $5.669 million compared to a net unrealized loss of $8.191 million at December 31, 2008. The increase in value resulted
primarily from improved values of our mortgage-backed securities. In addition, in 2009, we recognized credit-related OTTI on our holdings of four pooled trust preferred obligations that are considered
impaired and that were in an unrealized loss position in 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.

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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 two years 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, in
management's opinion, they continue to possess acceptable credit risk. 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 net OTTI charges of $2.602 million during the year ended December 31, 2009 on trust preferred securities.

We
recorded net OTTI of $334,000 on two of our equity securities during the year ended December 31, 2009.

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 intent to hold these securities to maturity and it is more likely than not that we will not be required to sell the securities before recovery of
value. As such, management considers the impairments to be temporary.

Our
total investments in trust preferred securities, corporate obligations, and common equity securities totaled $15.180 million as of December 31, 2009 compared to
$15.665 million as of December 31, 2008.

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

(dollars in thousands)

2009

2008

2007

2006

2005Mortgage-backed securities

$
11,742

$
22,248

$
18,079

$
62,281

$
161,112Trust preferred securities


13,338


12,866


19,034


33,028


34,087U.S. government agency notes











39,894


68,271U.S. Treasury securities


1,003


1,003


1,017


998


986Obligations of state and municipal subdivisions








2,975


2,965


2,969Corporate obligations


930


2,548


1,915


1,988


1,777Equity securitiesBanks


912


251


478


1,395


1,310Foreign government bonds


350


750


1,500


1,750


1,481Other investment securities











2,991


4,946$
28,275

$
39,666

$
44,998

$
147,290

$
276,939


The
amortized cost, estimated fair values, and weighted average yields of debt securities at December 31, 2009, by contractual maturity, are shown below. Actual maturities may
differ from

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contractual
maturities because issuers have the right to call or prepay obligations. Equity securities are excluded as they have no stated maturity.

UnrealizedAmortized
Cost

Estimated
Fair Value

Weighted-
Average
Yield(dollars in thousands)

Gains

LossesMortgage-backed securities:Due five to ten years

$
229

$
16

$


$
245


6.00
%Due after ten years


11,043


461


7


11,497


5.45
%Trust preferred securities:Due one to five years


2,953


47


28


2,972


7.75
%Due five to ten years


1,031





125


906


8.00
%Due after ten years


15,497





6,037


9,460


5.56
%U.S. Treasury securities:Due one to five years


999


4





1,003


0.88
%Corporate obligations:Due one to five years


877


53





930


4.63
%Foreign government bonds:Due within one year


350








350


4.05
%$
32,979

$
581

$
6,197

$
27,363


5.62
%


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

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)

2009

2008

2007

2006

2005Commercial loans and lines of credit

$
77,634

$
91,111

$
72,590

$
79,016

$
67,759Commercial construction


99,490


109,484


129,272


137,155


112,383Commercial mortgages


339,794


319,143


279,578


317,848


349,430Consumer residential construction


47,379


69,589


86,621


98,066


126,708Residential mortgages


176,159


138,323


84,892


56,221


40,817Consumer


150,495


251,046


201,967


178,153


154,489Total loans

$
890,951

$
978,696

$
854,920

$
866,459

$
851,586


Total
loans decreased $87.745 million during 2009. We experienced higher balances in commercial mortgage loans (+$20.651 million) and residential mortgage loans
(+$37.836 million). Commercial and consumer residential construction balances decreased (-$9.994 million and -$22.210 million, respectively), as did
commercial loans and lines of credit (-$13.477 million). The decline in consumer loans is a result of the sale of our consumer finance subsidiary, Mariner Finance. During 2009, we
were less aggressive in our loan origination activity, as we focused on improving asset quality in the current poor market environment.

Approximately
46.6% of our loans have adjustable rates as of December 31, 2009 compared to approximately 41.3% at December 31, 2008, 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

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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. Some variable rate loans have rate floors
which may delay changes in interest income in a period of changing rates. 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, 2009. 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.

MaturingIn one year or less

After 1 through
5 years

After 5 years(dollars in thousands)

Fixed

Variable

Fixed

Variable

Fixed

Variable

TotalCommercial loans and lines of credit

$
20,869

$
31,780

$
13,116

$
8,906

$
1,124

$
1,839

$
77,634Commercial construction


16,202


43,867


20,506


6,693


8,771


3,451


99,490Commercial mortgages


78,987


24,365


158,353


39,795


14,314


23,980


339,794Consumer residential construction


44,630





2,309





440





47,379Residential mortgages


5,569


1,829


2,984


9,272


34,489


122,016


176,159Consumer


4,573


14,869


9,937


56,023


38,599


26,494


150,495Total loans

$
170,830

$
116,710

$
207,205

$
120,689

$
97,737

$
177,780

$
890,951


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, $49.451 million represents loans made to borrowers for the development of residential real estate at
December 31, 2009. This segment of the portfolio has exhibited greater weakness during 2009 due to overall weakness in the residential housing sector. As of December 31, 2009,
$10.992 million (22%) 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:

(dollars in thousands)

2009

2008Raw residential land

$
6,946

$
6,630Residential subdivisions


17,708


23,407Single residential lots


5,228


4,338Single family construction


6,940


12,547Townhome construction


1,785


2,817Condominium unit construction


956


1,410Multi-family unit construction


9,888


10,907$
49,451

$
62,056


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

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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 commercial loans includes performing updates on all loans that we have rated for risk. Our commercial loans are generally reviewed
individually, in accordance with the FASB's guidance on accounting for loan impairment, 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 the 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. In addition, we 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. In general, impaired loans (both commercial and consumer) include nonaccrual loans and troubled debt restructure ("TDR") loans. Such a loan is not considered
impaired during a minimal

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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, 2009 and December 31, 2008 totaled $33.639 million and $26.695 million, respectively. The reserve for
loan losses for commercial impaired loans was $328,000 at December 31, 2009 and $1.264 million at December 31, 2008. The average recorded investment in commercial impaired loans
was approximately $25.844 million, $21.530 million, and $14.287 million for the years ended December 31, 2009, 2008, and 2007, respectively, and no income has been accrued
or collected on the majority of these loans while they have been classified as impaired.

The
allowance for impaired loans (both commercial and consumer) represents the fair value deficiencies for those loans for which the estimated fair value of the collateral was less than
our carrying amount of the loan as of December 31, 2009. Not all of the loans newly classified as impaired since December 31, 2008 required impairment reserves, as some of the loans'
collateral had estimated fair values greater than the carrying amount of the loan or the loan has been written down to its estimated fair value.

Consumer

Our consumer portfolio includes first- and second-lien mortgage loans and other loans to individuals. Generally, consumer
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. Consumer loans that
are greater than 120 days past due are generally charged off.

Consumer
loans we consider impaired at December 31, 2009 and December 31, 2008 totaled $15.208 million and $20.945 million, respectively. The reserve for loan
losses for consumer impaired loans was $405,000 at December 31, 2009 and $1.444 million at December 31, 2008. The average recorded investment in consumer impaired loans was
approximately $17.466 million, $26.214 million, and $26.071 million for the years ended December 31, 2009, 2008, and 2007, respectively.

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 5 to our Consolidated Financial Statements included in Item 8 of Part II of this Form 10-K.

Residential
Mortgage Loans

Residential
mortgage loans, including ALT A second mortgages, are analyzed as pools with historical loss rates applied. Management generally may modify the
historical loss rates based upon prevailing economic conditions or trends in delinquency and loss. Loans delinquent greater than 90 days are individually reviewed and assessed for accrual
status and the need for specific reserves.

Repurchased Loans.In accordance with relevant accounting guidance on accounting for loans and debt securities acquired in a transfer,
we record
repurchased loans at their estimated fair value at the time of repurchase. At December 31, 2009 and 2008, we maintained $3.894 million and $6.335 million, respectively, in loans
repurchased in accordance with covenants in our sales agreements with investors.

All
repurchased loans which were 90 days delinquent as of December 31, 2009 were evaluated individually for impairment, with any estimated loss compared to the carrying
amount recorded as a specific reserve. All other repurchased loans were evaluated collectively for impairment.

All
repurchased nonaccrual loans are currently in the process of collection and the resolution of many of these loans may be through foreclosure of the property.

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Transferred Loans.In accordance with the FASB's guidance on 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 $22.439 million in first-lien mortgage loans and $1.713 million in second-lien mortgage loans that were transferred from loans held for
sale to our mortgage and consumer loan portfolios, respectively at December 31, 2009. We maintained $11.799 million in transferred first-lien mortgage loans and
$2.811 million in transferred second-lien mortgage loans at December 31, 2008.

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

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.

Our
total allowance at December 31, 2009 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.

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

(dollars in thousands)

2009

2008

2007

2006

2005Allowance for loan losses, beginning of year

$
16,777

$
12,789

$
12,399

$
11,743

$
9,580Loans charged off:Commercial loans and lines of credit


(517
)




(67
)




(15
)Commercial construction


(2,370
)

(401
)

(1,481
)




Commercial mortgages


(871
)

(630
)

(495
)




Consumer residential construction


(1,493
)

(331
)




(186
)

Residential mortgages


(4,546
)

(4,658
)

(1,038
)

(99
)

Consumer (1)


(2,650
)

(5,446
)

(5,908
)

(1,740
)

(1,492
)Total loans charged off


(12,447
)

(11,466
)

(8,989
)

(2,025
)

(1,507
)Recoveries:Commercial loans and lines of credit





13








Commercial construction














Commercial mortgages


4


3








Consumer residential construction











22


89Residential mortgages


46


9


43





Consumer (2)


231


367


421


344


294Total recoveries


281


392


464


366


383Net charge-offs


(12,166
)

(11,074
)

(8,525
)

(1,659
)

(1,124
)Allowance for acquired loans (3)





279








Provision for loan lossesBank


11,660


10,856


6,700


150


1,575Provision for loan lossesMariner Finance





3,927


2,215


2,165


1,712Mariner Finance allowance for loan losses


(4,632
)










Allowance for loan losses, end of period

$
11,639

$
16,777

$
12,789

$
12,399

$
11,743Loans (net of premiums and discounts):Period-end balance

$
890,951

$
978,696

$
854,920

$
866,459

$
851,586Average balance during period


889,345


821,699


781,843


808,034


764,785Allowance as a percentage of period-end loan balance


1.31
%

1.71
%

1.50
%

1.43
%

1.38
%Percent of average loans:Provision for loan losses (4)


1.31
%

1.32
%

0.86
%

0.02
%

0.21
%Net charge-offs


1.37
%

1.35
%

1.09
%

0.21
%

0.15
%


---

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

2009

2008

2007(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
LoansCommercial loans and lines of credit

$
817


7.0
%

8.7
%
$
824


4.9
%

9.3
%
$
606


4.7
%

8.5
%Commercial construction


1,647


14.1
%

11.2
%

2,702


16.1
%

11.2
%

1,456


11.4
%

15.1
%Commercial mortgages


3,336


28.7
%

38.1
%

2,985


17.8
%

32.6
%

2,316


18.1
%

32.7
%Consumer residential construction


293


2.5
%

5.3
%

583


3.5
%

7.1
%

719


5.6
%

10.1
%Residential mortgages


834


7.2
%

19.8
%

1,576


9.4
%

14.1
%

1,542


12.1
%

10.0
%Consumer


882


7.6
%

16.9
%

4,683


27.9
%

25.7
%

4,021


31.4
%

23.6
%Unallocated


3,830


32.9
%




3,424


20.4
%




2,129


16.7
%

Total

$
11,639


100.0
%

100.0
%
$
16,777


100.0
%

100.0
%
$
12,789


100.0
%

100.0
%




2006

2005(dollars in thousands)

Amount

Percent
of Total

Percent
of Loans
to Total
Loans

Amount

Percent
of Total

Percent
of Loans
to Total
LoansCommercial loans and lines of credit

$
926


7.5
%

9.1
%
$
1,302


11.1
%

8.0
%Commercial construction


2,749


22.2
%

15.8
%

1,031


8.8
%

13.2
%Commercial mortgages


3,073


24.8
%

36.7
%

2,908


24.8
%

41.0
%Consumer residential construction


1,068


8.6
%

11.3
%

1,461


12.4
%

14.9
%Residential mortgages


28


0.2
%

6.5
%

18


0.1
%

4.8
%Consumer


2,928


23.6
%

20.6
%

2,242


19.1
%

18.1
%Unallocated


1,627


13.1
%




2,781


23.7
%

Total

$
12,399


100.0
%

100.0
%
$
11,743


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 $11.639 million and $16.777 million as of December 31, 2009 and December 31, 2008, respectively. The changes in the allowance from period
to period reflects management's ongoing application of its methodologies to establish the allowance, which, in 2009, included increases in the allowance for commercial mortgage loans which received
internal risk rating downgrades during the year, as well as increases to reflect negative market trends and other qualitative factors. 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 commercial construction and the residential mortgage portfolios decreased (-$1.055 million and -$742,000,
respectively) and reflect the movement of delinquent loans through the foreclosure process and the partial charge-offs of certain loans with specific reserves as of December 31,
2008. During 2009, we charged-off $2.370 million in commercial construction loans and $4.546 million in
residential mortgage loans. The specific and general reserves for commercial mortgages increased as delinquencies increased and collateral values decreased. Specific and general reserves for consumer
loans decreased due to the sale of our consumer finance subsidiary, Mariner Finance. Unallocated reserves increased primarily based upon qualitative market area factors, including, among other things,
the current poor market environment. In 2009, $19.809 million in loans were transferred to real estate acquired through foreclosure as they moved through the foreclosure process.

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The
provision for loan losses recognized to maintain the allowance was $11.660 million for 2009 compared to $14.783 million for 2008 ($3.927 million of which was
attributable to Mariner Finance). We recorded net charge-offs of $12.166 million during 2009 compared to net charge-offs of $11.074 million in 2008, primarily due
to increases in net charge-offs of construction loans, commercial loans, and commercial mortgages. During 2009, net charge-offs as compared to average loans outstanding
increased to 1.37%, compared to 1.35% during 2008.

Our
allowance as a percentage of outstanding loans has decreased from 1.71% as of December 31, 2008 to 1.31% as of December 31, 2009, reflecting the changes in our loss
estimates and the results of the application of our loss estimate methodology. Charge-offs and transfers to real estate acquired through foreclosure continued to be significant in 2009;
however, asset quality began improving at the end of 2009, with fewer loans becoming delinquent and/or impaired. Management believes the allowance for loan losses is adequate as of December 31,
2009.

Although
management uses available information to establish the appropriate level of the allowance for loan losses, future additions or reductions to the allowance may be necessary based
on estimates that are susceptible to change as a result of changes in economic conditions and other factors. As a result, our allowance for loan losses may not be sufficient to cover actual loan
losses, and future provisions for loan losses could materially adversely affect the Company's operating results. In addition, various regulatory agencies, as an integral part of their examination
process, periodically review the Company's allowance for loan losses. Such agencies may require the Company to recognize adjustments to the allowance based on their judgments about information
available to them at the time of their examination.

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Nonperforming Assets

Nonperforming assets, expressed as a percentage of total assets, totaled 4.15% at December 31, 2009 and 4.42% at
December 31, 2008. The following tables show the distribution of nonperforming assets and loans greater than 90 days past due and still accruing as of December 31:

(dollars in thousands)

2009

2008

2007

2006

2005Nonaccruing loans:Commercial loans and lines of credit

$
535

$
603

$


$
1,158

$
1,015Commercial construction


10,992


14,544


5,268





Commercial mortgages


9,773


4,134


3,926


575


687Consumer residential construction


3,815


8,222


3,362


539


393Alt A mortgages (1)


3,114


6,772


9,203


613


Other residential mortgages


6,219


1,343


823


257


45Other consumer


1,351


3,145


1,807


1,016


87935,799


38,763


24,389


4,158


3,019Real estate acquired through foreclosure:Commercial loans and lines of credit














Commercial construction


9,347


4,909


3,601





Commercial mortgages


4,112


2,080


1,101





866Consumer residential construction


4,203


2,826


2,299


349


65Alt A mortgages (1)


1,858


9,079


11,980


527


Other residential mortgages


240








1,564


Other consumer


1,870


100








21,630


18,994


18,981


2,440


931Total nonperforming assets

$
57,429

$
57,757

$
43,370

$
6,598

$
3,950Loans past-due 90 days or more and accruing:Commercial loans and lines of credit

$
499

$


$
92

$


$
Commercial construction





210





14,339


Commercial mortgages


3,886


1,634


663


1,939


Consumer residential construction





1,587


219


1,044


531Alt A mortgages (1)


65


1,519


1,825


9,842


Other residential mortgages


4,642


1,739








328Other consumer


132


2,990


220


110


1$
9,224

$
9,679

$
3,019

$
27,274

$
860


(1)Includes
both first- and second-lien loans


Nonaccrual
loans decreased $2.964 million between December 31, 2008 and December 31, 2009, as troubled loans moved through the process of charge-off
and/or foreclosure. Additionally, the nonaccrual balance at December 31, 2008 included $2.988 million in Mariner Finance consumer loans. Although total nonaccrual loans decreased, we did
experience increases in nonaccrual commercial mortgages and other residential mortgages. The commercial mortgage loan nonaccrual balance consisted of 19 loans, with the largest balance amounting to
$4.209 million. All of these loans were placed on nonaccrual status during 2009. All of the commercial mortgage loans that were on nonaccrual in 2008 were paid off by the borrower,
charged-off and/or foreclosed, or otherwise resolved as a performing asset during 2009. The residential mortgage nonaccrual balance consisted of 48 loans, with the largest balance
amounting to $899,000. The majority of these loans were placed on nonaccrual status during 2009.

