<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1995
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission file number 1-7273
----------------
[LOGO OF FIRST MARYLAND BANCORP APPEARS HERE]
(Exact name of registrant as specified in its charter)
MARYLAND 52-0981378
(State or other jurisdiction (I.R.S. Employer
of incorporation or Identification No.)
organization)
FIRST MARYLAND BUILDING
25 SOUTH CHARLES STREET
BALTIMORE, MARYLAND 21201
(Address of principal executive offices) (zip code)
410-244-4000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
7.875% Noncumulative Preferred Stock, New York Stock Exchange, Inc.
Series A
Securities registered pursuant to Section 12(g) of the Act: N/A
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 at least the past 90 days. Yes [X] No
----- -----
Indicate by check mark if disclosure of delinquent filers pursuant 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 thisForm 10-K. [X]
The aggregate market value as of March 8, 1996, of voting stock held by non-
affiliates (comprised of 6,000,000 shares of the registrant's 7.875%
Noncumulative Preferred Stock, Series A) was $150,000,000.
ALL 594,480,215 OUTSTANDING SHARES OF COMMON STOCK, $ 1/7 PAR VALUE,
OF THE REGISTRANT ARE OWNED BY ALLIED IRISH BANKS, P.L.C.,
AN IRISH BANKING CORPORATION.
DOCUMENTS INCORPORATED BY REFERENCE: Portions of the registrant's definitive
Information Statement filed March 22, 1996 are incorporated herein by
reference in response to Part III of this report.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
PART I
<C> <S> <C>
Item 1-- Business..................................................... 1
Item 2-- Properties................................................... 7
Item 3-- Legal Proceedings............................................ 7
Item 4-- Submission of Matters to a Vote of Security Holders.......... 7
PART II
Item 5-- Market for Registrant's Common Equity and Related Stockholder
Matters..................................................... 9
Item 6-- Selected Consolidated Financial Data......................... 9
Item 7-- Management's Discussion and Analysis of Financial Condition
and Results of Operations................................... 10
Item 8-- Financial Statements and Supplementary Data:
First Maryland Bancorp and Subsidiaries:
Consolidated Statements of Income............................ 36
Consolidated Statements of Condition......................... 37
Consolidated Statements of Changes in Stockholders' Equity... 38
Consolidated Statements of Cash Flows........................ 39
Notes to Consolidated Financial Statements................... 40
Management's Report on Responsibility for Financial
Reporting................................................... 72
Independent Auditors' Report................................. 73
Item 9-- Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure.................................... 75
PART III
Item 10-- Directors and Executive Officers of the Registrant(1)
Item 11-- Executive Compensation(1)
Item 12-- Security Ownership of Certain Beneficial Owners and
Management(1)
Item 13-- Certain Relationships and Related Transactions(1)
PART IV
Item 14-- Exhibits, Financial Statement Schedules, and Reports on Form
8-K:
Financial Statement Schedules................................ 75
Exhibits .................................................... 75
Reports on Form 8-K.......................................... 76
Signatures.............................................................. 77
</TABLE>
- --------
(1) Incorporated by reference to portions of the Registrant's definitive
Information Statement filed March 22, 1996.
<PAGE>
PART I
ITEM 1. BUSINESS
First Maryland Bancorp (the "Corporation") is a Maryland corporation
incorporated in 1973 and is registered as a bank holding company under the
Bank Holding Company Act of 1956, as amended (the "Bank Holding Company Act").
At December 31, 1995, the Corporation had consolidated total assets of $10.5
billion, total deposits of $7.0 billion, and total stockholders' equity of
$1.2 billion. Its principal subsidiaries are The First National Bank of
Maryland ("First National"), First Omni Bank, N. A. ("First Omni") and The
York Bank and Trust Company ("York Bank"). These banks provide comprehensive
corporate, commercial, correspondent and retail banking services, personal and
corporate trust services and related financial products and services to
individuals, businesses, governmental units and financial institutions
primarily in Maryland and the adjacent states. The assets of these banks at
December 31, 1995 accounted for approximately 96% of the Corporation's
consolidated total assets and the banks contributed approximately 89%, 93% and
91% to the consolidated net income of the Corporation for each of the three
years ended December 31, 1995, 1994 and 1993, respectively.
First National, the Corporation's largest subsidiary, is a national banking
association chartered under the laws of the United States. It commenced
operations in Baltimore, Maryland on July 10, 1865 and is the successor to a
Maryland banking institution founded in 1806. At December 31, 1995, First
National was the second largest commercial bank headquartered in Maryland in
terms of assets, loans and deposits, with assets of $8.4 billion, net loans of
$4.6 billion, and deposits of $6.2 billion. Its assets at such date comprised
approximately 80% of the consolidated assets of the Corporation. Including its
main office, First National operates 200 banking facilities in Maryland,
including 149 full service offices, and loan production offices in Washington,
D.C., Easton, Maryland, and York, Pennsylvania. It conducts international
activities at its Baltimore headquarters, a Cayman Islands branch and a
representative office in London, and maintains correspondent accounts with
approximately 70 foreign banks. It offers investment, foreign exchange and
securities brokerage services, operates a brokerage subsidiary and acts as
investment adviser to the ARK Funds, a family of proprietary mutual funds.
York Bank was acquired by the Corporation on December 31, 1991. It is a
Pennsylvania chartered commercial bank organized in 1960 as the product of a
consolidation of two banks chartered in 1810 and 1890. At December 31, 1995,
York Bank had assets of $1.1 billion, net loans of $653.5 million, deposits of
$888.6 million and 28 full service offices in south central Pennsylvania and a
loan production office in Lancaster County, Pennsylvania. It is the largest
banking institution headquartered in York County, Pennsylvania, a market
contiguous with First National's principal market.
First Omni is a national banking subsidiary of the Corporation headquartered
in Millsboro, Delaware and conducts retail bankcard services. It offers
MasterCard(R) and VISA(R) bankcards both directly and as agent for other
banks. At December 31, 1995, it managed bankcard receivables of $819.7 million
(including $165.0 million of securitized bankcard receivables).
The Corporation operates various other subsidiaries, including First
National Mortgage Corporation, a mortgage banking company which originates,
sells and services residential mortgage loans through its network of 20
offices in Maryland, Delaware, Indiana, Kentucky, Pennsylvania, Tennessee,
Virginia, and West Virginia; First National Bank of Maryland, D.C. ("First
D.C."), a national bank with 3 offices in the District of Columbia; First
Maryland Leasecorp, a commercial finance company specializing in equipment
financing; and First Maryland Mortgage Corporation, a commercial real estate
lender. On January 24, 1996, the Corporation announced that it had entered
into a definitive agreement to acquire 1st Washington Bancorp, Inc. ("1st
Washington"), a savings and loan holding company headquartered in Herndon,
Virginia, the principal subsidiary of which is Washington Federal Savings
Bank. At December 31, 1995, 1st Washington had total assets of $801 million
and total deposits of $443 million, and conducted its business primarily from
offices in the District of Columbia and surrounding portions of northern
Virginia and Maryland. Consummation of the transaction is subject to 1st
Washington shareholder and regulatory approvals. If approved, the acquisition
will allow the Corporation to enhance its existing presence in the District
and to expand its full service bank franchise to Virginia.