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Real
estate acquired through foreclosure increased $2.636 million when compared to December 31, 2008 as more loans moved through the foreclosure process. Commercial and
consumer construction properties increased due to the addition of 15 properties for $9.539 million, partially offset by write-downs and disposals of properties. The increase in commercial
mortgages was due to the addition of 4 properties in the amount of $2.658 million, partially offset by write-downs and disposals of properties. Foreclosed consumer properties consisted
primarily of two properties, one in the amount of $1.800 million.

Real
estate acquired through foreclosure is carried at estimated fair value, less estimated costs to sell.

Loans
90 days delinquent and accruing, which are loans that are well secured and in the process of collection, decreased from $9.679 million at December 31, 2008 to
$9.224 million as of December 31, 2009. Included in the decrease are decreases in consumer residential construction loans of $1.587 million and Alt A residential mortgage loans of
$1.454 million. Increases occurred in the commercial, commercial mortgage, and residential mortgage portfolios. The commercial mortgage total, which increased due to the deterioration of the
commercial real estate market, is made up of 5 loans, with the largest balance amounting to $1.378 million. The other residential mortgage total is made up of 14 loans, with the largest loan
totaling $638,000. The residential real estate market continues to be depressed in our market area. We had one commercial loan in the amount of $499,000 included in loans 90 days delinquent and
accruing.

Troubled Debt Restructures

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 $13.048 million for 2009 and $9.074 million for 2008. Our TDRs are generally reviewed
individually, at the time of restructure, 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.

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 2009, loans of this type that are not included in the above table of nonperforming and past-due loans amounted to approximately
$102.460 million, compared to $74.158 million at the end of 2008. Potential problem commercial loans, including loans secured by real estate, increased $26.962 million, while
consumer residential construction potential problem loans decreased by $1.660 million. Seventy-nine of the loans (94% of total potential problem loans) are commercial relationships that are
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
9 loans (6% of total potential problem loans) are consumer residential construction loans that are 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 $782,141 and
the largest relationship outstanding balance was $6.782 million at December 31, 2009. Depending on changes in the economy and other future events, these loans and others not presently
identified as potential 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 $1.147 billion as of December 31, 2009, increasing $196.271 million or 20.7% over the December 31, 2008 balance of $950.233 million,
primarily due to an aggressive time deposit marketing campaign. We took in approximately $217.542 million in time deposits associated with a newly launched program for acquiring nonbrokered
national deposits.

The
following table details the average amount and the average rate paid for each category of deposits as of December 31:

2009

2008

2007(dollars in thousands)

Average
Balance

Average
Rate

Average
Balance

Average
Rate

Average
Balance

Average
RateNOW accounts

$
6,784


0.65
%
$
13,249


0.58
%
$
9,858


0.21
%Money market accounts


163,910


0.84
%

210,003


1.47
%

287,837


3.52
%Savings accounts


55,122


0.32
%

54,897


0.33
%

56,935


0.31
%Time deposits


713,855


3.26
%

525,700


4.04
%

384,157


4.54
%Total interest-bearing deposits


939,671


2.65
%

803,849


3.06
%

738,787


3.76
%Noninterest-bearing demand deposits


116,508





131,242





163,011Total deposits

$
1,056,179


2.35
%
$
935,091


2.63
%
$
901,798


3.08
%


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

(dollars in thousands)

2009

2008Maturing in:3 months or less

$
40,999

$
27,740Over 3 months through 6 months


94,940


35,029Over 6 months through 12 months


134,651


63,940Over 12 months


127,304


62,181$
397,894

$
188,890


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, 2009, our core deposits were $426.217 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, short-term and long-term
advances from the FHLB, and a mortgage loan at December 31, 2009. At December 31, 2008, our borrowings also included a line of credit to finance consumer receivables held by Mariner
Finance. Our short-term promissory notes 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

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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 $95.672 million and $177.868 million at December 31, 2009 and December 31, 2008, respectively, consist of
long-term advances from the FHLB and a mortgage loan on our former headquarters building, and, in 2008, Mariner Finance's consumer finance receivable line of credit. The amortized cost of
long-term FHLB advances totaled $85.000 million at December 31, 2009 and December 31, 2008; however, $60.000 million of the advances are recorded at fair value
($61.592 million at December 31, 2009 and $64.073 million at December 31, 2008) in accordance with FASB guidance, making the total carrying amount of long-term
FHLB advances $86.592 million at December 31, 2009 and $89.073 million at December 31, 2008. As of December 31, 2009 and December 31, 2008, the balance on the
mortgage loan was $9.080 million and $9.249 million, respectively. The December 31, 2008 balance on the consumer receivable line of credit was $79.546 million.

Short-term
borrowings consist of short-term promissory notes and short-term advances from the FHLB. These borrowings decreased from
$43.128 million at December 31, 2008 to $26.365 million at December 31, 2009.

In
the past, to further our funding and capital needs, we raised capital by issuing Trust Preferred Securities through statutory trusts (the "Trusts"), which are wholly-owned by First
Mariner Bancorp. The Trusts used the proceeds from the sales of the Trust Preferred Securities, combined with First Mariner Bancorp's equity investment in these Trusts, to purchase subordinated
deferrable interest debentures from First Mariner Bancorp. The debentures are the sole assets of the Trusts. Aggregate debentures as of December 31, 2009 and December 31, 2008 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 the optional redemption dates. Beginning with January 2009 payments, First Mariner suspended interest
payments on the debentures, as permitted under the terms of the debentures. The suspension 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 Bancorp 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, $10.158 million of the outstanding Trust Preferred Securities qualify as Tier I capital and $6.854 million of the remaining Trust
Preferred Securities qualify as Tier II capital at December 31, 2009. The total amount of our Trust Preferred Securities allowable as part of capital was limited to
$17.012 million as of December 31, 2009.

See
Notes 8 and 9 to the Consolidated Financial Statements included in Item 8 of Part II of this Form 10-K for further details about our
borrowings and additional borrowing capacity. See "Subsequent Events" later in this section for information regarding the subsequent event related to the Trust Preferred Securities.

Capital
Resources

Stockholders'
equity decreased $19.028 million during 2009 to $26.987 million at December 31, 2009 from $46.015 million at
December 31, 2008. The retained deficit increased by the net loss of $22.284 million for 2009, partially offset by the cumulative effect of accounting change adjustment related to
securities of $1.148 million.

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Common
stock and additional paid-in-capital increased by $30,000 due to the vesting of previously granted stock options during 2009. We did not repurchase any
common stock during 2009, nor was any stock issued through the employee stock purchase plan. Accumulated other comprehensive loss, which is derived from the fair value calculations for securities
available for sale, decreased by $2.078 million.

See
"Subsequent Events" later in this section for subsequent events related to authorized shares and other capital considerations.

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.

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 plus any off-balance sheet reserves 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).

We
regularly monitor our capital adequacy ratios and attempt to ensure that we meet our regulatory capital requirements. The regulatory capital ratios are shown below as of
December 31:

December 31,

Minimum
Requirements
for Capital
Adequacy
PurposesTo be Well
Capitalized Under
Prompt Corrective
Action Provision2009

2008

2007Regulatory capital ratios:Leverage:Consolidated


1.4
%

4.3
%

6.9
%

4.0
%

5.0
%Bank


6.2
%

5.8
%

7.1
%

4.0
%

5.0
%Tier 1 capital to risk-weighted assets:Consolidated


1.8
%

5.0
%

8.2
%

4.0
%

6.0
%Bank


7.9
%

6.8
%

8.6
%

4.0
%

6.0
%Total capital to risk-weighted assets:Consolidated


3.6
%

9.9
%

14.2
%

8.0
%

10.0
%Bank


9.1
%

8.8
%

10.4
%

8.0
%

10.0
%


On
September 18, 2009, the Bank entered into an Agreement with the FDIC and the Maryland Division of Financial Regulation (the "Division"), pursuant to which it consented to the
entry of an Order to Cease and Desist ("the September Order"), which directs the Bank to (i) increase its capitalization, (ii) improve earnings, (iii) reduce nonperforming loans,
(iv) strengthen management policies and practices, and (v) reduce reliance on noncore funding. The September Order replaces the informal agreement that was previously in place among the
parties. The September Order requires the Bank to adopt a plan to achieve and maintain a Tier 1 Leverage Capital ratio of at least 7.5% of the Bank's average total assets and a Total
Risk-Based Capital ratio of at least 11% of its Total Risk Weighted Assets by June 30, 2010. The Bank has presented a plan to the FDIC and the Division detailing how it will achieve
a Tier 1 Leverage Capital ratio of 6.5% and a Total Risk-Based Capital ratio of 10% by March 31, 2010, and a Tier 1 Leverage Capital ratio of 7.5% and a Total
Risk-Based Capital ratio of 11% by June 30, 2010. At December 31, 2009, the Bank reported a Tier 1 Leverage Capital ratio of 6.2% and a Total Risk-Based
Capital ratio of 9.1%. Within 30 days after the end of each calendar year, the Bank must submit an annual budget and profit plan and a plan that takes into account the Bank's pricing structure,
the Bank's cost of funds and how this can be reduced, and the

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level
of provision expense for adversely classified loans. To address reliance on noncore funding, the Bank must adopt and submit a liquidity plan intended to reduce the Bank's reliance on noncore
funding, wholesale funding sources, and high-cost rate-sensitive deposits. While the September Order is in effect, the Bank may not pay dividends or management fees without the
FDIC's prior consent, the Bank may not accept, renew, or roll over any brokered deposits or pay effective yields on deposits that are greater than those generally paid in its markets. A copy of the
September Order was filed as an exhibit to the Company's Form 8-K filed with the SEC on September 21, 2009 and is filed as Exhibit 10.33 hereto.

First
Mariner Bancorp is also a party to an agreement with the FRB (the "FRB Agreement"), which requires it to: (i) develop and implement a strategic business plan that includes
(a) actions that will be taken to improve our operating performance and reduce the level of parent company leverage, (b) a comprehensive budget and an expanded budget review process,
(c) a description of the operating assumptions that form the basis for major projected income and expense components and provisions needed to maintain an adequate loan loss reserve, and
(d) a capital plan incorporating all capital needs, risks and regulatory guidelines; and (ii) submit plans to improve enterprise-wide risk management and effectiveness of
internal audit programs. First Mariner Bancorp has also agreed to provide the FRB with advance notice of any significant capital transactions. The new FRB Agreement ("New FRB Agreement") prohibits
First Mariner and the Bank from taking any of the following actions without the FRB's prior written approval: (i) declaring or paying any dividends; (ii) taking dividends from the Bank;
(iii) making any distributions of interest, principal or other sums on First Mariners' subordinated debentures or trust preferred securities; (iv) incurring, increasing or guaranteeing
any debt; or (v) repurchasing, redeeming any shares of its stock. Under the New FRB Agreement, First Mariner had to submit a written plan to the FRB by January 28, 2010 to maintain
sufficient capital, on a consolidated basis, such that First Mariner satisfies the FRB's minimum capital requirements. To satisfy the FRB's minimum capital requirements, First Mariner's consolidated
Tier 1 capital to average assets, Tier 1 capital to risk-weighted assets, and total capital to risk-weighted assets ratios at each quarter end must be at least
4.0%, 4.0%, and 8.0%, respectively. At December 31, 2009, those capital ratios were 1.4%, 1.8%, and 3.6%%, respectively, which were at an "under-capitalized" level under the prompt corrective
action regulations of the FRB. A copy of the New FRB Agreement is an exhibit to the Company's Form 8-K filed with
the SEC on November 27, 2009 and is filed as Exhibit 10.34 hereto. See discussion later in this section related to a trust preferred exchange subsequent event that is expected to raise
our capital level to above adequately capitalized subsequent to December 31, 2009.

On
April 22, 2009, the Bank entered into an agreement (the "April Agreement") with the FDIC relating to alleged violations of consumer protection regulations relative to its fair
lending practices pursuant to which it consented to the issuance of an Order ("April Order"). The April Order requires the Bank to pay up to $950,000 in restitution to the Affected Borrowers. It also
imposes a civil money penalty of $50,000, all amounts for which were fully reserved in the final quarter of 2008. In addition to requiring the Bank to cease and desist from violating certain federal
fair lending laws, the April Orders also requires the Bank to develop and implement policies and procedures to (i) monitor and ensure compliance with fair lending laws and disclosure laws and
regulations, (ii) ensure that the costs, terms, features and risks of the loans and services are adequately disclosed to applicants, and (iii) develop an operating plan to maintain
quality control, internal audit, and compliance management systems that are effective in ensuring that the Bank's residential mortgage lending activities comply with all applicable laws, regulations,
and Bank policies. The Bank must also conduct or sponsor quarterly financial literacy and education courses where it provides residential mortgage loans. Further, the Bank is prohibited from offering
"payment-option" adjustable rate mortgage loans, although the Bank ceased offering these loans in 2007. A copy of the April Order is an exhibit to the Company's Form 8-K filed with
the SEC on May 7, 2009 and is filed as Exhibit 10.31 hereto.

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Management
does not believe that the April Order will have a material impact on the Bank's financial performance. Management believes the successful satisfaction of the September Order's
requirements and the requirements of the FRB Agreement and New FRB Agreement will strengthen the financial condition of the Bank for future periods.

The
foregoing 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 regulatory
requirements may result in more restrictive actions from our regulators, including more severe and restrictive enforcement actions.

As
of December 31, 2009, First Mariner had a total of $71.500 million in outstanding Trust Preferred Securities, of which amount, $10.158 million was eligible for
and included in Tier 1 capital and $6.854 million of the remaining Trust Preferred Securities was eligible for and included in Tier II capital. The total amount of our Trust
Preferred Securities allowable as part of capital was limited to $17.012 million as of December 31, 2009. See "Subsequent Events" later in this section for a subsequent event related to
the Trust Preferred Securities.

Liquidity

Liquidity describes our ability to meet financial obligations, including lending commitments and contingencies, which 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 $199.757 million
at December 31, 2009. 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 $36.613 million at December 31, 2009, 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 $65.871 million at
December 31, 2009 generally expire within 60 days. Commercial commitments to extend credit and unused lines of credit of $16.038 million at December 31, 2009 generally do
not extend for more than 12 months. Consumer commitments to extend credit and unused lines of credit of $12.402 million at December 31, 2009 are generally open ended. At
December 31, 2009, available home equity lines totaled $68.833 million. Home equity credit lines generally extend for a period of 10 years.

Capital
expenditures for various branch locations and equipment can be a significant use of liquidity. As of December 31, 2009, we plan on expending approximately
$1.000 million on our premises and equipment over the next 12 months.

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.

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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 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 $173.703 million
at December 31, 2009, 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, excluding our holdings of pooled trust preferred securities, and available to meet our liquidity needs. Loans held for sale, which totaled $122.085 million at
December 31, 2009, 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-lien mortgages and sold into the secondary market. Our loan to deposit
ratio stood at 77.7% as of December 31, 2009 and 103.0% at December 31, 2008.

We
also have the ability to utilize established credit lines as additional sources of liquidity. To utilize the vast majority of our credit lines, we must pledge certain loans and/or
securities before advances can be obtained. As of December 31, 2009, we maintained lines of credit totaling $127.000 million and funding capacity of $10.545 million based upon
loans and securities available for pledging and available overnight deposits. The FHLB has reduced our line of credit from $202.210 million to $107.000 million, our current outstanding
balance. The Federal Reserve Board has also notified the Bank that it will permit the Bank to draw on its line of credit with the Federal Reserve Bank only in limited circumstances and for a short
duration.

We
are not permitted to purchase brokered deposits without first obtaining a regulatory waiver. We are also required to comply with restrictions on deposit rates that we may offer. These
factors could significantly affect our ability to fund normal operations. Our ability to acquire deposits or borrow could also be impaired by factors that are not specific to us, such as a severe
disruption of the financial markets or negative views and expectations about the prospects for the financial services industry as a whole as the recent turmoil faced by banking organizations in the
domestic and worldwide credit markets deteriorates. At December 31, 2009, management considered the Bank's liquidity level to be sufficient for the purposes of meeting the Bank's cash flow
requirements.

First
Mariner Bancorp is a separate entity and apart from First Mariner Bank and must provide for its own liquidity. In addition to its operating expenses, First Mariner Bancorp is
responsible for the payment of any dividends that may be declared for its shareholders, and interest and principal on outstanding debt. At times, First Mariner Bancorp has repurchased its stock. A
significant amount of First Mariner Bancorp's revenues are obtained from subsidiary service fees and dividends. Payment of such dividends to First Mariner Bancorp by First Mariner Bank is limited
under Maryland law. 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 FRB,
FDIC, and the Maryland Banking Commissioner that, among other things, require us to obtain the prior approval of our regulators

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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.

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

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Our interest rate sensitivity position as of December 31, 2009 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 prepayment 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, 2009, our cumulative interest sensitive liabilities
exceeded our cumulative interest sensitive assets within a one year period by $65.313 million or 4.7% of total assets, compared to interest sensitive liabilities exceeding interest sensitive
assets by $59.830 million or 4.6% of total assets as of December 31, 2008.

(dollars in thousands)

180 days or less

181 days
one year

Onefive
years

> 5
years
or non-
sensitive

TotalInterest-earning assets:Interest-bearing deposits

$
7,329

$


$


$


$
7,329Securities


25,222


2,183


10,894


725


39,024Restricted stock investments


7,934











7,934Loans held for sale


122,085











122,085Loans


543,592


71,939


237,571


37,849


890,951Total interest-earning assets

$
706,162

$
74,122

$
248,465

$
38,574

$
1,067,323Interest-bearing liabilities:Savings accounts

$
5,066

$
4,168

$
33,530

$
10,547

$
53,311NOW accounts


836


840


6,839


3,209


11,724Money market accounts


124,261


2,634


21,215


9,809


157,919Certificates of deposit


315,152


232,810


262,696


700


811,358Borrowings and junior subordinated debentures


122,830


37,000


25,259


10,672


195,761Total interest-bearing liabilities

$
568,145

$
277,452

$
349,539

$
34,937

$
1,230,073Interest rate sensitive gap position:Period

$
138,017

$
(203,330
)
$
(101,074
)
$
3,637% of assets


9.97
%

(14.69
)%

(7.30
)%

0.26
%Cumulative

$
138,017

$
(65,313
)
$
(166,387
)
$
(162,750
)% of assets


9.97
%

(4.72
)%

(12.02
)%

(11.76
)%Cumulative risk sensitive assets to risk sensitive liabilities


124.29
%

92.28
%

86.08
%

86.77
%


While
we monitor interest rate sensitivity gap 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 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

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net
interest income. At December 31, 2009, 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

-200BPNet interest income


(3.38
)%

(10.95
)%


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. In addition, the Company has certain operating lease obligations.

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.

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.

See
detailed information on credit commitments above under "Liquidity."

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Contractual
Obligations

First
Mariner has certain obligations to make future payments under contract. At December 31, 2009, 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 yearsCertificates of deposit

$
811,358

$
535,898

$
230,152

$
45,308

$
Borrowings and junior subordinated debentures


195,761


87,957








107,804Annual rental commitments under noncancelable leases


24,516


3,823


5,894


5,653


9,146$
1,031,635

$
627,678

$
236,046

$
50,961

$
116,950


Derivatives

We
maintain and account for derivatives, in the form of IRLCs, in accordance with FASB guidance on accounting for derivative instruments and hedging
activities. We recognize gains and losses on interest rate lock commitments or forward sales commitments on loan pipeline through mortgage-banking revenue in the Consolidated Statements of Operations.

The
Bank, through First Mariner Mortgage, enters into IRLCs, under which we originate residential mortgage loans with interest rates determined prior to funding. IRLCs 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 IRLCs, we protect the Company from changes in interest rates through the use of forward sales of to be issued ("TBA") mortgage-backed securities.

We
are exposed to price risk from the time a mortgage loan closes until the time the loan is sold. To manage this risk, we also utilize forward sales of TBA mortgage-backed securities.
During the period of the rate lock commitment and from the time a loan is closed with the borrowers and sold to investors, we remain exposed to basis (execution, timing, and/or volatility) 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 commitments
with proven counterparties and pre-approved financial intermediaries.

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

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

2009

2008(dollars in thousands)

Notional
Amount

Estimated
Fair Value

Notional
Amount

Estimated
Fair ValueInterest rate swaps

$


$


$
60,000

$
61,199Interest rate lock commitments


62,925


62,971


166,894


169,957Forward contracts to sell mortgage-backed securities


79,000


79,790


100,000


98,496


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The
interest rate swaps held in 2008 were connected to Mariner Finance borrowings.

Changes
in interest rates could materially affect the fair value of the IRLCs or the forward commitments. In the case of the loan related derivatives, fair value is also impacted by the
probability that the IRLCs 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 nonsymmetrical and nonlinear.

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 accounting principles generally
accepted in the United States of America, 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 2009 or 2008.

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.

Financial Review 2008/2007

For the year ended December 31, 2008, we recorded a net loss of $15.088 million or $(2.36) per diluted share, a decrease
of 49.9% from a net loss of $10.063 million or $(1.57) per diluted share in 2007. Our gross revenue (net interest income and noninterest income) decreased $7.285 million and our
noninterest expenses, the provision for credit losses, and income taxes decreased by $2.179 million.

Our
net interest income for 2008 decreased $3.755 million or 11.7% from 2007, primarily due to lower yields on earning assets, higher levels of nonperforming assets, and a higher
level of interest-bearing liabilities, which more than offset the decrease in the rates on interest-bearing liabilities. The yield on average earning assets decreased from 7.00% for 2007 to 6.11% for
2008 and the rates on average interest-bearing liabilities decreased from 4.22% for 2007 to 3.45% for 2008. Rates on both earning assets and interest-bearing liabilities decreased due to decreased
market interest rates. The 2008 yields were also impacted by the increased level of nonperforming assets. Average earning assets remained relatively stable at $1.036 billion in 2008 compared to
$1.033 billion for 2007, while average interest-bearing liabilities increased from the 2007 level of $949.992 million to $1.012 billion for 2008. Our net interest margin decreased
38 basis points to 2.74% in 2008 compared to 3.12% in 2007.

Our
provision for loan losses increased to $10.856 million in 2008 from $6.700 million in 2007. Our allowance for loan losses at December 31, 2008 represented 1.71%
of loans outstanding, an increase from December 31, 2007 of 1.50% of loans outstanding. We recognized net chargeoffs of $11.074 million in 2008 compared to $8.525 million in 2007.

Our
total noninterest income decreased 17.0% to $17.227 million, due primarily to net OTTI charges recorded on certain investment securities, partially offset by an increase in
total mortgage-banking revenue, including gains on sales of mortgage loans, and gains on the sales of former branches.

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Mortgage-banking
revenue increased from $6.725 million for 2007 to $9.410 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. Deposit service charges declined to $6.319 million in 2008 from $6.463 million for
2007 due to lower overdraft income and to a decline in the number of accounts. We recognized an $814,000 net trading loss during 2008, compared to a net trading loss of $702,000 for 2007, mainly due
to declines in the 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 net OTTI charges on three of
our securities available for sale.

Our
noninterest expenses decreased $2.045 million or 3.0% to $65.252 million for 2008 compared to $67.297 million for the same period of 2007 due to across the board
cost cutting in 2008, including staff reductions.

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. Our salary and employee benefits expenses decreased $1.024 million, or 3.5%, due to staff reductions. Occupancy expenses and
furniture, fixtures, and equipment expenses increased by $754,000 and $202,000, respectively, for the year ended December 31, 2008 due primarily to increases in lease rates at Bank facilities.

We
recorded $1.040 million for a potential FDIC penalty related to prior lending practices. Professional fees increased $260,000 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.

We
recorded an income tax benefit of $13.632 million on a net loss before taxes and discontinued operations of $30.441 million, resulting in an effective tax rate of
(44.8)% for 2008 in comparison to an income tax benefit of $9.342 million on a net loss before taxes and discontinued operations of $21.045 million, resulting in an effective tax rate of
(44.4)% for 2007.

We
recognized $1.721 million in income from the discontinued operations of Mariner Finance in 2008, compared to $1.640 million in 2007.

Subsequent Events

Debt
Extinguishment

In
February, 2010, the Company entered into an agreement with its Chairman and Chief Executive Officer, Edwin F. Hale, Sr., who purchased trust
preferred securities issued by Mariner Capital Trust II, Mariner Capital Trust IV, and Mariner Capital Trust VIII. Mr. Hale, through the agreement with First Mariner
Bancorp, has agreed to exchange $20.0 million of the trust preferred securities for $2.0 million in common stock of First Mariner Bancorp plus warrants to purchase shares equal to 20% of
the shares issued in the exchange (the "Exchange"). Mr. Hale purchased the trust preferred securities, which have an aggregate liquidation amount of $20.0 million, for
$2.0 million. Upon completion of the agreed upon exchange, the Company intends to cancel the $20.0 million in trust preferred securities in exchange for common stock and warrants,
eliminating this long term debt.

The
Exchange also will increase the Company's total stockholders' equity by approximately $12.8 million, although the exact amount is subject to variation based on the valuation
of the warrants at closing, from the cancellation of the trust preferred securities, the common securities and the

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subordinated
debentures. The Exchange would be recorded during the quarter in which the trust preferred securities were cancelled, which is expected to be the first or second quarter of calendar year
2010. The aggregate number of shares of common stock to be exchanged (the "Initial Shares") will be valued at $2.0 million based on the average daily closing price of the common stock over the
20 trading days prior to the closing of the transaction (the "Conversion Price"). In the event that by June 30, 2010 the Company completes a public or private offering of its common stock at a
price per share below the Conversion Price, then Mr. Hale will be issued additional shares of common stock such that the total shares to be issued to Mr. Hales would equal
$2.0 million divided by the price per share at which shares were sold in the public or private offering. If common stock is sold in the rights offering (see below) at a price below the
Conversion Price, the rights offering will result in the issuance of additional shares of common stock to Mr. Hale.

Mr. Hale
also will receive warrants (the "A Warrants") to purchase in the aggregate 20% of the Initial Shares. In addition, Mr. Hale will receive additional warrants (the
"B Warrants" and, together with the A Warrants, the "Warrants") in the event that on or prior to June 30, 2010 First Mariner Bancorp enters into another agreement to acquire other trust
preferred securities and the value of the consideration to be issued in that transaction relative to the aggregate liquidation amount of trust preferred securities to be acquired is greater than the
value of the consideration to be issued by First Mariner Bancorp in the Exchange relative to the $20.0 million aggregate liquidation amount of trust preferred securities to be exchanged. In
that event, Mr. Hale would receive additional warrants such that the relative value of the aggregate consideration to be paid in the Exchange equals the relative value of the aggregate
consideration to be paid in the subsequent transaction, provided that the number of shares subject to the B Warrants could not exceed 20% of the Initial Shares.

In
the event Mr. Hale's ownership of Company common stock immediately following the closing would be equal to or greater than 41.33% (the "Threshold"), assuming exercise of the A
Warrants, then the amount of trust preferred securities Mr. Hale would exchange initially would be reduced by the minimum amount necessary so that immediately following the closing,
Mr. Hale's ownership of Company common stock would be below the Threshold. If such a reduction occurs at the closing, the remaining trust preferred securities held by Mr. Hale could be
exchanged in the future subject to the terms of the exchange agreement assuming such exchange would not cause Mr. Hale's ownership of Company common stock to exceed the Threshold.

The
Warrants are exercisable for five years following the closing at a price equal to the lesser of (i) the Conversion Price, (ii) if on or prior to June 30, 2010
the Company sells shares of common stock in a public or private offering, the price at which shares are sold in that offering, or (iii) the price utilized in any subsequent agreement for the
acquisition of trust preferred securities to determine the number of shares of common stock to be exchanged for such trust preferred securities exclusive of any warrants, warrant shares, or warrant
prices.

Shareholder
Actions

At
a Special Meeting of Stockholders held February 12, 2010, stockholders approved: an amendment to the Company's Articles of Incorporation to increase
the authorized number of shares of common stock from 20,000,000 to 75,000,000; an amendment to the Company's Articles of Incorporation to grant the Board of Directors the authority to affect a reverse
stock split of the Company's outstanding shares of common stock, if necessary; and an amendment to the Company's 2004 Long Term Incentive Plan to increase the number of shares of common stock that may
be issued under the Plan.

At
a Special Meeting of Stockholders held March 19, 2010, stockholders approved the redemption of up to $26.0 million aggregate liquidation amount of trust preferred
securities in exchange for up to $2.6 million of common stock and warrants to acquire common stock.

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Rights
Offering

On
February 16, 2010, we commenced a rights offering pursuant to which we distributed, at no charge to our shareholders, nontransferable subscription
rights to purchase up to 17,391,131 shares of our common stock, par value $0.05 per share. Subscription rights were distributed
to persons who owned shares of our common stock as of 5:00 p.m. Eastern Time, on February 12, 2010, the record date of the rights offering.

Each
subscription right entitles right holders to purchase 2.6952 shares of our common stock at the subscription price of $1.15 per share, which we refer to as the basic subscription
privilege. The subscription rights will expire if they are not exercised by 5:00 p.m., Eastern Time, on March 24, 2010. We reserve the right to extend the expiration date one or more
times, but in no event will we extend the rights offering beyond March 29, 2010. Shares of common stock that remain unsubscribed (after taking into account all over-subscription
rights exercised) at the expiration of the rights offering and that are not purchased by standby investors may be offered to the public at $1.15 per share. The public offering of the unsubscribed
shares shall terminate on April 12, 2010. We must receive minimum proceeds of $10.0 million, in the aggregate, to complete the rights offering, the sale of shares to standby purchasers
and the re-offering of unsubscribed shares to the public. Maximum proceeds from these offerings will not exceed $20.0 million.

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.

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 Form 10-K 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, 2009 and 2008 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, 2009. 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
their 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, 2009 and
2008, and the results of their operations and cash flows for each of the years in the three-year period ended December 31, 2009, in conformity with accounting principles generally
accepted in the United States of America.