1
<PAGE>
Allied Irish Banks, p.l.c. ("AIB") is an Irish banking corporation whose
securities are traded on the Dublin, London and New York Stock Exchanges. In
December 1983, AIB acquired 43% of the outstanding shares of the Corporation.
On March 21, 1989, AIB increased its investment to 100% of the voting stock of
the Corporation, thereby furthering its strategic objective of increasing the
geographic diversification of its investments and operations. AIB is a
registered bank holding company under the Bank Holding Company Act and is the
largest banking corporation organized under the laws of Ireland, based upon
total assets at December 31, 1995. Based upon United States generally accepted
accounting principles at December 31, 1995, AIB and its subsidiaries
(collectively, "AIB Group") had total assets of approximately $38.2 billion.
AIB Group provides a full range of banking, financial and related services
principally in Ireland, the United States and the United Kingdom.
COMPETITION
The market for banking and bank-related services is highly competitive. The
Corporation and its subsidiaries compete with other providers of financial
services such as other bank holding companies, commercial and savings banks,
savings and loan associations, credit unions, money market and other mutual
funds, mortgage companies, insurance companies, and a growing list of other
local, regional and national institutions which offer financial services.
Mergers between financial institutions within Maryland and in neighboring
states have added competitive pressure. Competition is expected to intensify
as a consequence of interstate banking laws enacted in 1994 or that may be in
effect or enacted in the future. Federal law now provides, among other things,
that: (1) bank holding companies may (subject to certain conditions) acquire
banks and bank holding companies across state lines without regard to whether
such acquisition is prohibited by state law; (2) effective June 1, 1997
(sooner if both states opt-in to interstate branching), banks will be
permitted to merge across state lines provided neither state has opted-out of
interstate branching; and (3) a bank in one state may establish a denovo
branch in another state provided that the other state's laws permit the
establishment of the branch. Maryland, Virginia and Pennsylvania have opted in
to interstate acquisitions, mergers and denovo branching, Delaware has opted
in to interstate acquisitions and mergers and the District of Columbia has
taken no action to opt in. The Corporation and its subsidiaries compete by
offering quality products and convenient services at competitive prices. In
order to maintain and enhance its competitive position, the Corporation
regularly reviews various acquisition prospects and periodically engages in
discussions regarding such possible acquisitions.
SUPERVISION AND REGULATION
The information contained in this section summarizes portions of the
applicable laws and regulations relating to the supervision and regulation of
the Corporation and its subsidiaries. These summaries do not purport to be
complete, and they are qualified in their entirety by reference to the
particular statutes and regulations described.
Bank Holding Company Regulation
The Corporation, as a bank holding company registered under the Bank Holding
Company Act, is required to file with the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") an annual report and such
additional information as the Federal Reserve Board may require, and is
subject to regular examinations by the staff of the Federal Reserve Bank of
Richmond.
The Bank Holding Company Act requires that a bank holding company obtain the
prior approval of the Federal Reserve Board before it may acquire
substantially all of the assets of any bank, or ownership or control of any
voting shares of any bank, if after such acquisition, it will own or control,
directly or indirectly, more than 5% of the voting shares of such bank. Under
Federal and state laws in effect through September 28, 1995, the Federal
Reserve Board could not approve the acquisition by the Corporation of any bank
located outside the State of Maryland unless such acquisition was specifically
authorized by the statutory law of the state in which such bank was located.
Effective September 29, 1995, and subject to applicable Federal and state
approval procedures and registration requirements, the Corporation may acquire
banks in any state in the United States and the Federal Reserve Board may
approve the acquisition by the Corporation of any bank located outside of the
State of Maryland without regard to whether such acquisition is prohibited
under the laws of any state.
2
<PAGE>
The Bank Holding Company Act also generally prohibits a bank holding company
from engaging in, or from acquiring direct or indirect control of voting
shares of any company engaged in activities other than banking and the
management of banking organizations, and any nonbanking activities which the
Federal Reserve Board may find, by order or regulation, to be so closely
related to banking or managing or controlling banks as to be a proper incident
thereto. The approval of the Federal Reserve Board is generally required prior
to engaging in permissible nonbanking activities.
The Banks
First National, First Omni, and First D.C. (the "National Banks" and
together with York Bank, the "Banks"), as national banking associations, are
subject to the supervision of, and regulation and examination by the
Comptroller of the Currency of the United States (the "Comptroller"). York
Bank, a Pennsylvania state chartered bank, is supervised, regulated and
examined by the Pennsylvania Department of Banking and the Federal Deposit
Insurance Corporation (the "FDIC"). Deposits, reserves, investments, loans,
consumer law compliance, issuance of securities, payment of dividends, mergers
and consolidations, electronic funds transfers, management practices, and
other aspects of the Banks' operations are subject to regulation. The approval
of the appropriate bank regulatory authority is required for the establishment
of additional branch offices by any of the Banks, subject to applicable state
law restrictions. Commencing June 1, 1997 (or sooner if permitted by
applicable state laws), banks will be permitted to merge across state lines
(thereby creating interstate branch networks) provided that neither the state
in which the surviving bank maintains its main office nor the state in which
the acquired bank maintains its main office opt-out of interstate branching
before June 1, 1997.
All of the National Banks are members of the Federal Reserve System, and the
deposits of all the Banks are insured by the FDIC. Some of the aspects of the
lending and deposit business of the Banks which are subject to regulation by
the Federal Reserve Board or the FDIC include disclosure requirements in
connection with personal and mortgage loans, interest on deposits and reserve
requirements. In addition, the Banks are subject to numerous federal, state
and local laws and regulations which set forth specific restrictions and
procedural requirements with respect to extensions of credit (including to
insiders), credit practices, disclosure of credit terms and discrimination in
credit transactions.
The Banks are subject to restrictions under federal law which limit the
transfer of funds by any of the Banks to the Corporation and its nonbanking
subsidiaries, whether in the form of loans, extensions of credit, investments,
asset purchases or otherwise. Such transfers by any Bank to the Corporation or
any of the Corporation's nonbanking subsidiaries are limited in amount to 10%
of such Bank's capital and surplus and, with respect to the Corporation and
all such nonbanking subsidiaries, to an aggregate of 20% of such Bank's
capital and surplus. Furthermore, such loans and extensions of credit are
required to be secured in specified amounts.
As a result of the enactment of the Financial Institutions Reform, Recovery
and Enforcement Act ("FIRREA") on August 9, 1989, a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC after August 9, 1989 in connection with
(i) the default of a commonly controlled FDIC-insured depository institution
or (ii) any assistance provided by the FDIC to a commonly controlled FDIC-
insured depository institution in danger of default. "Default" is defined
generally as the appointment of a conservator or receiver and "in danger of
default" is defined generally as the existence of certain conditions
indicating that a "default" is likely to occur in the absence of regulatory
assistance.
As a consequence of the extensive regulation of the commercial banking
business in the United States, the business of the Banks is particularly
susceptible to changes in Federal and state legislation and regulations which
may increase the cost of doing business.
3
<PAGE>
Dividends
The Corporation is a legal entity separate and distinct from the Banks and
its other subsidiaries, although the principal source of the Corporation's
cash revenues is dividends from the Banks. Various Federal (and in the case of
York Bank, state) laws and regulations limit the amount of dividends the Banks
can pay to the Corporation without regulatory approval.
The approval of the Comptroller is required for any dividend by a national
bank if the total of all dividends declared by such bank in any calendar year
would exceed the total of its net profits, as defined by the Comptroller, for
that year combined with its retained net profits for the preceding two years
less any required transfers to surplus or a fund for the retirement of any
preferred stock. Additionally, national bank subsidiaries may not declare
dividends in excess of net profits on hand, after deducting the amount by
which the principal amount of all loans on which interest is past due for a
period of six months or more exceeds the reserve for credit losses. In
addition, the "prompt corrective action" provisions of FDICIA (see discussion
entitled "FDICIA" below) prohibit the payment of dividends by a bank if the
payment would cause the bank to become "undercapitalized." Under the first and
currently more restrictive of the foregoing dividend limitations, at January
1, 1996, approximately $124.0 million of retained earnings of the National
Banks was available to pay dividends to the Corporation.
Pursuant to Pennsylvania law, York Bank may pay dividends only out of
accumulated net earnings and may not pay a dividend if any transfer of net
earnings to surplus is required.
The Federal Reserve Board and the Comptroller also have issued guidelines
that require bank holding companies and national banks to evaluate
continuously the level of cash dividends in relation to the organization's net
income, capital needs, asset quality and overall financial condition. The
Comptroller also has authority under the Financial Institutions Supervisory
Act to prohibit national banks from engaging in any practice or activity
which, in the Comptroller's opinion, constitutes an unsafe or unsound
practice. The payment of a dividend by a bank could, depending upon the
financial condition of such bank and other factors, be construed by the
Comptroller to be such an unsafe or unsound practice. The Comptroller has
stated that a dividend by a national bank should bear a direct correlation to
the level of the bank's current and expected earnings stream, the bank's need
to maintain an adequate capital base and the marketplace's perception of the
bank and should not be governed by the financing needs of the bank's parent
corporation. As a result, notwithstanding the level of dividends which could
be declared without regulatory approval by the Banks as set forth in the
preceding paragraph, the level of dividends from the Banks to the Corporation
in 1996 is not expected to exceed the earnings of the Banks. If the ability to
pay dividends to the Corporation were to become restricted, the Corporation
would need to rely on alternative means of raising funds to satisfy its
requirements. Such alternative means might include, but would not be
restricted to, nonbank subsidiary dividends, asset sales or other capital
market transactions.
Under Federal Reserve Board policy, the Corporation is expected to act as a
source of financial strength to the Banks and to commit resources to support
the Banks in circumstances where it might not do so absent such policy. In
addition, any capital loans by the Corporation to any of the Banks would also
be subordinate in right of payment to deposits and to certain other
indebtedness of such Bank. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a federal bank
regulatory agency to maintain the capital of a subsidiary bank at a certain
level will be assumed by the bankruptcy trustee and entitled to a priority of
payment.
Capital Requirements
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies. As of December 31, 1995, the minimum ratio of total capital
to risk-adjusted assets (including certain off-balance sheet items, such as
standby letters of credit) was 8%. At least half of the total capital must be
comprised of common equity, retained earnings and a limited amount of
perpetual preferred stock, after subtracting goodwill and certain other
adjustments ("Tier 1 capital"). The remainder may consist of perpetual debt,
mandatory convertible debt
4
<PAGE>
securities, a limited amount of subordinated debt, other preferred stock and a
limited amount of loan loss reserves ("Tier 2 capital"). The maximum amount of
supplementary capital elements that qualify as Tier 2 capital are limited to
100% of Tier 1 capital net of goodwill. The Federal Reserve Board also has
adopted a minimum leverage ratio (Tier 1 capital to average total assets) of
3% for bank holding companies that meet certain specified criteria, including
having the highest regulatory rating. The rule indicates that the minimum
leverage ratio should be at least 1.0% to 2.0% higher for holding companies
that do not have the highest rating or that are undertaking major expansion
programs. The Corporation's national and state chartered banking subsidiaries
are subject to similar risk-based and leverage capital requirements adopted by
the Comptroller and the FDIC, respectively. On December 31, 1995, the
Corporation had a Tier 1 capital to risk adjusted assets ratio of 13.77%, a
total (Tier 1 plus Tier 2) capital ratio of 17.05%, and a leverage ratio of
10.91%.
Failure to meet the capital guidelines could subject a banking institution
to a variety of enforcement remedies available to federal regulatory
authorities, including the termination of deposit insurance by the FDIC, and
the appointment of a conservator or receiver by the appropriate federal
regulatory authority.
In September 1993, the federal bank regulatory agencies issued proposed
revisions to their capital adequacy guidelines (the "guidelines") which
provide for consideration of interest rate risk in the overall determination
of a bank's minimum capital requirement. A final rule amending the guidelines
became effective on September 1, 1995. At the same time, the regulatory
agencies published a proposed policy statement (the "policy statement") on the
measurement of the effects of interest rate risk ("IRR") on capital. As
amended, the guidelines explicitly provide that a bank's exposure to declines
in the economic value of its capital due to changes in interest rates is a
factor to be considered in evaluating capital adequacy. The policy statement
proposes a uniform supervisory framework for measuring and monitoring IRR,
using data to be supplied by banks in their periodic reports of condition to
regulators. The results of the supervisory measurements, together with
information from a bank's internal IRR measurement system and other
qualitative factors, will be used by the regulators to determine, on a case-
by-case basis, whether a bank's capital is adequate for the level of IRR to
which it is exposed. The regulatory agencies have not yet indicated when the
IRR reporting set forth in the policy statement will commence. Eventually, the
regulatory agencies plan to establish specific supervisory levels of IRR and a
specific capital charge for IRR. The Corporation does not believe that
implementation of the policy statement will have an adverse effect on the
Corporation.