/S/ STEGMAN & COMPANY


Baltimore,
Maryland
March 23, 2010

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FIRST MARINER BANCORP AND SUBSIDIARIES        Consolidated Statements of Financial Condition

December 31,
2009

December 31,
2008(dollars in thousands)ASSETSCash and due from banks

$
166,374

$
21,045Federal funds sold and interest-bearing deposits


7,329


46,294Trading securities, at fair value


10,749


12,566Securities available for sale, at fair value


28,275


39,666Loans held for sale


122,085


60,203Loans receivable


890,951


978,696Allowance for loan losses


(11,639
)

(16,777
)Loans, net


879,312


961,919Real estate acquired through foreclosure


21,630


18,994Restricted stock investments


7,934


7,066Premises and equipment, net


44,504


49,964Accrued interest receivable


4,960


6,335Income tax recoverable


5,670


1,812Deferred income taxes


28,214


26,057Bank-owned life insurance


34,773


36,436Prepaid expenses and other assets


22,742


19,140Total assets

$
1,384,551

$
1,307,497LIABILITIES AND STOCKHOLDERS' EQUITYLiabilities:Deposits:Noninterest-bearing

$
112,192

$
114,751Interest-bearing


1,034,312


835,482Total deposits


1,146,504


950,233Short-term borrowings


26,365


43,128Long-term borrowings, at fair value


61,592


64,073Long-term borrowings


34,080


113,795Junior subordinated deferrable interest debentures


73,724


73,724Accrued expenses and other liabilities ($0 and $1,199 at fair value, respectively)


15,299


16,529Total liabilities


1,357,564


1,261,482Stockholders' equity:Common stock, $.05 par value; 20,000,000 shares authorized; 6,452,631 shares issued and outstanding for both 2009 and 2008


323


323Additional paid-in capital


56,771


56,741Retained deficit


(26,621
)

(5,485
)Accumulated other comprehensive loss


(3,486
)

(5,564
)Total stockholders' equity


26,987


46,015Total liabilities and stockholders' equity

$
1,384,551

$
1,307,497


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 31,2009

2008

2007(dollars in thousands,
except per share data)Interest income:Loans

$
56,739

$
57,299

$
63,182Securities and other earning assets


3,071


6,026


9,146Total interest income


59,810


63,325


72,328Interest expense:Deposits


24,873


24,584


27,772Short-term borrowings


644


766


1,316Long-term borrowings


7,181


9,535


11,045Total interest expense


32,698


34,885


40,133Net interest income


27,112


28,440


32,195Provision for loan losses


11,660


10,856


6,700Net interest income after provision for loan losses


15,452


17,584


25,495Noninterest income:Total other-than-temporary impairment charges


(3,307
)

(5,605
)

Less: Portion included in other comprehensive income (pre-tax)


371





Net other-than-temporary impairment charges on securities available for sale


(2,936
)

(5,605
)

Origination fees and gain on sale of mortgage loans


12,169


6,730


4,430Other mortgage-banking revenue


3,943


2,680


2,295ATM fees


3,072


3,188


3,219Service fees on deposits


5,261


6,319


6,463Gain (loss) on financial instruments carried at fair value


3,038


(814
)

(702
)Gain on sale of securities, net


420


229


943Gain on sale of branches





819


Commissions on sales of nondeposit investment products


540


816


1,049Income from bank-owned life insurance


1,377


1,505


1,439Other


1,387


1,360


1,621Total noninterest income


28,271


17,227


20,757Noninterest expense:Salaries and employee benefits


26,469


27,901


28,925Occupancy


8,974


9,369


8,615Furniture, fixtures, and equipment


2,941


3,425


3,223Professional services


3,866


1,669


1,409Advertising


915


921


1,219Data processing


1,880


2,149


1,941ATM servicing expenses


944


1,014


1,030Write-downs, losses, and costs of real estate acquired through foreclosure


6,832


5,802


4,477Secondary marketing valuation





355


3,934FDIC insurance premiums


3,480


887


605Service and maintenance


2,437


2,216


2,098Other


9,096


9,544


9,821Total noninterest expense


67,834


65,252


67,297Net loss from continuing operations before income taxes and discontinued operations


(24,111
)

(30,441
)

(21,045
)Income tax benefitcontinuing operations


(10,887
)

(13,632
)

(9,342
)Net loss from continuing operations


(13,224
)

(16,809
)

(11,703
)(Loss) income from discontinued operationsincluding loss on disposal of $11.110 million in 2009


(9,060
)

1,721


1,640Net loss

$
(22,284
)
$
(15,088
)
$
(10,063
)Net loss per common share from continuing operations:Basic

$
(2.05
)
$
(2.63
)
$
(1.83
)Diluted

$
(2.05
)
$
(2.63
)
$
(1.83
)Net (loss) income per common share from discontinued operations:Basic

$
(1.40
)
$
0.27

$
0.26Diluted

$
(1.40
)
$
0.27

$
0.26Net loss per common share:Basic

$
(3.45
)
$
(2.36
)
$
(1.57
)Diluted

$
(3.45
)
$
(2.36
)
$
(1.57
)


See accompanying notes to the 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, 2009, 2008, and 2007Number 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, 2007


6,427,725

$
321

$
57,123

$
22,109

$
(924
)
$
78,629Cumulative 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








371Common stock repurchased, net of costs


(119,600
)

(5
)

(1,157
)







(1,162
)Stock-based compensation expense








123








123Other comprehensive loss














(1,878
)

(1,878
)Balance at December 31, 2007


6,351,611


318


56,458


9,603


(1,809
)

64,570Net loss











(15,088
)




(15,088
)Common stock issued, net of costs


118,020


6


277








283Common stock repurchased, net of costs


(17,000
)

(1
)

(66
)







(67
)Stock-based compensation expense








72








72Other comprehensive loss














(3,755
)

(3,755
)Balance at December 31, 2008


6,452,631


323


56,741


(5,485
)

(5,564
)

46,015Cumulative effect of accounting change











1,148





1,148Net loss











(22,284
)




(22,284
)Stock-based compensation expense








30








30Other comprehensive income














2,078


2,078Balance at December 31, 2009


6,452,631

$
323

$
56,771

$
(26,621
)
$
(3,486
)
$
26,987


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 31,2009

2008

2007(dollars in thousands)Cash flows from operating activities:Net loss

$
(22,284
)
$
(15,088
)
$
(10,063
)Adjustments to reconcile net loss to net cash from operating activities:Loss (income) from discontinued operations


9,060


(1,721
)

(1,640
)Stock-based compensation


30


72


114Depreciation and amortization


4,632


5,062


4,798Amortization of unearned loan fees and costs, net


(54
)

60


(597
)Amortization of premiums and discounts on loans, net





(1,639
)

(997
)Amortization of premiums and discounts on mortgage-backed securities, net


(9
)

11


10(Gain) loss on financial instruments carried at fair value


(3,038
)

814


702Origination fees and gain on sale of mortgage loans


(12,169
)

(6,730
)

(4,430
)Gain on sale of securities, net


(420
)

(229
)

(943
)Net other-than-temporary impairment charges on securities available for sale


2,936


5,605


Loss (gain) on disposal of premises and equipment


11


(819
)

70Write-downs and losses on real estate acquired through foreclosure


6,261


5,162


3,720Repurchase of mortgage loans


(113
)

(120
)

(30,797
)Secondary marketing valuation





355


3,934Decrease in accrued interest receivable


137


846


3,398Provision for loan losses


11,660


10,856


6,700Increase in cash surrender value of bank-owned life insurance


(1,377
)

(1,505
)

(1,439
)Originations of mortgage loans held for sale


(1,625,187
)

(1,149,319
)

(965,865
)Proceeds from mortgage loans held for sale


1,560,667


1,175,307


953,355Deferred income taxes


(3,663
)

(10,989
)

(3,578
)Net increase (decrease) in accrued expenses and other liabilities


1,606


5,238


(5,683
)Net (increase) decrease in prepaids and other assets


(11,379
)

4,986


953Net cash (used in) provided by operating activities


(82,693
)

26,215


(48,278
)Cash flows from investing activities:Principal loan (disbursements), net of repayments


(32,480
)

(146,431
)

41,387Proceeds from sale of Mariner Finance


8,734





Purchases of premises and equipment


(689
)

(3,858
)

(8,463
)Proceeds from disposals of premises and equipment


31


1,367


(Purchases) sales of restricted stock investments, net


(868
)

(1,083
)

466Activity in securities available for sale:Sales


9,279


3,853


1,445Maturities/calls/repayments


7,133


5,097


58,768Purchases


(1,749
)

(16,405
)

(999
)Sales of trading securities





21,038


Maturities/calls/repayments of trading securities


2,374


3,481


4,577Additional disbursements on real estate acquired through foreclosure





(32
)

Proceeds from sales of real estate acquired through foreclosure


10,912


9,873


4,150Redemption of bank-owned life insurance


3,040





Net cash provided by (used in) investing activities


5,717


(123,100
)

101,331Cash flows from financing activities:Net increase (decrease) in deposits


196,271


45,280


(19,985
)Net (decrease) increase in other borrowed funds


(12,931
)

27,407


16,075Proceeds from stock issuance, net of costs





283


371Repurchase of common stock, net of costs





(67
)

(1,162
)Net cash provided by (used in) financing activities


183,340


72,903


(4,701
)Net increase (decrease) in cash and cash equivalents


106,364


(23,982
)

48,352Cash and cash equivalents at beginning of period


67,339


91,321


42,969Cash and cash equivalents at end of period

$
173,703

$
67,339

$
91,321Supplemental information:Interest paid on deposits and borrowed funds

$
30,981

$
37,071

$
43,700Income taxes paid








Real estate acquired through foreclosure


19,809


15,016


24,410Transfer of loans held for sale to loan portfolio


14,808


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, 2009, 2008, and 2007

(1) Summary of Significant Accounting Policies



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 FM
Appraisals, LLC ("FM Appraisals"). We sold our consumer finance company subsidiary, Mariner Finance, LLC ("Mariner Finance") in December, 2009.

Most
of our activities are with customers within the Central Maryland region. A portion of activities related to mortgage lending are more dispersed and cover parts of the
Mid-Atlantic region and other regions outside of the state of Maryland. Note 4 describes the types of securities that we invest in, and Note 5 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. Events occurring after the date of the financial statements were considered in the preparation of the financial statements and are disclosed in Note 24. Certain reclassifications
have been made to amounts previously reported to conform with classifications made in 2009.

The
preparation of the financial statements in conformity with accounting principles generally accepted in the United States of America ("GAAP") requires management to make estimates and
judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those estimates. 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.



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.

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We designate securities into one of three categories at the time of purchase. Debt securities that we have the 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 if bought and 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 securities 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.

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 ("OTTI") for both debt and equity securities is a decline in the market value below the book value of an
investment. In determining whether impairment is other than temporary, we consider our intent to sell the security or whether it is more likely than not that we will be required to sell the security
before full recovery of the value. 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 OTTI 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 security is segmented
into credit- and noncredit-related components. Any impairment adjustment due to identified credit-related components is recorded as an
adjustment to current period earnings, while noncredit-related fair value adjustments are recorded through other comprehensive income. In situations where we intend to sell or when it is more likely
than not that we will be required to sell a security, the entire OTTI loss must be recognized in earnings.

On
April 9, 2009, the Financial Accounting Standards Board ("FASB") issued additional application and disclosure guidance regarding fair value measurements and impairments of
securities in order to enhance consistency by increasing the frequency and clarity of fair value disclosures. The guidance was effective for interim and annual periods ending after June 15,
2009, with earlier adoption permitted. We elected to adopt the new guidance effective with the quarter ended March 31, 2009 and recorded a $1.148 million cumulative effect of accounting
change to our retained deficit for the noncredit-related component of OTTI charges recorded in 2008.

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 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.

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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 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 FASB guidance on impaired loan
accounting to determine accrual status. Under that guidance, 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-lien 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 the guidance on impaired loan accounting.

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.



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

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Company
does not maintain effective control over the transferred assets through an agreement to repurchase them before their maturity.



In accordance with FASB guidance on 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.



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 FASB guidance on accounting for contingencies and for loan impairment, depending on the specific circumstances of the loan or loan type. 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, with
more weight applied to recent loss history, 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 FASB guidance on impaired loans 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.

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

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regulatory
agencies, as an integral part of their examination process, periodically review the Bank'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.



We record foreclosed real estate assets at the lower of cost or estimated fair value on the acquisition date 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.



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.



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 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 record certain of our long-term borrowings at fair value, with corresponding changes in fair values recorded in income.
The determination of which borrowings are accounted for using the fair value option is made based upon interest rates and maturities and how those correspond to the interest rates and maturities of
assets accounted for using the fair value option.



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

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earnings
and unrealized gains and losses on securities available for sale and is presented in Note 14. Accumulated other comprehensive income is displayed as a separate component of
stockholders' equity.



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
recognize a tax position 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 to be realized on examination. For tax positions not meeting the "more likely than not" test, no tax
benefit is recorded.

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



Our basic (loss) income per share is computed by dividing net loss from continuing operations, net (loss) income from discontinued
operations, and net loss, respectively, available to common stockholders by the weighted-average number of common shares outstanding during the year. The dilutive effect per share is computed after
adjusting the denominator of the basic 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 13. See also Note 24 for a subsequent event related to capital and authorized shares.



We account for stock-based compensation under the fair value-based compensation method in accordance with FASB guidance.



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 FASB guidance on accounting for the servicing of financial assets. 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.



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 $915,000, $921,000, and $1.219 million for the years ended December 31, 2009, 2008, and 2007, respectively.

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We account for derivates in accordance with FASB literature on accounting for derivative instruments and hedging activities. When we
enter into the derivative contract, we designate a derivative as held for trading, an economic hedge, or a qualifying hedge as detailed in the literature. The designation may change based upon
management's reassessment or
changing circumstances. Derivatives utilized by the Company include interest rate swaps ("swap" or swaps"), interest rate lock commitments ("IRLC" or "IRLCs"), 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. IRLCs 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 nonhedging. All of our derivatives are nonexchange 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
qualifying 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.

Cash
flow hedges, which consist of swaps, are hedges that 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.

For
all hedges, we discontinue hedge accounting if it is 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 Statements of Financial Condition in accumulated other comprehensive loss, net of tax effects; such gains and losses
are reclassified into the line item in the Consolidated Statements of Operations in which the hedged item is recorded in the same period the hedged item affects earnings. Hedge ineffectiveness and
gains and 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
do not designate IRLCs or forward sales commitments on residential mortgage originations as hedges. We recognize any gains and losses on IRLCs and forward sales commitments on
residential mortgage originations through mortgage-banking revenue in the Consolidated Statements of Operations.

(2) Discontinued Operations

In December, 2009, we completed the sale of our consumer finance company subsidiary, Mariner Finance, LLC, for a purchase price
of approximately $10.459 million. We received $8.734 million in cash at closing and a 5% ownership stake in the new Mariner Finance entity. Under terms of the sale, $1.1 million
was placed in an escrow account to be paid to First Mariner no later than 18 months after the closing, after deducting any indemnification claims. In accordance with FASB guidance, the results
of Mariner Finance operations are not included in our consolidated continuing operations, but are shown on the consolidated statement of operations as discontinued operations. We recorded a loss on
the sale of Mariner Finance of $11.110 million during 2009.

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Discontinued
operations are detailed as follows for the years ended December 31:

(dollars in thousands)

2009

2008

2007Interest income

$
24,262

$
20,987

$
16,574Interest expense


(3,147
)

(3,381
)

(4,089
)Net interest income


21,115


17,606


12,485Provision for loan losses


(4,865
)

(3,927
)

(2,215
)Noninterest income


4,467


3,959


3,482Noninterest expenses


(17,332
)

(14,796
)

(11,080
)Net income before income taxes


3,385


2,842


2,672Income tax expense


(1,335
)

(1,121
)

(1,032
)Net income


2,050


1,721


1,640Loss on write-down of Mariner Finance to fair value


(9,485
)




Write-off of deferred taxes related toMariner Finance


(1,625
)




Net loss on disposal of Mariner Finance


(11,110
)




Net (loss) income from discontinued operations

$
(9,060
)
$
1,721

$
1,640


The
following table shows the net assets of Mariner Finance as of December 14, 2009, the date of the sale of Mariner Finance, and December 31, 2008:

December 14,
2009

December 31,
2008Cash and due from banks and interest-bearing deposits

$
1,220

$
2,509Loans receivable


109,983


103,224Allowance for loan losses


(5,216
)

(4,632
)Loans, net


104,767


98,592Real estate acquired through foreclosure


360


Other assets


2,677


3,560Total assets


109,024


104,661Borrowings


83,792


83,546Other liabilities


4,555


4,036Total liabilities


88,347


87,582Net assets of Mariner Finance

$
20,677

$
17,079


(3) Restrictions on Cash and Due From Banks

The Bank is required by the Federal Reserve Board ("FRB") to maintain certain cash reserve balances based principally on deposit
liabilities. At both December 31, 2009 and 2008, the required reserve balance was $1.000 million. The Bank has also pledged $3.105 million in cash for exposure on debit card
transactions as of December 31, 2009.

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(4) Securities

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

2009(dollars in thousands)

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair ValueAvailable for Sale:Mortgage-backed securities

$
11,272

$
477

$
7

$
11,742Trust preferred securities


19,481


47


6,190


13,338Equity securitiesBanks


965


1


54


912U.S. Treasury securities


999


4





1,003Corporate obligations


877


53





930Foreign government bonds


350








350$
33,944

$
582

$
6,251


28,275Trading:Mortgage-backed securities











10,749$
39,024




2008(dollars in thousands)

Amortized
Cost

Unrealized
Gains

Unrealized
Losses

Estimated
Fair ValueAvailable for Sale:Mortgage-backed securities

$
22,423

$
609

$
784

$
22,248Trust preferred securities


20,460





7,594


12,866Equity securitiesBanks


549





298


251U.S. Treasury securities


1,000


3





1,003Corporate obligations


2,675





127


2,548Foreign government bonds


750








750$
47,857

$
612

$
8,803


39,666Trading:Mortgage-backed securities











12,566$
52,232


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Contractual
maturities of debt securities at December 31, 2009 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 ValueAvailable for Sale:Due in one year or less

$
350

$
350Due after one year through five years


4,829


4,905Due after five through ten years


1,031


906Due after ten years


15,497


9,460Mortgage-backed securities


11,272


11,742$
32,979


27,363Trading:Mortgage-backed securities





10,749$
38,112


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, 2009:

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
LossesMortgage-backed securities

$


$


$
3,402

$
7

$
3,402

$
7Trust preferred securities


546


2,275


10,548


3,915


11,094


6,190Equity securities








161


54


161


54$
546

$
2,275

$
14,111

$
3,976

$
14,657

$
6,251


For
securities available for sale, gross unrealized losses totaled $6.251 million as of December 31, 2009 and equaled 42.6% of the fair value of securities with unrealized
losses as of this date. A total of 21 securities were in an unrealized loss position as of December 31, 2009, with the largest single unrealized loss in any one security totaling
$1.938 million. Nineteen securities were in an unrealized loss position for twelve months or more.