FDICIA
On December 19, 1991, the Federal Deposit Insurance Corporation Improvement
Act of 1991 ("FDICIA") was enacted. Among other things, FDICIA provides
increased funding for the Bank Insurance Fund ("BIF") of the FDIC and provides
for expanded regulation of depository institutions and their affiliates,
including parent holding companies. The following is a brief summary of
certain provisions of FDICIA.
Pursuant to FDICIA, the Federal Reserve Board, the Comptroller and the FDIC
have adopted regulations, effective December 19, 1992, setting forth a five-
tier scheme for measuring the capital adequacy of the financial institutions
they supervise. Under the regulations (commonly referred to as the "prompt
corrective action" rules), an institution is placed in one of the following
capital categories: (i) well capitalized (a total risk-based capital ratio of
at least 10%, a Tier 1 risk-based capital ratio of at least 6% and a leverage
ratio of at least 5%); (ii) adequately capitalized (a total risk-based capital
ratio of at least 8%, a Tier 1 risk-based capital ratio of at least 4% and a
leverage ratio of at least 4%); (iii) undercapitalized (a total risk-based
capital ratio of under 8% or a Tier 1 risk-based ratio under 4% or a leverage
ratio under 4%); (iv) significantly undercapitalized (a total risk-based
capital ratio of under 6% or a Tier 1 risk-based capital ratio under 3% or a
leverage ratio under 3%); and (v) critically undercapitalized (a ratio of
tangible equity to total assets of 2% or less). The regulations permit the
appropriate Federal banking regulator to downgrade an institution to the next
lower category if the regulator determines (i) after notice and opportunity
for hearing or response, that the institution is in an unsafe or unsound
condition or (ii) that the institution has received (and not corrected) a
less-than-satisfactory rating for any of the categories of asset quality,
management, earnings or liquidity in its most recent exam. Supervisory actions
by the appropriate Federal banking regulator depend upon an institution's
classification within the five categories.
5
<PAGE>
All institutions are generally prohibited from declaring any dividends, making
any other capital distribution, or paying a management fee to any controlling
person, if such payment would cause the institution to become
undercapitalized. Additional supervisory actions are mandated for an
institution falling into one of the three "undercapitalized" categories, with
the severity of supervisory action increasing at greater levels of capital
deficiency. For example, critically undercapitalized institutions are, among
other things, restricted from making any principal or interest payments on
subordinated debt without prior approval of their appropriate Federal banking
regulator, and are generally subject to the appointment of a conservator or
receiver. The regulations apply only to banks and not to bank holding
companies, such as the Corporation; however, the Federal Reserve Board is
authorized to take appropriate action at the holding company level based on
the undercapitalized status of such holding company's subsidiary banking
institutions. For example, in the case of an undercapitalized banking
institution, the bank holding company is required to guarantee that the
undercapitalized subsidiary complies with a recapitalization plan and may be
liable for civil monetary penalties for failure to fulfill its commitment on
such guarantee. In addition, in the case of a significantly undercapitalized
banking institution, the appropriate Federal banking regulator is authorized
to prohibit the holding company from making any capital distribution
(including paying dividends) without the prior approval of the Federal Reserve
Board. As of December 31, 1995, each of the Banks met the requirements of a
"well-capitalized" institution.
The FDIC issued a rule, effective June 16, 1992, regarding the ability of
depository institutions to accept brokered deposits. Under the rule, (i) an
"undercapitalized" institution is prohibited from accepting, renewing or
rolling over brokered deposits, (ii) an "adequately capitalized" institution
must obtain a waiver from the FDIC before accepting, renewing or rolling over
brokered deposits and (iii) a "well capitalized" institution may accept, renew
or roll over brokered deposits without restriction. In addition, both
"undercapitalized" and "adequately capitalized" institutions are subject to
restrictions on the rates of interest they may pay on any deposits. The
definitions of "well capitalized", "adequately capitalized", and
"undercapitalized" conform to the definitions utilized in the "prompt
corrective action" rules described above.
The FDIC has also issued regulations implementing, effective for the semi-
annual assessment period commencing January 1, 1993, a system of risk-based
FDIC-insurance premiums. Under this system, each depository institution is
assigned to one of nine risk classifications based upon certain capital and
supervisory measures and, depending upon its classification, is assessed
premiums ranging from 23 basis points to 31 basis points per $100 of domestic
deposits. Effective June 1, 1995, the FDIC lowered the range of assessment
rates to 4 basis points to 31 basis points, thus reducing premiums for banks
in the lowest risk classification from 23 basis points to 4 basis points. For
the period from June 1, to December 31, 1995, the Banks paid premiums at the 4
basis point level. Commencing January 1, 1996, the Banks' BIF insurance
premium will be zero (subject to a statutory minimum assessment of $2,000 per
year), subject to the FDIC's right, upon 45 days' prior notice to the Banks,
to increase the assessment rate by a maximum of 5 basis points in order to
maintain the BIF at the statutorily mandated level. First National will
continue to pay a 23 basis point premium to the Savings Association Insurance
Fund in respect of certain thrift deposits it acquired during 1991 to 1994.
Effective August 10, 1993, the Federal Deposit Insurance Act was amended to
provide that, in the liquidation or other resolution by any receiver of a bank
insured by the FDIC, the claims of depositors have priority over the general
claims of other creditors. Hence, in the event of the liquidation or other
resolution of a banking subsidiary of the Corporation, the general claims of
the Corporation as creditor of such banking subsidiary would be subordinate to
the claims of the depositors of such banking subsidiary, even if the claims of
the Corporation were not by their terms so subordinated. In addition, this
statute may, in certain circumstances, increase the costs to the Banks of
obtaining funds through nondeposit liabilities.
MONETARY POLICY
The Corporation's subsidiaries, and thus the Corporation, are affected by
monetary policies of regulatory authorities, including the Federal Reserve
Board, which regulate the national money supply in order to mitigate
recessionary and inflationary pressures. Among the techniques of monetary
policy available to the Federal Reserve Board are engaging in open market
transactions in U.S. Government securities, changing the discount
6
<PAGE>
rate on bank borrowing, and changing reserve requirements against bank
deposits. These techniques are used in varying combinations to influence the
overall growth and distribution of bank loans, investments, and deposits.
Their use may also affect interest rates charged on loans or paid on deposits.
The effect of governmental monetary policies on the earnings of the
Corporation cannot be predicted.
EMPLOYEES
As of December 31, 1995, the Corporation employed approximately 4,527 full-
time equivalent employees. Management of the Corporation considers relations
with its employees to be satisfactory.
ITEM 2. PROPERTIES
The following describes the location and general character of the principal
offices and other materially important physical properties of the Corporation
and its subsidiaries.
The Corporation is a major tenant in a building located at 25 South Charles
Street, Baltimore, Maryland, occupying approximately 67% of the 333,000 square
feet of office space available in the building. The Corporation's lease for
this space expires in June 1997, with a renewal option to the year 2002.
During 1995, the annual rental for the space, less amounts received on
subleases to others, was $5.2 million. The Corporation is in the process of
evaluating a number of alternative locations if the lease cannot be renewed at
a favorable rate, and is also engaged in discussions with its current
landlord.
The Corporation is the sole tenant at First Center (formerly the Paca Pratt
Building) located at 110 South Paca Street, Baltimore, Maryland. The building
contains 267,000 square feet of office space and houses certain lending,
staff, and operations functions of the Corporation. The current lease term
expires on December 31, 2011. During 1995, the annual base rental for the
space was $2.6 million. The Corporation is a limited partner with a 0.2%
operating interest and a 50% residual interest in the limited partnership
which owns the building.
The Corporation also owns First Bank Center located at Mitchell Street,
Millsboro, Delaware. The building, acquired in 1981, contains approximately
300,000 square feet of space, sits on approximately 60 acres of land, and
houses certain retail operations functions of First National together with the
branch and bankcard functions of First Omni.
In addition to the above office space, the Corporation owns and leases
office space in various other office buildings located in Maryland, New York,
Pennsylvania, Delaware, Indiana, Kentucky, Mississippi, Tennessee, Virginia,
West Virginia and the District of Columbia.
ITEM 3. LEGAL PROCEEDINGS
The Corporation and its subsidiaries are defendants in various matters of
litigation generally incidental to their respective businesses. In the opinion
of management, based on its review with counsel of the development of these
matters to date, disposition of all pending litigation will not materially
affect the consolidated financial position or results of operations of the
Corporation and its subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
A special meeting (the "Meeting") of the stockholders of the Corporation was
held on Monday, October 30, 1995, at the Corporation's main office in
Baltimore, Maryland. AIB, as the holder of record of all of the Corporation's
common stock, was the only person entitled to vote on the matter considered at
the Meeting. Holders of record of shares of the Corporation's 7.875%
Noncumulative Preferred Stock, Series A (the "Series A Preferred") were
notified of and could attend the Meeting, but were not entitled to vote.
At the Meeting, AIB approved an amendment to the charter of the Corporation
that gives each outstanding share of the Series A Preferred one vote, voting
together with the common stockholder, on each matter submitted
7
<PAGE>
to a vote at a meeting of stockholders of the Corporation. As a result of the
amendment, the Corporation has the flexibility to structure an acquisition as
a tax free reorganization under the Internal Revenue Code (the "Code") using
securities of AIB, since the common stock and the Series A Preferred now
constitute one "class" of voting stock under the Code, and AIB controls 99% of
the voting power of the Corporation's single outstanding class of capital
stock, in excess of the 80% voting control requirement of the Code.
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table presents information concerning the executive officers
of the Corporation. Each was elected at the 1995 Annual Meeting of
Stockholders to serve for a one year term, with the exception of Ms. Keating,
who was appointed by the Board of Directors to serve until the 1996 Annual
Meeting of Stockholders and until a successor is elected and qualified.
<TABLE>
<CAPTION>
YEAR FIRST
NAME POSITIONS HELD AGE ELECTED
---- -------------- --- ----------
<S> <C> <C> <C>
Jeremiah E. Casey............ Chairman of the Board of the 56 1985
Corporation and each of its
subsidiaries
Frank P. Bramble............. President and CEO of the 47 1994
Corporation and First National
Harry E. Berry............... Executive Vice President and 50 1994
Chief Credit Officer of the
Corporation and First National
David M. Cronin.............. Executive Vice President and 46 1989
Treasurer of the Corporation;
Executive Vice President of
First National
Jerome W. Evans.............. Executive Vice President and 49 1994
Chief Administrative Officer of
the Corporation and First
National
Walter R. Fatzinger, Jr. .... Executive Vice President of the 53 1994
Corporation and First National;
President and CEO of First D.C.
Susan M. Keating............. Executive Vice President of the 45 1996
Corporation and First National
Jeffrey D. Maddox............ Executive Vice President of the 41 1994
Corporation and First National
Frederick W. Meier, Jr.(1)... Executive Vice President of the 52 1984
Corporation and First National
Robert W. Schaefer........... Executive Vice President and 62 1973
Chief Financial Officer of the
Corporation and First National
Richard H. White............. Executive Vice President of the 49 1994
Corporation and First National;
President and CEO of First Omni
</TABLE>
- --------
(1) Mr. Meier retired from the Corporation and its subsidiaries effective
March 1, 1996.
8
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Corporation became a wholly owned subsidiary of AIB on March 21, 1989
and, as a result, the Corporation's common stock is no longer listed or traded
on any securities exchanges.