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 due to changes in the market which has limited the demand for these securities and reduced their liquidity. We recorded net OTTI charges of
$2.936 million on positions in pooled trust preferred collateralized debt obligations and certain bank stock securities during 2009 and $5.605 million on positions in pooled trust
preferred collateralized debt obligations and certain corporate securities in 2008. As a result of the adoption of FASB guidance related to determining fair value and OTTI, during the first quarter of
2009 we added back to retained earnings as a cumulative effect of accounting change $1.148 million, net of taxes of $750,000, in OTTI previously recorded that was determined to not be related
to credit deterioration (see Notes 16 and 23 for additional information). At the time of adoption, we determined that the remaining trust preferred securities were temporarily impaired.

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The following shows the activity in OTTI related to credit losses for the years ended December 31:

(dollars in thousands)

2009

2008Balance at beginning of period

$
5,605

$
Reductioncumulative effect of accounting change


(1,898
)

Additional OTTI recorded for credit losses


2,936


5,605Balance at end of period

$
6,643

$
5,605


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. We have the intent to hold these debt securities to maturity, and, for debt and equity securities in a loss position, for the foreseeable future, and do not intend
nor do we believe it is more likely than not that the we will be required to sell the securities before anticipated recovery. We expect these securities will be repaid in full, with no losses
realized. As such, management considers the impairments to be temporary.

During
2009, 2008, and 2007, we recognized gross losses on the sale of securities of $20,000, $50,000, and $0, respectively. During 2009, 2008, and 2007, we recognized gross gains on
sale of securities of $440,000, $279,000, and $943,000, respectively.

At
December 31, 2009, we held securities with an aggregate carrying value (fair value) of $29.007 million that we have pledged as collateral for certain hedging activities,
borrowings, and customer deposits.

(5) Loans Receivable and Allowance for Loan Losses

Approximately 95% 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 at origination and require private mortgage insurance on residential mortgages with loan-to-value ratios in excess of 80% at origination.
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 2009 and 2008, 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 the 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)

2009

2008Loans secured by first mortgages on real estate:Residential

$
176,084

$
138,551Commercial


340,349


319,591Consumer residential construction


47,689


69,496Commercial construction


99,562


109,773663,684


637,411Commercial


77,474


90,896Loans secured by second mortgages on real estate


127,011


135,873Consumer


17,181


112,941Loans secured by deposits and other


4,598


3,526Total loans


889,948


980,647Unamortized loan discounts, net





(386
)Unearned loan fees, net


1,003


(1,565
)$
890,951

$
978,696


Included
in consumer loan totals in the above table are overdrawn commercial and retail checking accounts totaling $247,000 and $378,000 as of December 31, 2009 and 2008,
respectively. Included in net unearned loan fees and costs as of December 31, 2008 in the above table is unearned income on installment loans of Mariner Finance of $2.674 million.

In
accordance with the FASB's guidance on 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)

2009

2008

2009

2008

2009

2008Beginning balance

$
15,441

$
16,907

$
831

$
1,114

$
14,610

$
15,793Additional transfers


14,808


1,655





197


14,808


1,458Loans moved to real estate acquired through foreclosure


(1,301
)

(1,338
)

(10
)

(47
)

(1,291
)

(1,291
)Charge-offs


(3,881
)

(1,314
)

(182
)

(8
)

(3,699
)

(1,306
)Payments/amortization


(492
)

(469
)

(216
)

(425
)

(276
)

(44
)Ending balance

$
24,575

$
15,441

$
423

$
831

$
24,152

$
14,610


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

(dollars in thousands)

2009

2008Nonaccruing loans

$
35,799

$
38,763Real estate acquired through foreclosure


21,630


18,994Total nonperforming assets

$
57,429

$
57,757Loans past-due 90 days or more and accruing

$
9,224

$
9,679


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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
$4.624 million, $4.737 million, and $2.778 million in 2009, 2008, and 2007, respectively. The actual interest income recorded on these loans in 2009, 2008, and 2007 was
approximately $1.193 million, $1.264 million, and $731,000, respectively.

Commercial
loans we consider impaired at December 31, 2009 and 2008 totaled $33.639 million and $26.695 million, respectively. The reserve for loan losses for
commercial impaired loans was $328,000 at December 31, 2009 and $1.264 million at December 31, 2008. The average recorded investment in commercial impaired loans was approximately
$25.844 million, $21.530 million, and $14.287 million for the years ended December 31, 2009, 2008, and 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)

2009

2008Impaired loans with allocated allowance for loan losses

$
6,482

$
8,155Impaired loans with no allocated allowance for loan losses


27,157


18,540$
33,639

$
26,695


Consumer
loans we consider impaired at December 31, 2009 and 2008 totaled $15.208 million and $20.945 million, respectively. The reserve for loan losses for consumer
impaired loans was $405,000 at December 31, 2009 and $1.444 million at December 31, 2008. The average recorded investment in consumer impaired loans was approximately
$17.466 million, $26.214 million, and $26.071 million for the years ended December 31, 2009, 2008, and 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 consumer impaired loans at December 31:

(dollars in thousands)

2009

2008Impaired loans with allocated allowance for loan losses

$
4,687

$
7,410Impaired loans with no allocated allowance for loan losses


10,521


13,535$
15,208

$
20,945


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, that are not included in the
nonaccrual balance above amounted to approximately $13.048 million as of December 31, 2009 and $9.074 million as of December 31, 2008. Our TDRs are generally reviewed
individually 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. The interest income which would have been recorded on TDRs if those
loans had been handled in accordance with their contractual terms was approximately $865,000 in 2009, $916,000 in 2008, and $588,000 in 2007 and the actual interest income recorded on these loans in
2009, 2008, and 2007 was approximately $661,000, $496,000, and $186,000, respectively.

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

(dollars in thousands)

2009

2008

2007Balance at beginning of year

$
16,777

$
12,789

$
12,399Provision for loan lossesBank


11,660


10,856


6,700Provision for loan lossesMariner Finance





3,927


2,215Charge-offs (1)


(12,447
)

(11,466
)

(8,989
)Recoveries (2)


281


392


464Allowance for acquired loans





279


Mariner Finance allowance


(4,632
)




Balance at end of year

$
11,639

$
16,777

$
12,789


(1)For
2008 and 2007, includes charge-offs of $3.398 million and $2.160 million, respectively, related to Mariner Finance consumer
loans. 2009 does not include any activity from the discontinued operations of Mariner Finance.(2)For
2008 and 2007, includes recoveries of $298,000 and $387,000, respectively, related to Mariner Finance consumer loans. 2009 does not include any activity
from the discontinued operations of Mariner Finance.


As
of December 31, 2009 and 2008, we maintained servicing on reverse mortgage loans sold to Fannie Mae of approximately $309.000 million and $206.000 million,
respectively.

At
December 31, 2009, we have pledged loans with a carrying value of $186.605 million as collateral for short-term promissory notes and FHLB advances.

(6) Premises and Equipment

We own property and equipment as follows at December 31:

(dollars in thousands)

2009

2008Land

$
10,554

$
10,554Buildings and improvements


28,076


27,965Leasehold improvements


9,722


10,346Furniture, fixtures, automobiles, and equipment


25,813


28,007Total, at cost


74,165


76,872Less: accumulated depreciation and amortization


(29,661
)

(26,908
)Net premises and equipment

$
44,504

$
49,964


Depreciation
and amortization expense for the years ended December 31, 2009, 2008, and 2007 was $4.632 million, $5.062 million, and $4.798 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 27 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
$4.627 million, $4.938 million, and $4.651 million for 2009, 2008, and 2007, respectively.

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

(dollars in thousands)2010

$
3,8232011


3,0862012


2,8082013


2,8372014


2,816Thereafter


9,146$
24,516


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


(7) Deposits

Deposits are summarized as follows at December 31:

2009

2008(dollars in thousands)

Amount

Weighted-
Average
Effective
Rate

Amount

Weighted-
Average
Effective
RateNoncertificate:Savings

$
53,311


0.32
%
$
51,550


0.33
%Interest-bearing demand


11,724


0.65
%

10,076


0.58
%Money market accounts


157,919


0.84
%

162,614


1.47
%Noninterest-bearing demand


112,192





114,751Total noncertificate deposits


335,146





338,991Certificates of deposit:Original maturities:Under 12 months


247,175


2.87
%

103,124


4.01
%12 to 60 months


504,898


3.34
%

452,669


4.07
%IRA and KEOGH


59,285


3.47
%

55,449


3.80
%Total certificates of deposit


811,358





611,242Total deposits

$
1,146,504




$
950,233


Time
deposits mature as follows:

2009

2008(dollars in thousands)

Amount

% of
Total

Amount

% of
TotalWithin 6 months

$
284,337


35.04
%
$
200,367


32.78
%Over 6 months - 12 months


251,561


31.00
%

206,153


33.73
%Over 12 months - 24 months


194,403


23.96
%

123,622


20.23
%Over 24 months - 36 months


35,749


4.41
%

39,333


6.43
%Over 36 months - 48 months


35,090


4.33
%

9,297


1.52
%Over 48 months


10,218


1.26
%

32,470


5.31
%$
811,358


100.00
%
$
611,242


100.00
%


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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, 2009, certificates that permitted early withdrawal totaled $31.237 million.

Certificates
of deposit of $100,000 or more totaled $397.894 million and $188.890 million at December 31, 2009 and 2008, respectively.

We
have pledged securities with an aggregate carrying value (fair value) of $2.224 million for certain customer deposits.

(8) Borrowings

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

The
FHLB advances are available under a specific collateral pledge and security agreement, which requires that we maintain collateral for all of our borrowings equal to 100% of advances.
We may pledge as collateral specific first- and second-lien mortgage loans or commercial mortgages up to 10% of the Bank's total assets. 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. Due to our capital adequacy status
(see Note 10), the FHLB has limited our borrowings to the current amount outstanding of $107.000 million.

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 consumer finance receivables represents borrowings by Mariner Finance and was a line of credit maintained with a commercial bank. As a result of the sale of
Mariner Finance, we no longer maintain this line of credit.

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 $18.324 million as of December 31, 2009.

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Certain
information regarding our borrowings is as follows as of December 31:

(dollars in thousands)

2009

2008

2007Amount outstanding at year-end:FHLB short-term advances

$
22,000

$
25,000

$
Short-term promissory notes


4,365


18,128


37,509Mortgage warehouse line of credit (1)








Consumer finance line of credit (2)





79,546


57,600FHLB long-term advances


86,592


89,073


88,123Mortgage loan


9,080


9,249


9,407Weighted-average interest rate at year-end:FHLB short-term advances


0.90
%

2.49
%

Short-term promissory notes


0.73
%

0.84
%

3.11
%Mortgage warehouse line of credit (1)








Consumer finance line of credit (2)





3.78
%

6.65
%FHLB long-term advances


4.15
%

4.75
%

5.68
%Mortgage loan


5.58
%

5.58
%

5.58
%Maximum outstanding at any month-end:FHLB short-term advances

$
42,000

$
35,000

$
Short-term promissory notes


17,870


38,129


58,704Mortgage warehouse line of credit (1)








16,878Consumer finance line of credit (2)


81,297


79,546


57,600FHLB long-term advances


88,744


89,567


88,123Mortgage loan


9,236


9,395


9,546Average outstanding:FHLB short-term advances

$
31,014

$
10,137

$
696Short-term promissory notes


11,316


26,184


39,614Mortgage warehouse line of credit (1)








1,184Consumer finance line of credit (2)


79,422


65,380


48,947FHLB long-term advances


88,005


88,695


86,513Mortgage loan


9,158


9,355


9,476Weighted-average interest rate during the year:FHLB short-term advances


1.86
%

2.95
%

5.58
%Short-term promissory notes


0.59
%

1.78
%

3.00
%Mortgage warehouse line of credit (1)








7.34
%Consumer finance line of credit (2)


3.62
%

4.75
%

7.54
%FHLB long-term advances


4.30
%

4.91
%

5.67
%Mortgage loan


5.66
%

5.66
%

5.66
%


(1)Line
of credit closed in 2007(2)Indebtedness
of Mariner Finance, which was sold in 2009


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The
principal maturities of long-term borrowings are as follows as of December 31, 2009:

(dollars in thousands)2010

$
61,5922011


2012


2013


2014


After 2014


34,080$
95,672


The
maturities listed in the above table for 2010 are callable immediately at the option of the issuer, while $25.000 million maturing after 2014 is callable beginning in 2010.

We
have pledged securities with an aggregate carrying value (fair value) of $20.262 million and loans with a carrying value of $186.605 million as collateral for
short-term promissory notes and FHLB advances.

(9) 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, 2009(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
MaturityMCT II

$
10,310

Floating rate Trust Preferred Securities

$
10,000


December 10, 2002

December 15, 2007

December 10, 2032MCT III


14,949

Floating rate Trust Preferred Securities


14,500


June 18, 2003

July 7, 2008

July 7, 2033MCT IV


12,380

Floating rate Trust Preferred Securities


12,000


August 18, 2003

August 18, 2008

August 18, 2033MCT V


10,310

Floating rate Trust Preferred Securities


10,000


September 25, 2003

October 8, 2008

October 8, 2033MCT VI


10,310

Floating rate Trust Preferred Securities


10,000


October 21, 2004

January 7, 2010

January 7, 2035MCT VII


5,155

Floating rate Trust Preferred Securities


5,000


August 18, 2005

September 15, 2010

September 15, 2035MCT VIII


10,310

5-year Fixed Trust Preferred Securities (1)


10,000


December 28, 2005

December 30, 2010

December 30, 2035$
73,724



$
71,500


(1)Reset
to floating rate in December, 2010


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 FASB guidance, 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
Floating Rate Trust Preferred Securities issued by MCT III accrue interest at a variable rate of interest equal to 3-month LIBOR rate

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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 $3.127 million in 2009, $4.640 million in
2008, and $5.501 million in 2007. We elected to defer interest payments on the debentures, beginning with the January 2009 payments. 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, $10.158 million of the outstanding Trust Preferred Securities qualify as Tier I capital and $6.854 million of the remaining Trust
Preferred Securities qualify as Tier II capital at December 31, 2009. The total amount of our Trust Preferred Securities allowable as part of capital was limited to
$17.012 million as of December 31, 2009.

See
Note 24 to the Consolidated Financial Statements in Item 8 of Part II of this report for a subsequent event related to the Trust Preferred Securities.

(10) 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. As of December 31, 2009 and 2008, the Bank was "adequately capitalized" under the regulatory framework for
prompt corrective action.

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Our regulatory capital amounts and ratios as of December 31, 2009 and 2008, were as follows:

To be Well
Capitalized
Under
Prompt
Corrective
Action ProvisionMinimum
Requirements
for Capital
Adequacy
PurposesActual
Amount(dollars in thousands)

Ratio

Amount

Ratio

Amount

RatioAs of December 31, 2009Total capital (to risk-weighted assets):Consolidated

$
37,124


3.6
%
$
82,070


8.0
%
$
102,588


10.0
%Bank


92,651


9.1
%

81,778


8.0
%

102,222


10.0
%Tier 1 capital (to risk-weighted assets):Consolidated


18,562


1.8
%

41,035


4.0
%

61,553


6.0
%Bank


80,946


7.9
%

40,889


4.0
%

61,333


6.0
%Tier 1 capital (to average fourth quarter assets):Consolidated


18,562


1.4
%

52,703


4.0
%

65,879


5.0
%Bank


80,946


6.2
%

51,910


4.0
%

64,888


5.0
%As of December 31, 2008Total capital (to risk-weighted assets):Consolidated

$
110,650


9.9
%
$
89,212


8.0
%
$
111,515


10.0
%Bank


90,367


8.8
%

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


6.8
%

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


5.8
%

47,052


4.0
%

58,815


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. As part of the
Emergency Economic Stabilization Act of 2008 and subsequent regulatory developments, this maximum was raised
from $100,000 to $250,000 through December 31, 2013. Unless extended again, the maximum will revert back to the $100,000 amount at December 31, 2013.

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.