The Corporation's 7.875% Noncumulative Preferred Stock, Series A was issued
on December 13, 1993 and is listed on the New York Stock Exchange. The
transfer agent and registrar for the Preferred Stock is First National. As of
March 8, 1996, there were 868 registered holders of the Preferred Stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data is derived from the
audited financial statements of the Corporation. It should be read in
conjunction with the detailed information and financial statements of the
Corporation included elsewhere herein. Since the acquisition of York Bank
occurred on December 31, 1991, the Consolidated Summary of Operations and the
Consolidated Average Balances for the year ended December 31, 1991 do not
include amounts for York Bank; however, the capital and loan quality ratios
shown below at December 31, 1991 reflect the acquisition of York Bank.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF
OPERATIONS:
Interest and dividend
income................. $ 707,541 $ 619,746 $ 617,237 $ 648,009 $ 675,597
Interest expense........ 314,548 241,099 234,038 284,657 372,518
---------- ---------- ---------- ---------- ----------
Net interest income..... 392,993 378,647 383,199 363,352 303,079
Provision for credit
losses................. 16,000 22,996 45,291 58,126 69,496
---------- ---------- ---------- ---------- ----------
Net interest income
after provision for
credit losses.......... 376,993 355,651 337,908 305,226 233,583
Noninterest income...... 195,910 210,978 233,445 198,182 180,563
Noninterest expenses.... 388,724 396,201 394,653 361,730 304,039
---------- ---------- ---------- ---------- ----------
Income before income
taxes.................. 184,179 170,428 176,700 141,678 110,107
Income tax expense...... 63,992 59,288 62,832 49,205 35,051
---------- ---------- ---------- ---------- ----------
Net income.............. $ 120,187 $ 111,140 $ 113,868 $ 92,473 $ 75,056
========== ========== ========== ========== ==========
Dividends declared on
preferred stock........ $ 11,820 $ 11,820 $ 1,575 $ -- $ --
CONSOLIDATED AVERAGE
BALANCES:
Total assets............ $9,789,500 $9,411,400 $9,395,700 $9,003,000 $7,796,500
Loans, net of unearned
income................. 5,804,700 5,291,200 5,099,300 5,293,900 4,832,900
Deposits................ 6,744,100 6,635,300 6,651,800 6,764,400 5,788,100
Long-term debt.......... 269,500 198,000 189,500 165,500 196,200
Common stockholder's
equity................. 965,000 856,600 756,700 646,700 552,600
Stockholders' equity.... 1,109,800 1,001,500 763,900 646,700 552,600
CONSOLIDATED RATIOS:
Return on average
assets(1).............. 1.23% 1.18% 1.21% 1.03% 0.96%
Return on average common
stockholder's
equity(2).............. 11.23 11.59 14.84 14.30 13.58
Return on average total
stockholders'
equity(2).............. 10.83 11.10 14.91 14.30 13.58
Average total
stockholders' equity to
average total
assets(2).............. 11.34 10.64 8.13 7.18 7.09
Capital to risk adjusted
assets(3):
Tier 1................. 13.77 14.05 12.88 10.02 8.06
Total.................. 17.05 17.68 16.62 14.05 11.03
Tier 1 leverage
ratio(3)............... 10.91 11.05 9.60 7.20 7.33
Net interest margin(4).. 4.47 4.51 4.64 4.58 4.39
Net charge-offs to
average loans less
average unearned
income................. 0.51 0.56 0.83 1.15 1.10
Allowance for credit
losses to year end
loans, net of unearned
income................. 2.89 3.50 3.85 3.88 3.63
Year end nonperforming
assets to year end
loans, net of unearned
income plus other
foreclosed assets
owned(5)............... 0.73 1.35 2.59 3.83 3.47
</TABLE>
- --------
(1) Average assets include average unrealized gains (losses) on investment
securities available-for-sale.
9
<PAGE>
(2) Average stockholders' equity includes average unrealized gains (losses) on
investment securities available-for-sale, net of income (tax) benefits.
(3) The Federal Reserve Board guidelines for risk-based capital requirements
applicable to all bank holding companies require the minimum ratios of
Tier 1 and total capital to risk-adjusted assets to be 4% and 8%,
respectively. The Federal Reserve Board's minimum leverage guidelines
require all bank holding companies to maintain a ratio of Tier 1 capital
to total average quarterly assets of at least 3%.
(4) Net interest margin is the ratio of net interest income on a fully tax-
equivalent basis to average earning assets.
(5) Nonperforming assets include nonaccrual loans, restructured loans, and
collateral on loans to which the Corporation has taken title.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following analysis of the Corporation's financial condition and results
of operations as of and for the years ended December 31, 1995, 1994 and 1993
should be read in conjunction with the Consolidated Financial Statements of
the Corporation and statistical data presented elsewhere herein.
EARNINGS SUMMARY
The Corporation's net income for the year ended December 31, 1995 was $120.2
million, compared to $111.1 million for the year ended December 31, 1994, an
increase of $9.1 million (8.1%). This increase is the result of an increase in
net interest income, a decrease in noninterest expenses and a reduction in the
provision for credit losses partially offset by a decline in noninterest
income.
The Corporation's net income for the year ended December 31, 1994 was $111.1
million, compared to $113.9 million for the year ended December 31, 1993, a
decrease of $2.8 million (2.4%). This decrease is the result of decreases in
net interest income and noninterest income partially offset by a reduction in
the provision for credit losses.
ANALYSIS OF RETURN ON AVERAGE ASSETS
NET INTEREST INCOME
Net interest income, the largest component of the Corporation's earnings, is
the difference between the interest and yield-related fee income generated by
earning assets and the expense associated with funding those assets. As such,
net interest income represents pretax profits from the Corporation's lending,
investing and funding activities. When net interest income is presented on a
fully tax-equivalent basis, interest income from tax exempt earning assets is
increased by an amount equivalent to the Federal income taxes that would have
been paid if this income were taxable at the statutory Federal income tax rate
of 35% for 1995, 1994 and 1993. An analysis of fully tax-equivalent net
interest income, interest rate spreads and net interest margins is shown in
the following two tables.
10
<PAGE>
NET INTEREST INCOME, INTEREST RATE SPREAD AND NET INTEREST MARGIN ON AVERAGE
EARNING ASSETS
(Tax Equivalent Basis)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------------------------------
1995 1994 1993
------------------------ ------------------------ ------------------------
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
-------- -------- ------ -------- -------- ------ -------- -------- ------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Investment securi-
ties(1)................ $2,713.9 $173.8 6.40% $2,617.3 $159.7 6.10% $2,871.7 $191.3 6.66%
Loans held-for-sale..... 91.0 7.3 8.03 104.8 7.8 7.44 166.6 11.9 7.14
Loans, net of unearned
income................. 5,804.7 513.1 8.84 5,291.2 437.4 8.27 5,099.3 413.5 8.11
Other earning assets.... 354.3 21.1 5.95 603.3 25.0 4.16 355.5 11.3 3.20
-------- ------ -------- ------ -------- ------
Earning assets.......... $8,963.9 715.3 7.98 $8,616.6 629.9 7.31 $8,493.1 628.0 7.39
======== ------ ======== ------ ======== ------
Interest bearing liabil-
ities.................. $6,758.0 314.5 4.65 $6,518.6 241.1 3.70 $6,699.5 234.0 3.49
Net interest spread(2).. 3.33 3.61 3.90
Interest free sources
utilized to fund earn-
ing assets............. 2,205.9 2,098.0 1,793.6
-------- ------ -------- ------ -------- ------
Total sources of funds.. $8,963.9 314.5 3.51 $8,616.6 241.1 2.80 $8,493.1 234.0 2.75
======== ------ ======== ------ ======== ------
Net interest income..... $400.8 $388.8 $394.0
====== ====== ======
Net interest margin(3).. 4.47% 4.51% 4.64%
==== ==== ====
</TABLE>
- --------
(1) Yields on investment securities are calculated based upon average
amortized cost.
(2) Net interest spread is the difference between the yield on average earning
assets and the rate paid on average interest bearing liabilities.