On
September 18, 2009, the Bank entered into an Agreement with the FDIC and the Maryland Division of Financial Regulation (the "Division"), pursuant to which it consented to the
entry of an Order to Cease and Desist ("the September Order"), which directs the Bank to (i) increase its capitalization, (ii) improve earnings, (iii) reduce nonperforming loans,
(iv) strengthen management policies and practices, and (v) reduce reliance on noncore funding. The September Order replaces the informal agreement that was previously in place among the
parties. The September Order requires the Bank to adopt a plan to achieve and maintain a Tier 1 Leverage Capital ratio of at least 7.5% of the Bank's average total assets and a Total
Risk-Based Capital ratio of at least 11% of its Total Risk Weighted Assets by June 30, 2010. The Bank has presented a plan to the FDIC and the Division detailing how it will achieve
a Tier 1 Leverage Capital ratio of 6.5% and a Total Risk-Based Capital ratio of 10% by March 31, 2010, and a Tier 1 Leverage Capital ratio of 7.5% and a Total
Risk-Based Capital ratio of 11% by June 30, 2010. At December 31, 2009, the Bank reported a Tier 1 Leverage Capital ratio of 6.2% and a Total Risk-Based
Capital ratio of 9.1%. Within 30 days after the end of

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each
calendar year, the Bank must submit an annual budget and profit plan and a plan that takes into account the Bank's pricing structure, the Bank's cost of funds and how this can be reduced, and the
level of provision expense for adversely classified loans. To address reliance on noncore funding, the Bank must adopt and submit a liquidity plan intended to reduce the Bank's reliance on noncore
funding, wholesale funding sources, and high-cost rate-sensitive deposits. While the September Order is in effect, the Bank may not pay dividends or management fees without the
FDIC's prior consent, the Bank may not accept, renew, or roll over any brokered deposits or pay effective yields on deposits that are greater than those generally paid in its markets. A copy of the
September Order was filed as an exhibit to the Company's Form 8-K filed with the SEC on September 21, 2009 and is filed as Exhibit 10.33 hereto.

First
Mariner Bancorp is also a party to an agreement with the FRB (the "FRB Agreement"), which requires it to: (i) develop and implement a strategic business plan that includes
(a) actions that will be taken to improve our operating performance and reduce the level of parent company leverage, (b) a comprehensive budget and an expanded budget review process,
(c) a description of the operating assumptions that form the basis for major projected income and expense components and provisions needed to maintain an adequate loan loss reserve, and
(d) a capital plan incorporating all capital needs, risks, and regulatory guidelines; and (ii) submit plans to improve enterprise-wide risk management and effectiveness of
internal audit programs. First Mariner Bancorp has also agreed to provide the FRB with advance notice of any significant capital transactions. The new FRB Agreement ("New FRB Agreement") prohibits
First Mariner and the Bank from taking any of the following actions without the FRB's prior written approval: (i) declaring or paying any dividends; (ii) taking
dividends from the Bank; (iii) making any distributions of interest, principal or other sums on First Mariners' subordinated debentures or trust preferred securities; (iv) incurring,
increasing or guaranteeing any debt; or (v) repurchasing, redeeming any shares of its stock. Under the New FRB Agreement, First Mariner had to submit a written plan to the FRB by
January 28, 2010 to maintain sufficient capital, on a consolidated basis, such that First Mariner satisfies the FRB's minimum capital requirements. To satisfy the FRB's minimum capital
requirements, First Mariner's consolidated tier 1 capital to average assets, tier 1 capital to risk-weighted assets, and total capital to risk-weighted assets
ratios at each quarter end must be at least 4.0%, 4.0%, and 8.0%, respectively. At December 31, 2009, those capital ratios were 1.4%, 1.8%, and 3.6%, respectively, which were at an
"under-capitalized" level under the prompt corrective action regulations of the FRB. A copy of the New FRB Agreement is an exhibit to the Company's Form 8-K filed with the SEC on
November 27, 2009 and is filed as Exhibit 10.34 hereto.

On
April 22, 2009, the Bank entered into an agreement (the "April Agreement") with the FDIC relating to alleged violations of consumer protection regulations relative to its fair
lending practices pursuant to which it consented to the issuance of an Order ("April Order"). The April Order requires the Bank to pay up to $950,000 in restitution to the Affected Borrowers. It also
imposes a civil money penalty of $50,000, all amounts for which were fully reserved in the final quarter of 2008. In addition to requiring the Bank to cease and desist from violating certain federal
fair lending laws, the April Orders also requires the Bank to develop and implement policies and procedures to (i) monitor and ensure compliance with fair lending laws and disclosure laws and
regulations, (ii) ensure that the costs, terms, features and risks of the loans and services are adequately disclosed to applicants, and (iii) develop an operating plan to maintain
quality control, internal audit, and compliance management systems that are effective in ensuring that the Bank's residential mortgage lending activities comply with all applicable laws, regulations,
and Bank policies. The Bank must also conduct or sponsor quarterly financial literacy and education courses where it provides residential mortgage loans. Further, the Bank is prohibited from offering
"payment-option" adjustable rate mortgage loans, although the Bank ceased offering these loans in 2007. A copy of the April Order is an exhibit to the Company's Form 8-K filed with
the SEC on May 7, 2009 and is filed as Exhibit 10.31 hereto.

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Management
does not believe that the April Order will have a material impact on the Bank's financial performance. Management believes the successful satisfaction of the September Order's
requirements and the requirements of the FRB Agreement and New FRB Agreement will strengthen the financial condition of the Bank and Company for future periods.

The
foregoing 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 regulatory
requirements may result in more restrictive actions from our regulators, including more severe and restrictive enforcement actions.

See
Note 24 for subsequent events related to authorized shares and other capital considerations.

(11) Other Expenses

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

(dollars in thousands)

2009

2008

2007Office supplies

$
504

$
539

$
606Printing


332


437


394Corporate insurance


1,035


720


560Consulting fees


1,049


766


789Marketing/promotion


286


404


717Postage


763


600


660Overnight delivery/courier


525


735


788Security


259


195


258Dues and subscriptions


490


468


505Loan collection expenses


1,394


464


618Regulatory compliance settlement





1,040


Loan origination expense





254


863Director fees


276


289


254Employee education and training


161


193


184Automobile expense


144


172


163Travel and entertainment


332


435


502Other


1,546


1,833


1,960$
9,096

$
9,544

$
9,821


(12) Income Taxes

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

(dollars in thousands)

2009

2008

2007Current

$
(7,224
)
$
(2,643
)
$
(5,764
)Deferred


(3,663
)

(10,989
)

(3,578
)Income tax benefitcontinuing operations

$
(10,887
)
$
(13,632
)
$
(9,342
)


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The
income tax benefit from continuing operations is reconciled to the amount computed by applying the federal corporate tax rate of 35% in 2009 and 2008 and 34% in 2007 to the net loss
before taxes and discontinued operations as follows for the years ended December 31:

2009

2008

2007(dollars in thousands)

Amount

Rate

Amount

Rate

Amount

RateTax at statutory federal rate

$
(8,439
)

(35.0
)%
$
(10,654
)

(35.0
)%
$
(7,155
)

(34.0
)%State income taxes, net of federal income tax benefit


(1,381
)

(5.7
)%

(1,559
)

(5.1
)%

(919
)

(4.3
)%Investment income








(29
)

(0.1
)%

(37
)

(0.2
)%Bank-owned life insurance


(482
)

(2.0
)%

(527
)

(1.8
)%

(489
)

(2.3
)%Insurance income


(87
)

(0.4
)%

(5
)




(55
)

(0.3
)%Federal and state income tax credits


(758
)

(3.1
)%

(753
)

(2.5
)%

(168
)

(0.8
)%Other


260


1.0
%

(105
)

(0.3
)%

(519
)

(2.5
)%$
(10,887
)

(45.2
)%
$
(13,632
)

(44.8
)%
$
(9,342
)

(44.4
)%


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)

2009

2008Deferred tax assets:Allowance for losses on loans

$
4,728

$
6,771Amortization of intangible assets


80


93Valuation allowance and secondary marketing reserve


1,708


3,235State net operating loss carryforward


3,437


2,073Federal net operating loss carryforward


10,635


5,951Other-than-temporary impairment


3,468


2,262Nonaccrual interest


1,206


1,295Tax credit carryforward


337


193Other





91Total deferred tax assets


25,599


21,964Deferred tax liabilities:Depreciation


424


736Excess servicing fees


478


436Other


242


Total deferred tax liabilities


1,144


1,172Net deferred tax asset attributable to operations


24,455


20,792Unrealized loss on interest rate swap charged to other comprehensive income





484Unrealized loss on investments charged to other comprehensive income


3,759


4,781Net deferred tax assets

$
28,214

$
26,057


We
have net operating loss carryforwards for state and federal income tax purposes of approximately $64.000 million and $30.000 million, respectively, which are available
to offset future taxable income and
which expire in 2024 through 2029. Management expects to fully realize the benefits of these tax loss carryforwards before their expiration.

104

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The
Bank has earned significant state tax incentives totaling $5.5 million through its participation in the One Maryland Economic Development ("One Maryland") and Job Creation Tax
Credit programs. 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 2009 and 2008, we utilized $591,000 and $585,000, respectively, in credits 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, 2009 is approximately $2.924 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
2007. As a result of tax losses incurred in 2009 and 2008, annual credits of $168,000 were not realized in either year and were carried forward. Total credits utilized to date through
December 31, 2009 amounted to $754,000.

Our
income tax returns are subject to review and examination by federal and state taxing authorities. We are currently open to audit under the applicable statutes of limitations by the
Internal Revenue Service for the years ended December 31, 2006 through 2008. The years open to examination by state taxing authorities vary by jurisdiction.

(13) 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'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.

First
Mariner is deferring 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 10.

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Table of Contents

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

(dollars in thousands, except for per share data)

2009

2008

2007Weighted-average share outstandingbasic


6,452,631


6,390,046


6,396,142Dilutive securitiesoptions and warrants








Adjusted weighted-average shares outstandingdilutive


6,452,631


6,390,046


6,396,142Net loss from continuing operations

$
(13,224
)
$
(16,809
)
$
(11,703
)Net (loss) income from discontinued operations


(9,060
)

1,721


1,640Net loss

$
(22,284
)
$
(15,088
)
$
(10,063
)Basic:Net loss from continuing operations

$
(2.05
)
$
(2.63
)
$
(1.83
)Net (loss) income from discontinued operations


(1.40
)

0.27


0.26Net loss

$
(3.45
)
$
(2.36
)
$
(1.57
)Diluted:Net loss from continuing operations

$
(2.05
)
$
(2.63
)
$
(1.83
)Net (loss) income from discontinued operations


(1.40
)

0.27


0.26Net loss

$
(3.45
)
$
(2.36
)
$
(1.57
)


For
the years ended December 31, 2009, 2008, and 2007, all options were antidilutive due to our realized net loss.

(14) 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 are 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)

2009

2008

2007Net loss

$
(22,284
)
$
(15,088
)
$
(10,063
)Other comprehensive income items:Cumulative effect of accounting change for certain investments, net of tax (benefit) expense of $(750), $0, and $625, respectively


(1,148
)




993Deconsolidation of Mariner Finance, net of tax expense of $484, $0, and $0, respectively


715





Unrealized holding gains (losses) arising during the period (net of tax expense (benefit) of $643, $(4,227), and $(817), respectively)


987


(6,246
)

(1,299
)Unrealized holding losses on swaps arising during the period (net of tax benefit of $0, $484, and $0, respectively)





(715
)

Reclassification adjustment for losses (gains) (net of tax (benefit) expense of $(992), $(2,170), and $364, respectively) included in net
loss


1,524


3,206


(579
)Total other comprehensive income (loss)


2,078


(3,755
)

(885
)Total comprehensive loss

$
(20,206
)
$
(18,843
)
$
(10,948
)


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Table of Contents

(15) Employee Benefit Plans

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). As of December 31, 2008, we discontinued the company-match contributions. In 2008 and 2007, we made matching
contributions to the plan which totaled $639,000 and $583,000, respectively.

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, 2009, options to purchase 654,593 shares of
common stock were fully vested and options to purchase 14,000 shares of common stock vest over a two-year period. All options expire 10 years after the date of grant. See
Note 24 on subsequent events for plan modifications.

We
account for stock options issued under our stockholder-approved Long-Term Incentive Plan (the "Plan") in accordance with FASB guidance on share-based payments. The plan
permits the granting of share options and shares to our directors and key employees. We recognized stock based compensation cost of $30,000, $72,000, and $114,000 for the years ended
December 31, 2009, 2008, and 2007, respectively. We expect to incur approximately $33,000 in additional stock based compensation expense related to the unvested portion of options over the next
two years.

Information
with respect to stock options is as follows for the years ended December 31, 2009, 2008, and 2007:

2009

Weighted-
Average
Remaining
Contractual
Term(in years)



2008

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 beginningof year


850,919

$
12.09








813,788

$
12.47Granted














55,600


5.32Exercised

















Forfeited/cancelled


(182,326
)

11.70








(18,469
)

8.27Oustanding at end of year


668,593


12.20


3.8

$



850,919


12.09


4.5

$
Exercisable at end of year


654,593


12.34


3.7

$



823,683


12.29


4.3

$



107

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Table of Contents



2007

Weighted-
Average
Remaining
Contractual
Term(in years)Number
of Shares

Weighted-
Average
Exercise
Price

Aggregate
Intrinsic
Value(in thousands)Outstanding at beginning of year


793,022

$
12.84Granted


42,950


7.85Exercised


(2,650
)

10.88Forfeited/cancelled


(19,534
)

17.38Oustanding at end of year


813,788


12.47


5.4

$
28Exercisable at end of year


809,832


12.47


5.4

$
28


The
weighted average fair values of our option grants for the years ended December 31, 2008 and 2007 were $2.28 and $3.57, respectively, on the dates of grants. There were no
options granted in 2009. 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

2007Dividend yield





Expected volatility


28.00
%

28.08
%Risk-free interest rate


3.76
%

4.20
%Expected lives


8 years


9.5 years


There
were no options exercised during 2009 or 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. Proceeds from exercises of stock options amounted to $29,000 for the year ended December 31, 2007.

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Options
outstanding are summarized as follows at December 31, 2009:

Exercise Price

Options
Outstanding(shares)

Weighted Average
Remaining
Contractual Life(in years)

Options
Exercisable(shares)$  4.00


1,200


1.0


1,2004.15


12,100


8.3


12,1005.41


17,055


8.0


17,0555.50


72,750


1.1


72,7505.63


28,500


0.2


28,5005.70


34,500


8.2


20,5006.25


3,000


0.4


3,0006.45


400


1.5


4007.10


2,500


1.3


2,5007.40


250


1.7


2509.16


850


2.0


8509.86


1,350


2.8


1,35010.45


94,000


2.0


94,00010.70


650


2.2


65011.68


133,000


3.0


133,00011.95


600


3.1


60012.03


2,500


2.3


2,50012.10


6,000


2.3


6,00013.00


700


3.3


70013.33


7,800


7.3


7,80013.52


3,000


3.3


3,00016.67


4,800


5.3


4,80016.70


1,800


5.8


1,80016.95


2,300


3.8


2,30017.45


37,888


6.0


37,88817.77


153,350


5.1


153,35018.20


4,950


4.3


4,95018.38


31,900


4.0


31,90018.94


2,350


6.9


2,35019.30


6,550


6.3


6,550668,593





654,593


Stock Purchase Plan

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

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(16) 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.


Financial Instruments Measured on a Recurring Basis

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 and for the year ended December 31, 2009:

(dollars in thousands)

Carrying
Value

Quoted
Prices
(Level 1)

Significant
Other
Observable
Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

Trading
Gains

Total Changes
In Fair Values
Included In
Period EarningsTrading securities

$
10,749

$


$
10,749

$


$
557

$
557Securities available for sale


28,275





26,843


1,432





(2,936
)  (1)Long-term borrowings at fair value


61,592





61,592





2,481


2,481Mortgage servicing rights


1,176








1,176





(260
)Interest rate lock commitments (notional amount of $62,925)


62,971





62,971








(3,017
)Forward contracts to sell mortgage-backed securities (notional amount of $79,000)


79,790





79,790








(1,929
)


(1)Represents
net OTTI charges taken on certain 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 bid prices received from an
external pricing service, 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.

During
the first quarter of 2009, we adopted FASB guidance related to determining fair value of an asset or liability when the volume and level of activity have significantly decreased.
As a result of the adoption of the guidance, impairment recognition for the company's four pooled preferred securities are now segmented into credit- and noncredit-related components. Any fair value
adjustment

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due
to identified credit-related components will be recorded as an adjustment to current period earnings, while noncredit-related fair value adjustments will be recorded through other comprehensive
income.

During
2009, we determined that, based on our most recent estimate of cash flows, OTTI had occurred with respect to four of our pooled trust preferred securities. Under the revised
guidance, the amount of OTTI that is recognized through earnings is determined by comparing the present value of the expected cash flows to the amortized cost of the security. The discount rate used
to determine the credit loss is the expected book yield on the security. The credit loss estimated under this method that was charged to operating earnings totaled $2.936 million in 2009.

The
guidance also required that any previously recognized OTTI that was not credit related be recorded as an adjustment to the period's beginning retained earnings. Accordingly,
$1.148 million ($1.898 million fair value adjustment less deferred taxes of $750,000) of previously recognized OTTI on two of the trust preferred securities was added back to other
accumulated comprehensive loss during 2009, with a corresponding adjustment to our retained deficit.

During
2008, we determined that OTTI had occurred with respect to two of our pooled trust preferred securities and one of our corporate securities and charged $5.605 million in
net OTTI charges to operating earnings during the year ended 2008.

The
tables later in this Note show details concerning assumptions used to determine credit- and noncredit-related losses and other details on the pooled preferred securities.

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 determination of fair value requires significant management judgment or
estimation. As of December 31, 2009, $1.432 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 (1)Remaining
Par Value



(2)
Auction
Call Date

(3)
Index(dollars in thousands)

Class

Moody's

Fitch

MaturityALESCO Preferred Funding VII


C-1

$
1,000

Ca

CC


7/23/2035


MAR 2015


3ML + 1.5
%ALESCO Preferred Funding XI


C-1


4,938

Ca

C


12/23/2036


JUNE 2016


3ML + 1.2
%MM Community Funding


B


2,500

Ca

CCC


8/1/2031


N/A


6ML + 3.1
%MM Community Funding IX


B-1


2,500

Caa3

CC


5/1/2033


N/A


3ML + 1.8
%


(1)Ratings
as of December 31, 2009.(2)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.(3)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

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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 PricingCumulative
Default (1)

Deferrals
Cured (2)

Credit
MTM (3) (6)

Liquidity
Premium (4)

Liquidity
MTM Adj (5) (6)ALESCO Preferred Funding VII


36.0
%

1.5
%
$
45.30


12.00
%
$
35.04ALESCO Preferred Funding XI


36.0
%

4.5
%
$
53.77


12.00
%
$
44.79MM Community Funding


55.0
%

19.1
%
$
59.20


12.00
%
$
34.70MM Community Funding IX


45.0
%

13.0
%
$
55.69


12.00
%
$
44.77


(1)The
anticipated level of total defaults from the issuers within the pool of performing collateral as of December 31, 2009. There are no recoveries
assumed on any default.(2)Deferrals
that are cured occur 60 months after the initial deferral starts.(3)The
credit mark to market represents the discounted value of future cash flows after the assumption of current and future defaults discounted at the book
rate of interest on the security.(4)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.(5)The
liquidity mark to market adjustment on the security represents the difference between the value of the discounted cash flows based on the book interest
rate and the value discounted at the liquidity premium. The credit MTM less the liquidity MTM equals the estimated fair value price of the security.(6)Price
per $100


(in thousands)

Model
Result (1)

Fair ValueALESCO Preferred Funding VII

$
10.26

$
103ALESCO Preferred Funding XI


8.98


443MM Community Funding


24.50


613MM Community Funding IX


10.92


273$
1,432


(1)Price
per $100


Long-Term
Borrowings

We
record certain long-term borrowings at fair value due to their price and maturity characteristics and their relationship to assets measured at
fair value. Fair values are determined by discounting the carrying values using a cash flow approach based on market rates.

Servicing
Rights

As
of December 31, 2009, MSRs were classified as Level 3. We calculate the fair value of MSRs by using a present value of future cash flows
model.

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.

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

2009

2008Fair value of MSRs

$
1,176

$
1,081Weighted-average life(in years)(1)


4.0


4.9Discount rate


6.75
%

6.75
%Option-adjusted spread ("OAS")


2.75
%

2.75
%Sensitivity AnalysisDiscount Rate Assumption (Change in OAS):Decrease in fair value from 100bp adverse change

$
31

$
32Decrease in fair value from 200bp adverse change


62


62Decrease in fair value from 300bp adverse change


90


90Prepayment Speed Assumption (Assumed Age Borrower Vacates Property)Decrease in fair value from 5-year adverse change

$
276

$
228Decrease in fair value from 10-year adverse change


601


503Decrease in fair value from 15-year adverse change


930


768


(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 approximately $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 management's expectation of the required rate of return investors in the market would expect for
an asset with similar risk.

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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) for the years ended
December 31:

2009

2008(dollars in thousands)

Securities

MSRs

Securities

MSRsBalance at beginning of period

$
2,507

$
1,081

$


$
670Additions to and transfers into Level 3





355


10,980


519MSR amortization





(233
)




(97
)Total realized losses included in other comprehensive income


(2,602
)

(27
)

(4,581
)

(11
)Total realized losses recaptured through retained deficit as cumulative effect of accounting change


1,898








Total unrealized losses included in other comprehensive income


(371
)




(3,892
)

Balance at end of period

$
1,432

$
1,176

$
2,507

$
1,081


Derivative
Loan Commitments

Commitments to Originate Loans

We engage an experienced third party to estimate the fair market value of our IRLCs, which are valued based upon mandatory pricing
quotes from correspondent lenders plus origination and discount fees 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.

Financial Instruments Measured on a Nonrecurring Basis

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, 2009, 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 loans

$
48,847

$


$


$
48,847Real estate acquired through foreclosure


21,630








21,630Loans held for sale


122,085





122,085





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 FASB guidance. 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

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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. If management determines that it is probable the loan will proceed
to foreclosure, a partial charge-off is recorded to reduce the carrying amount of the loan to its fair value. Therefore, no specific reserve will be recorded for these impaired loans.
Total impaired loans had a carrying value of $48.847 million as of December 31, 2009 and $47.640 million as of December 31, 2008, with specific reserves of $733,000 as of
December 31, 2009 and $2.708 million as of December 31, 2008.

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 occur in the future.

Real
Estate Acquired Through Foreclosure

We
record foreclosed real estate assets at the lower of cost or estimated fair value on the acquisition date 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 or listing prices supported by broker recommendation.
We consider these collateral values to be estimated using Level 3 inputs. We held real estate acquired through foreclosure of $21.630 million as of December 31, 2009 and
$18.994 million as of December 31, 2008. During 2009 and 2008, we added $19.809 million and $15.016 million, respectively, net of reserves, to real estate acquired through
foreclosure and recorded write-downs and losses on sales, included in noninterest expense, of $6.261 million and $5.162 million, respectively. We disposed of $12.484 million of
foreclosed properties in 2009.

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.

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Other Financial Instruments

The carrying value and estimated fair value of other financial instruments are summarized in the following table. Certain financial
instruments disclosed previously in this footnote are excluded from this table.

2009

2008(dollars in thousands)

Carrying
Value

Estimated
Fair Value

Carrying
Value

Estimated
Fair ValueAssets:Cash and cash equivalents

$
173,703

$
173,703

$
67,339

$
67,339Loans receivable


890,951


904,100


978,696


986,467Restricted stock investments


7,934


7,934


7,066


7,066Liabilities:Deposits


1,146,504


1,168,734


950,233


964,077Long- and short-term borrowings


60,445


69,146


156,923


168,873Junior subordinated deferrable interest debentures


73,724


46,056


73,724


67,291


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
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 the FASB's guidance on loan impairment.

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.

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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.

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.

(17) 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, 2009 and 2008, we had commitments to originate first mortgage loans on real estate of approximately $65.871 million and $166.894 million,
respectively, most of which were committed for sale in the secondary market.

At
December 31, 2009 and 2008, we also had commitments to loan funds under unused home equity lines of credit aggregating approximately $68.833 million and
$75.244 million, respectively, and unused commercial lines of credit, retail checking lines of credit, as well as unfunded construction, commercial, and consumer commitments aggregating
approximately $65.053 million and $92.402 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, 2009 and 2008 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, 2009 and 2008, letters of credit totaled
$3.964 million and $4.151 million, respectively.

(18) Derivatives and Hedging

We maintain and account for hedging derivatives, in the form of swaps, IRLCs, and forward sales commitments, in accordance with FASB
guidance on accounting for derivative instruments and hedging

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activities.
We recognize any gains and losses on IRLCs 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.

We
no longer maintain the interest rate swaps that were held in 2008 as they were related to the borrowings of Mariner Finance, which was sold in 2009.

We
have pledged securities with an aggregate carrying value (fair value) of $6.521 million as collateral for hedging activities.

See
Note 16 for carrying value and fair value information on our derivatives and hedges.

(19) 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 collateral, as those prevailing for comparable transactions with other customers. During the years ended December 31, 2009, 2008,
and 2007, transactions in related party loans were as follows:

(dollars in thousands)

2009

2008

2007Beginning balance

$
2,711

$
25

$
23Additions


384


2,324


8Repayments


(548
)

(4
)

(6
)Change in officers/directors


(19
)

366


$
2,528

$
2,711

$
25


Unused
loan commitments to directors and policy making officers totaled $1.905 million as of December 31, 2009 and $1.592 million as of December 31, 2008.

We
currently lease 84,000 square feet of a building that was previously owned by Edwin F. Hale, Sr., CEO of the Company, for our executive offices and various operational departments. We
paid
$2.368 million, $2.654 million, and $2.364 million in rent to Mr. Hale on this location in 2009, 2008, and 2007, respectively. Mr. Hale sold the building to an
unaffiliated third party in October 2009.

In
2008 and 2007, we also leased 18,400 square feet of storage space and disaster recovery facilities at two other locations owned by Mr. Hale. In 2008 and 2007, we paid $24,000
and $75,000, 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 $175,000 in 2009, $176,000 in 2008, and $175,000
in 2007 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, our former finance company subsidiary, paid approximately $20,000 in both 2008 and 2007 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.

Additionally,
First Mariner Bank advertises on a billboard owned by Mr. Hale. The Bank paid $35,000 in each of 2009 2008, and 2007 for advertising on the billboard.

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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.

(20) Segment Information

We are in the business of providing financial services, and we operate in two business segmentscommercial and consumer
banking and mortgage-banking. We discontinued our consumer finance operations, formerly conducted through Mariner Finance, during 2009 as discussed in Note 2. 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. 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.

The
following table presents certain information regarding our business segments:

For the year ended December 31, 2009

(dollars in thousands)

Commercial and
Consumer Banking

Mortgage-
Banking

TotalInterest income

$
54,730

$
5,080

$
59,810Interest expense


30,052


2,646


32,698Net interest income


24,678


2,434


27,112Provision for loan losses


8,556


3,104


11,660Net interest income (loss) after provision for loan losses


16,122


(670
)

15,452Noninterest income


12,602


15,669


28,271Noninterest expense


58,046


9,788


67,834Net intersegment income


1,770


(1,770
)

Net (loss) income before income taxes and discontinued operations

$
(27,552
)
$
3,441

$
(24,111
)Total assets

$
1,262,466

$
122,085

$
1,384,551


For the year ended December 31, 2008

(dollars in thousands)

Commercial and
Consumer Banking

Mortgage-
Banking

TotalInterest income

$
59,878

$
3,447

$
63,325Interest expense


32,711


2,174


34,885Net interest income


27,167


1,273


28,440Provision for loan losses


5,701


5,155


10,856Net interest income (loss) after provision for loan losses


21,466


(3,882
)

17,584Noninterest income


8,159


9,068


17,227Noninterest expense


49,568


15,684


65,252Net intersegment income


1,437


(1,437
)

Net loss before income taxes and discontinued operations

$
(18,506
)
$
(11,935
)
$
(30,441
)Total assets

$
1,247,294

$
60,203

$
1,307,497


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For the year ended December 31, 2007

(dollars in thousands)

Commercial and
Consumer Banking

Mortgage-
Banking

TotalInterest income

$
67,043

$
5,285

$
72,328Interest expense


35,623


4,510


40,133Net interest income


31,420


775


32,195(Reversal of) provision for loan losses


(367
)

7,067


6,700Net interest income (loss) after provision for loan losses


31,787


(6,292
)

25,495Noninterest income


14,522


6,235


20,757Noninterest expense


48,348


18,949


67,297Net intersegment income


79


(79
)

Net loss before income taxes and discontinued operations

$
(1,960
)
$
(19,085
)
$
(21,045
)Total assets

$
1,165,902

$
80,920

$
1,246,822


(21) Quarterly Results of Operations

The following is a summary of unaudited quarterly results of operations for the years ended December 31, 2009 and 2008:

2009(dollars in thousands)

Fourth Quarter

Third Quarter

Second Quarter

First QuarterInterest income

$
15,073

$
15,005

$
15,231

$
14,501Interest expense


7,399


8,268


8,412


8,619Net interest income


7,674


6,737


6,819


5,882Provision for loan losses


3,300


2,100


2,860


3,400Other operating income


6,655


7,010


7,994


9,128Gain on sale of securities, net


90


330





Net other-than-temporary impairment charges


(730
)

(401
)

(89
)

(1,716
)Operating expenses


16,891


18,015


16,748


16,180Loss before income taxes


(6,502
)

(6,439
)

(4,884
)

(6,286
)Income tax benefit


(2,779
)

(3,292
)

(2,082
)

(2,734
)(Loss) income from discontinued operations


(95
)

(9,809
)

393


451Net loss

$
(3,818
)
$
(12,956
)
$
(2,409
)
$
(3,101
)Net loss per common share (basic and diluted)continuing operations

$
(0.58
)
$
(0.49
)
$
(0.43
)
$
(0.55
)Net (loss) income per common share (basic and diluted)discontinued operations

$
(0.01
)
$
(1.52
)
$
0.06

$
0.07Net loss per common share (basic and diluted)

$
(0.59
)
$
(2.01
)
$
(0.37
)
$
(0.48
)Market prices: high

$
1.36

$
2.20

$
4.50

$
1.30low


0.55


1.10


0.65


0.50


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2008(dollars in thousands)

Fourth Quarter

Third Quarter

Second Quarter

First QuarterInterest income

$
14,781

$
15,728

$
15,792

$
17,024Interest expense


9,061


8,520


8,395


8,909Net interest income


5,720


7,208


7,397


8,115Provision for loan losses


4,156


2,200


1,500


3,000Other operating income


5,846


5,936


6,977


3,844(Loss) gain on sale of securities, net


(50
)

279





Net other-than-temporary impairment charges


(4,581
)

(1,024
)




Operating expenses


18,774


15,524


15,754


15,200Loss before income taxes


(15,995
)

(5,325
)

(2,880
)

(6,241
)Income tax benefit


(6,552
)

(2,544
)

(1,897
)

(2,639
)Income from discontinued operations


383


500


514


324Net loss

$
(9,060
)
$
(2,281
)
$
(469
)
$
(3,278
)Net loss per common share (basic and diluted)continuing operations

$
(1.47
)
$
(0.44
)
$
(0.15
)
$
(0.57
)Net income per common share (basic and diluted)discontinued operations

$
0.06

$
0.08

$
0.08

$
0.05Net loss per common share (basic and diluted)

$
(1.41
)
$
(0.36
)
$
(0.07
)
$
(0.52
)Market prices: high

$
2.50

$
3.95

$
5.99

$
8.05low


0.50


0.22


3.11


5.06


(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)

2009

2008Assets:Cash and interest-bearing deposits

$
1,587

$
5,252Securities available for sale


161


251Subordinated notes





7,500Loans receivable





4,000Investment in subsidiaries


102,046


98,354Company-owned life insurance





3,029Other assets


7,730


2,799Total assets

$
111,524

$
121,185Liabilities and stockholders' equity:Junior subordinated deferrable interest debentures

$
73,724

$
73,724Other liabilities


10,813


1,446Stockholders' equity


26,987


46,015Total liabilities and stockholders' equity

$
111,524

$
121,185


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Table of Contents

Statements of Operations

For the Years Ended December 31,(dollars in thousands)

2009

2008

2007Income:Interest on investments and interest-bearing deposits

$
22

$
164

$
365Interest on subordinated note


513


541


508Interest on loans


269


323


863(Loss) gain on sale of securities


(334
)




943Other income


1,313


1,009


1,030Total income


1,783


2,037


3,709Expenses:Interest expense


3,127


4,640


5,501Professional expenses


1,143


354


325Other expenses


603


404


370Total expenses


4,873


5,398


6,196Loss before income tax benefit


(3,090
)

(3,361
)

(2,487
)Income tax (benefit) expense


(961
)

(227
)

63Loss before equity in undistributed net loss of subsidiaries


(2,129
)

(3,134
)

(2,550
)Equity in undistributed net loss of subsidiariescontinuing operations


(11,095
)

(13,675
)

(9,153
)(Loss) gain on discontinued operations


(9,060
)

1,721


1,640Net loss

$
(22,284
)
$
(15,088
)
$
(10,063
)


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Statements of Cash Flows

For the Years Ended December 31,(dollars in thousands)

2009

2008

2007Cash flows from operating activities:Loss before undistributed net income of subsidiaries

$
(2,129
)
$
(3,134
)
$
(2,550
)Loss (gain) from discontinued operations


9,060


(1,721
)

(1,640
)Loss (gain) on sale of securities


334





(943
)(Increase) decrease in other assets


(7,523
)

3,213


(2,025
)Income from company-owned life insurance


(14
)

(130
)

(122
)Increase (decrease) in other liabilities


9,533


(639
)

768Net cash provided by (used in) operating activities


9,261


(2,411
)

(6,512
)Cash flows from investing activities:(Investment in) dividends from subsidiaries


(24,700
)

(6,000
)

1,324Loan repayments, net





2,501


13,353Sale of securities available for sale








1,445Redemptions of company-owned life insurance


3,040





Proceeds from sale of Mariner Finance


8,734





Net cash (used in) provided by investing activities


(12,926
)

(3,499
)

16,122Cash flows from financing activities:Proceeds from stock issuance, net





283


371Repurchase of common stock, net





(67
)

(1,162
)Net cash provided by (used in) financing activities





216


(791
)Net (decrease) increase in cash and cash equivalents


(3,665
)

(5,694
)

8,819Cash and cash equivalents at beginning of year


5,252


10,946


2,127Cash and cash equivalents at end of year

$
1,587

$
5,252

$
10,946


(23) Recent Accounting Pronouncements

Pronouncements Adopted

On April 9, 2009, the FASB issued additional application and disclosure guidance regarding fair value measurements and
impairments of securities in order to enhance consistency by increasing the frequency and clarity of fair value disclosures. The guidance was effective for interim and annual periods ending after
June 15, 2009, with earlier adoption permitted. We elected to adopt the new guidance effective with the quarter ended March 31, 2009 and recorded a $1.148 million cumulative
effect of accounting change to retained earnings for the noncredit-related component of OTTI charges recorded in 2008.