(3) Net interest margin is the ratio of net interest income on a fully tax-
equivalent basis to average earning assets.
Average earning assets were $9.0 billion for the year ended December 31,
1995, an increase of $347.3 million over average earning assets of $8.6
billion for the year ended December 31, 1994. This increase is primarily due
to increases in average loans of $513.5 million and average investment
securities of $96.6 million. These increases were partially offset by a
decline in average funds sold of $238.5 million.
The net interest margin for the year ended December 31, 1995 was 4.47%
compared to 4.51% for the year ended December 31, 1994. This decline in the
net interest margin is primarily due to a decrease in the interest rate spread
between earning assets and funding costs of 28 basis points. The interest rate
spread declined primarily as a result of an increased reliance on wholesale
funding sources throughout 1995. This decrease was partially offset by a
$107.9 million increase in interest free sources of funds. Off-balance sheet
risk management instruments contributed $161,000 to net interest income in
1995 compared to $3.7 million in 1994. This decline in the contribution of
risk management instruments to net interest income resulted from $3.4 million
in amortization expense for deferred losses on the early termination of
interest rate swaps sold in December of 1994.
Average earning assets were $8.6 billion for the year ended December 31,
1994, an increase of $123.5 million over average earning assets of $8.5
billion for the year ended December 31, 1993. This increase is primarily due
to an increase in average loans and funds sold partially offset by a decline
in average investment securities. Average loans increased $191.9 million with
the largest increase in the residential mortgage portfolio.
The net interest margin for the year ended December 31, 1994 was 4.51%
compared to 4.64% for the year ended December 31, 1993. This decline in the
net interest margin is attributable to lower yields on investment securities
and higher funding costs. In addition, increased competition put pressure on
the Corporation's loan yields in 1994. Partially offsetting these negative
factors was a $304.4 million increase in interest free sources of funds
primarily due to the preferred stock issuance in December of 1993. In
addition, off-balance sheet risk management instruments contributed $3.7
million to net interest income in 1994 compared to $1.7 million in 1993,
primarily resulting from an increase in the notional principal of interest
rate swaps during 1994. This increase resulted in a 4 basis point positive
impact on the 1994 net interest margin compared to a 2 basis point positive
impact in 1993.
11
<PAGE>
NET INTEREST INCOME ANALYSIS
(Tax Equivalent Basis)
<TABLE>
<CAPTION>
1995 OVER 1994 1994 OVER 1993
-------------------------------- --------------------------------
DUE TO CHANGES IN(1) DUE TO CHANGES IN(1)
INCREASE --------------------- INCREASE ---------------------
(DECREASE) VOLUME RATE (DECREASE) VOLUME RATES
---------- --------------------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest Income From
Earning Assets:
Interest and fees on
loans:
Domestic loans........ $69,025 $ 40,586 $ 28,439 $18,008 $ 10,984 $ 7,024
Foreign loans......... 6,715 3,187 3,528 5,869 3,517 2,352
Interest and dividends
on investment
securities available-
for-sale.............. 18,783 13,482 5,301 45,792 48,389 (2,597)
Interest and dividends
on investment
securities held-to-
maturity.............. (4,629) (6,253) 1,624 (77,449) (60,977) (16,472)
Interest and fees on
loans held-for-sale... (495) (1,081) 586 (4,065) (4,578) 513
Interest on Federal
funds sold and
securities purchased
under resale
agreement............. (4,122) (11,886) 7,764 11,802 8,001 3,801
Interest on deposits in
other banks........... 1,175 753 422 596 564 32
Interest on trading ac-
count securities...... (1,040) (1,499) 459 1,305 1,165 140
------- --------- ---------- ------- --------- ----------
Total................ 85,412 26,094 59,318 1,858 9,085 (7,227)
------- --------- ---------- ------- --------- ----------
Interest Expense on De-
posits and Borrowed
Funds:
Interest on deposits in
domestic offices...... 33,844 1,559 32,285 (5,373) (609) (4,764)
Interest on deposits in
foreign banking
office................ 2,531 1,905 626 3,442 1,957 1,485
Interest on Federal
funds purchased and
other short-term bor-
rowing................ 32,752 3,608 29,144 8,503 (6,563) 15,066
Interest on long-term
debt.................. 4,322 5,983 (1,661) 490 759 (269)
------- --------- ---------- ------- --------- ----------
Total................ 73,449 9,140 64,309 7,062 (6,437) 13,499
------- --------- ---------- ------- --------- ----------
Net interest income.. $11,963 $ 15,551 $ (3,588) $(5,204) $ 5,681 $ (10,885)
======= ========= ========== ======= ========= ==========
</TABLE>
- --------
(1) The rate/volume change is allocated between volume change and rate change
using the ratio each of the components bears to the absolute value of
their total. Variances are computed on a line-by-line basis and are non-
additive.
Fully tax-equivalent net interest income is affected by changes in the mix
and volume of earning assets and interest bearing liabilities, market interest
rates, the volume of noninterest bearing liabilities available to support
earning assets, and the statutory Federal income tax rate. As the table above
indicates, net interest income on a tax equivalent basis increased $12.0
million (3.1%) when the year ended December 31, 1995 is compared to the year
ended December 31, 1994. The $15.6 million positive volume variance primarily
resulted from a higher volume of earning assets. A more favorable asset mix
resulted from a shift from lower yielding money market investments and
investment securities to higher yielding loans. The $3.6 million negative rate
variance resulted from higher funding costs due to an increased reliance on
wholesale funding sources throughout 1995. This increase in funding costs was
partially offset by an increase in earning asset yields due to the more
favorable asset mix noted above.
Net interest income on a tax equivalent basis decreased $5.2 million (1.3%)
when the year ended December 31, 1994 is compared to the year ended December
31, 1993. The $5.7 million positive volume variance primarily resulted from an
increase in the volume of earning assets. Volume increases in loans and funds
sold were partially offset by a decline in the volume of investment
securities. The $10.9 million negative rate variance resulted from higher
funding costs as evidenced by the $13.5 million positive rate variance for
interest bearing sources of funds. In addition, the yield on average earning
assets declined 8 basis points, as reflected by the $7.2 million negative rate
variance for average earning assets.
12
<PAGE>
The following table provides additional information on the Corporation's
average balances, interest yields and rates, and net interest margin for the
years ended December 31, 1995, 1994 and 1993.