See
additional information about our adoption of this guidance in Notes 4 and 16.

In
March 2008, the FASB issued guidance on disclosures related to derivative instruments and hedging activities, requiring 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 guidance was effective for fiscal years and
interim periods beginning after November 15, 2008. The disclosure requirements of the guidance were adopted beginning with the interim period ended March 31, 2009 and did not have a
material impact on our financial condition or results of operation.

In
May 2009, the FASB issued guidance on subsequent events, requiring entities to disclose that they have evaluated events subsequent to the date of their financial statements. This
guidance was

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effective
for fiscal years and interim periods ending after June 15, 2009. The requirements of the guidance were adopted beginning with the interim period ended June 30, 2009 and did not
have a material impact on our financial condition or results of operation.

In
June 2009, the FASB issued the FASB Accounting Codification ("Codification"), which became the source of authoritative GAAP recognized by FASB. Adherence to the new Codification was
effective for financial statements issued for reporting periods that end after September 15, 2009. Rules and interpretive releases of the Securities and Exchange Commission ("SEC") are also
sources of authoritative GAAP for SEC registrants. The requirements of the guidance were adopted beginning with the interim period ended September 30, 2009 and did not have a material impact on
our financial condition or results of operation.

In
August 2009, the FASB issued Accounting Standards Update ("ASU") No. 2009-05,Measuring Liabilities at Fair Value.This Update provides amendments to Accounting Standards Codification ("ASC") 820 for the fair value measurement of liabilities by clarifying that in circumstances in which a quoted price in an active
market for the identical liability is not available, a reporting entity is required to measure fair value using a valuation technique that uses the quoted price of the identical liability when traded
as an asset, quoted prices for similar liabilities or similar liabilities when traded as assets, or that is consistent with the principles of ASC 820. The amendments in this guidance also clarify that
both a quoted price for the identical liability at the measurement date and the quoted price for the identical liability when traded as an asset in an active market when no adjustments to the quoted
price of the asset are required are Level 1 fair value measurements. The guidance was effective for the first reporting period (including interim periods) beginning after issuance. The
requirements of the guidance were adopted beginning with the interim period ended September 30, 2009 and did not have a material impact on our financial condition or results of operation.

Pronouncements Issued But Not Yet Effective

In June 2009, the FASB issued amending guidance related to the accounting for transfers of financial assets, which will require
entities to provide more information about sales of securitized financial assets and similar transactions, particularly if the seller retains some risk to the assets. This guidance is effective for
fiscal years beginning after November 15, 2009. Management does not anticipate the adoption of this guidance to have a material impact on our financial condition or results of operation.

In
June 2009, the FASB issued amending guidance that alters how a company determines when an entity that is insufficiently capitalized or not controlled through voting should be
consolidated. This guidance is effective for fiscal years beginning after November 15, 2009. Management does not anticipate the adoption of this guidance to have a material impact on our
financial condition or results of operation.

In
January 2010, the FASB issued guidance to improve disclosures about fair value measurements. The guidance requires entities to disclose separately the amounts of significant transfers
in and out of Level 1 and Level 2 fair measurements and describe the reasons for the same. It also requires Level 3 reconciliation to be presented on a gross basis disclosing
purchases, sales, issuances and settlements separately. The guidance is effective for interim and annual financial periods beginning after December 15, 2009 except for gross basis presentation
for Level 3 reconciliation, which is effective for interim and annual periods beginning after December 15, 2010. Management does not anticipate the adoption of this guidance to have a
material impact on our financial condition or results of operation.

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(24) Subsequent Events

Debt Extinguishment

In February, 2010, the Company entered into an agreement with its Chairman and Chief Executive Officer, Edwin F. Hale, Sr., who
purchased trust preferred securities issued by Mariner Capital Trust II, Mariner Capital Trust IV, and Mariner Capital Trust VIII. Mr. Hale, through the agreement with First Mariner Bancorp,
has agreed to exchange $20.0 million of the trust preferred securities for $2.0 million in common stock of First Mariner Bancorp plus warrants to purchase shares equal to 20% of the
shares issued in the exchange (the "Exchange"). Mr. Hale purchased the trust preferred securities, which have an aggregate liquidation amount of $20.0 million, for $2.0 million.
Upon completion of the agreed upon exchange, the Company intends to cancel the $20.0 million in trust preferred securities in exchange for common stock and warrants, eliminating this long term
debt.

The
Exchange also will increase the Company's total stockholders' equity by approximately $12.8 million, although the exact amount is subject to variation based on the valuation
of the warrants at closing, from the cancellation of the trust preferred securities, the common securities and the subordinated debentures. The Exchange would be recorded during the quarter in which
the trust preferred securities were cancelled, which is expected to be the first or second quarter of calendar year 2010. The aggregate number of shares of common stock to be exchanged (the "Initial
Shares") will be valued at $2.0 million based on the average daily closing price of the common stock over the 20 trading days prior to the closing of the transaction (the "Conversion Price").
In the event that by June 30, 2010 the Company completes a public or private offering of its common stock at a price per share below the Conversion Price, then Mr. Hale will be issued
additional shares of common stock such that the total shares to be issued to Mr. Hales would equal $2.0 million divided by the price per share at which shares were sold in the public or
private offering. If common stock is sold in the rights offering (see below) at a price below the Conversion Price, the rights offering will result in the issuance of additional shares of common stock
to Mr. Hale.

Mr. Hale
also will receive warrants (the "A Warrants") to purchase in the aggregate 20% of the Initial Shares. In addition, Mr. Hale will receive additional warrants (the
"B Warrants" and, together with the A Warrants, the "Warrants") in the event that on or prior to June 30, 2010 First Mariner Bancorp enters into another agreement to acquire other trust
preferred securities and the value of the consideration to be issued in that transaction relative to the aggregate liquidation amount of trust preferred securities to be acquired is greater than the
value of the consideration to be issued by First Mariner Bancorp in the Exchange relative to the $20.0 million aggregate liquidation amount of trust preferred securities to be exchanged. In
that event, Mr. Hale would receive additional warrants such that the relative value of the aggregate consideration to be paid in the Exchange equals the relative value of the aggregate
consideration to be paid in the subsequent transaction, provided that the number of shares subject to the B Warrants could not exceed 20% of the Initial Shares.

In
the event Mr. Hale's ownership of Company common stock immediately following the closing would be equal to or greater than 41.33% (the "Threshold"), assuming exercise of the A
Warrants, then the amount of trust preferred securities Mr. Hale would exchange initially would be reduced by the minimum amount necessary so that immediately following the closing,
Mr. Hale's ownership of
Company common stock would be below the Threshold. If such a reduction occurs at the closing, the remaining trust preferred securities held by Mr. Hale could be exchanged in the future subject
to the terms of the exchange agreement assuming such exchange would not cause Mr. Hale's ownership of Company common stock to exceed the Threshold.

The
Warrants are exercisable for five years following the closing at a price equal to the lesser of (i) the Conversion Price, (ii) if on or prior to June 30, 2010
the Company sells shares of common stock in a public or private offering, the price at which shares are sold in that offering, or (iii) the price utilized in any subsequent agreement for the
acquisition of trust preferred securities to determine the

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number
of shares of common stock to be exchanged for such trust preferred securities exclusive of any warrants, warrant shares, or warrant prices.

Shareholder Actions

At a Special Meeting of Stockholders held February 12, 2010, stockholders approved: an amendment to the Company's Articles of
Incorporation to increase the authorized number of shares of common stock from 20,000,000 to 75,000,000; an amendment to the Company's Articles of Incorporation to grant the Board of Directors the
authority to affect a reverse stock split of the Company's outstanding shares of common stock, if necessary; and an amendment to the Company's 2004 Long Term Incentive Plan to increase the number of
shares of common stock that may be issued under the Plan.

At
a Special Meeting of Stockholders held March 19, 2010, stockholders approved the redemption of up to $26.0 million aggregate liquidation amount of trust preferred
securities in exchange for up to $2.6 million of common stock and warrants to acquire common stock.

Rights Offering

On February 16, 2010, we commenced a rights offering pursuant to which we distributed, at no charge to our shareholders,
nontransferable subscription rights to purchase up to 17,391,131 shares of our common stock, par value $0.05 per share. Subscription rights were distributed to persons who owned shares of our common
stock as of 5:00 p.m. Eastern Time, on February 12, 2010, the record date of the rights offering.

Each
subscription right entitles right holders to purchase 2.6952 shares of our common stock at the subscription price of $1.15 per share, which we refer to as the basic subscription
privilege. The subscription rights will expire if they are not exercised by 5:00 p.m., Eastern Time, on March 24, 2010. We reserve the right to extend the expiration date one or more
times, but in no event will we extend the rights offering beyond March 29, 2010. Shares of common stock that remain unsubscribed (after taking into account all over-subscription
rights exercised) at the expiration of the rights offering and that are not purchased by standby investors may be offered to the public at $1.15 per share. The public offering of the unsubscribed
shares shall terminate on April 12, 2010. We must receive minimum proceeds of $10.0 million, in the aggregate, to complete the rights offering, the sale of shares to standby purchasers
and the re-offering of unsubscribed shares to the public. Maximum proceeds from these offerings will not exceed $20.0 million.

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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, 2009, we carried out an evaluation under the
supervision and with the participation of 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, 2009, 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, 2009. Management's report on the Company's internal control over financial reporting is set forth as 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, 2009, utilizing the
framework established inInternal ControlIntegrated Frameworkissued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this assessment, management has determined that, as of December 31, 2009, the Company's internal control over financial reporting is effective.

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Table of Contents

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 accounting principles generally accepted in the United States of America, 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/ PAUL B. SUSIE Paul B. Susie
Chief Financial Officer


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ITEM 9B    OTHER INFORMATION

At a Special Meeting of Stockholders held February 12, 2010, stockholders approved the following:



Votes For

Votes Against

Abstain

Broker Nonvotes4,961,229


550,861


38,301


0




Votes For

Votes Against

Abstain

Broker Nonvotes4,915,275


596,470


38,646


0




Votes For

Votes Against

Abstain

Broker Nonvotes2,509,863


775,580


18,227


0


At
a Special Meeting of Stockholders held March 19, 2010, stockholders approved the following:



Votes For

Votes Against

Abstain

Broker Nonvotes3,397,524


223,991


26,661


0




Votes For

Votes Against

Abstain

Broker Nonvotes3,315,043


309,163


23,970


0


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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.

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 2010 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 2010 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 Form 10-K.

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 2010 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 2010 Annual Meeting of Stockholders.

ITEM 14    PRINCIPAL ACCOUNTING 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 2010 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 FirmConsolidated Statements of Financial Condition as of December 31, 2009 and 2008Consolidated Statements of Operations for the years ended December 31, 2009, 2008, and 2007Consolidated Statements of Changes in Stockholders' Equity for the years ended December 31, 2009, 2008, and 2007Consolidated Statements of Cash Flows for the years ended December 31, 2009, 2008, and 2007Notes to Consolidated Financial Statements for the years ended December 31, 2009, 2008, and 2007(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 BANCORPDate: March 24, 2010

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 24th day of March, 2010.

/s/ EDWIN F. HALE SR. Edwin F. Hale Sr., Chief Executive Officer and Director

/s/ PAUL B. SUSIE Paul B. Susie, Chief Financial Officer/s/ MARK A. KEIDEL Mark A. Keidel, 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/ ROBERT CARET Robert Caret, Director

/s/ HECTOR TORRES Hector Torres, Director/s/ GREGORY ALLEN DEVOU Gregory Allen Devou, Director

/s/ MICHAEL R. WATSON Michael R. Watson, 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

Articles of Amendment to the Amended and Restated Articles of Incorporation of First Mariner Bancorp (Incorporated by reference to Exhibit 3.2 to the Registrant's Registration Statement on Form S-1, as
amended, file number 333-163560).3.3

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)3.4

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)4.1

Specimen Common Stock Certificate (Incorporated by reference to Exhibit 4.2 of First Mariner's Form-SB filed on November 13, 1996, as amended)4.2

Form of Rights Certificate (Incorporated by reference to Exhibit 4.2 of First Mariner's Pre-Effective Amendment Number 2 to Form S-1, file no. 333-163560, filed on February 10, 2010)4.3

Registrant will furnish, upon request, copies of all instruments defining the rights of holders of long-term debt instruments of the registrant and its consolidated subsidiaries.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)


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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 George H. Mantakos (Incorporated by reference to Exhibit 10.14 to the Company's Form 10-Q for the quarter ended
March 31, 2003.)10.14

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.)10.15

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.)10.16

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)10.17

First Mariner Bancorp 2004 Long-Term Incentive Plan, as amended (Incorporated by reference to Appendix A to First Mariner's Definitive Proxy Statement filed on January 13, 2010)10.18

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)10.19

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)10.20

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)10.21

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)10.22

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.)10.23

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)10.24

Description of Board Fees (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on July 21, 2008)


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10.25

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)10.26

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)10.27

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)10.28

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)10.29

Lease Agreement dated January 17, 2008 between Next Generation Financial Services and Canton Crossing Tower, LLC (Incorporated by reference to Exhibit 10.31 to the Company's Form 10-K filed on
March 31, 2009)10.30

Stipulation and Consent to the Issuance of an Order to Cease and Desist, Order for Restitution, and Order to Pay (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on May 7,
2009)10.31

Order to Cease and Desist, Order for Restitution, and Order to Pay (Incorporated by reference to Exhibit 10.2 to the Company's Form 8-K filed on May 7, 2009)10.32

Transition Agreement with General Release and Independent Contractor Consultant Engagement dated as of May 20, 2009 among First Mariner Bancorp, First Mariner Bank, and Joseph A. Cicero (Incorporated by
reference to Exhibit 10.1 to the Company's Form 8-K filed on May 27, 2009)10.33

Order to Cease and Desist entered September 18, 2009 (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on September 21, 2009)10.34

Written Agreement by and between First Mariner Bancorp and the Federal Reserve Bank of Richmond, effective November 24, 2009 (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on
November 27, 2009)10.35

Exchange Agreement, dated February 3, 2010, by and between First Mariner Bancorp and Edwin F. Hale, Sr. (Incorporated by reference to Exhibit 10.1 to the Company's Form 8-K filed on
February 9, 2010).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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