AVERAGE BALANCES, INTEREST YIELDS AND RATES, AND NET INTEREST MARGIN
(Tax Equivalent Basis)
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------------------------------------------------------------
1995 1994 1993
----------------------------- ----------------------------- -----------------------------
AVERAGE AVERAGE AVERAGE
AVERAGE YIELD/ AVERAGE YIELD/ AVERAGE YIELD/
BALANCE INTEREST(1) RATE(1) BALANCE INTEREST(1) RATE(1) BALANCE INTEREST(1) RATE(1)
-------- ----------- ------- -------- ----------- ------- -------- ----------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from
banks.................. $ 587.6 $ -- -- % $ 591.0 $ -- -- $ 650.5 $ -- -- %
Money market invest-
ments:
Interest bearing
deposits in other
banks................. 30.9 1.9 6.2 17.2 0.7 4.3 3.9 0.1 2.6
Trading account
securities............ 12.9 0.9 6.7 37.1 1.9 5.1 14.0 0.6 4.3
Funds sold............. 310.5 18.3 5.9 549.0 22.4 4.1 337.6 10.6 3.1
Investment securities available-
for-sale(5):
Taxable................ 1,144.5 70.4 6.2 914.6 47.7 5.2 375.7 26.3 7.0
Tax exempt(1).......... 156.3 19.3 12.4 196.6 23.4 11.9 -- -- --
Equity investments..... 31.3 1.2 3.9 19.7 1.1 5.8 -- -- --
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total investment
securities
available-for-sale... 1,332.1 90.9 6.8 1,130.9 72.2 6.4 375.7 26.3 7.0
Investment securities :
Taxable................ 1,381.8 82.9 6.0 1,486.4 87.5 5.9 2,342.2 146.8 6.3
Tax exempt(1).......... -- -- -- -- -- -- 151.6 18.1 11.9
Equity investments..... -- -- -- -- -- -- 2.2 0.1 4.5
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total investment
securities........... 1,381.8 82.9 6.0 1,486.4 87.5 5.9 2,496.0 165.0 6.6
Loans held-for-sale..... 91.0 7.3 8.0 104.8 7.8 7.4 166.6 11.9 7.1
Loans (net of unearned
income)(1, 2):
Commercial............. 1,740.7 144.4 8.3 1,632.9 124.6 7.6 1,628.9 111.1 6.8
Real estate,
construction.......... 279.5 25.7 9.2 263.2 20.1 7.6 313.1 21.2 6.8
Real estate, mortgage:
Residential............ 641.6 46.8 7.3 552.8 37.3 6.7 418.4 31.7 7.6
Commercial............. 983.4 85.7 8.7 969.9 78.4 8.1 900.3 70.9 7.9
Retail................. 1,031.4 89.3 8.7 909.7 73.5 8.1 955.7 79.8 8.3
Bankcard............... 534.7 81.6 15.3 482.0 74.3 15.4 488.4 75.2 15.4
Leases receivable...... 293.3 16.8 5.7 226.6 13.2 5.8 200.2 13.4 6.7
Foreign................ 300.1 22.8 7.6 254.1 16.0 6.3 194.3 10.2 5.2
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total loans........... 5,804.7 513.1 8.8 5,291.2 437.4 8.3 5,099.3 413.5 8.1
Allowance for credit
losses................. (185.4) -- -- (197.6) -- -- (202.1) -- --
-------- -------- --------
Total loans, net...... 5,619.3 -- -- 5,093.6 -- -- 4,897.2 -- --
Other assets............ 423.4 -- -- 401.4 -- -- 454.2 -- --
-------- ------ -------- ------ -------- ------
Total assets/interest
income............... $9,789.5 $715.3 $9,411.4 $629.9 $9,395.7 $628.0
======== ====== ======== ====== ======== ======
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits in domestic of-
fices:
Noninterest bearing
demand................ $1,760.4 $ -- -- % $1,730.1 $ -- -- % $1,771.0 $ -- -- %
-------- -------- --------
Interest bearing
demand................ 523.4 12.2 2.3 548.9 12.7 2.3 535.5 13.4 2.5
Money market accounts.. 1,146.5 40.3 3.5 1,312.3 39.2 3.0 1,433.1 42.3 3.0
Savings................ 1,048.1 28.4 2.7 1,144.4 31.2 2.7 1,017.0 29.9 2.9
Other consumer time.... 1,532.0 80.7 5.3 1,410.7 59.2 4.2 1,480.3 64.2 4.3
Large denomination
time.................. 586.6 35.3 6.0 374.9 20.8 5.6 342.8 18.6 5.4
Deposits in foreign
banking office......... 147.1 8.7 5.9 114.0 6.1 5.4 72.1 2.7 3.7
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total interest bearing
deposits............. 4,983.7 205.6 4.1 4,905.2 169.2 3.5 4,880.8 171.1 3.5
-------- ------ ---- -------- ------ ---- -------- ------ ----
Total deposits........ 6,744.1 -- -- 6,635.3 -- -- 6,651.8 -- --
Funds purchased......... 749.0 42.3 5.7 643.4 25.1 3.9 895.4 24.1 2.7
Other borrowed funds,
short term............. 755.8 44.5 5.9 772.0 29.0 3.8 733.8 21.5 2.9
Other liabilities....... 161.3 -- -- 161.2 -- -- 161.3 -- --
Long-term debt.......... 269.5 22.1 8.2 198.0 17.8 9.0 189.5 17.3 9.1
Stockholders' equity.... 1,109.8 -- -- 1,001.5 -- -- 763.9 -- --
-------- ------ -------- ------ -------- ------
Total liabilities and
stockholders'
equity/interest
expense.............. $9,789.5 $314.5 $9,411.4 $241.1 $9,395.7 $234.0
======== ====== ======== ====== ======== ======
Earning assets/interest
income................. $8,963.9 $715.3 8.0% $8,616.6 $629.9 7.3% $8,493.1 $628.0 7.4%
Interest bearing
liabilities/interest
expense................ 6,758.0 314.5 4.7 6,518.6 241.1 3.7 6,699.5 234.0 3.5
Earning assets/interest
expense................ 8,963.9 314.5 3.5 8,616.6 241.1 2.8 8,493.1 234.0 2.8
Net interest income, tax
equivalent basis....... 400.8 388.8 394.0
Net interest spread(3).. 3.3% 3.6% 3.9%
==== ==== ====
Net interest margin(4).. 4.5% 4.5% 4.6%
==== ==== ====
</TABLE>
13
<PAGE>
- --------
(1) Interest on loans to and obligations of public entities is not subject to
Federal income tax. In order to make pre-tax yields comparable to taxable
loans and investments, a tax equivalent adjustment is used based on a 35%
Federal tax rate.
(2) Nonaccrual loans are included under the appropriate loan categories as
earning assets.
(3) Net interest spread is the difference between the yield on average earning
assets and the rate paid on average interest bearing liabilities.
(4) Net interest margin is the ratio of net interest income on a fully tax-
equivalent basis to average earning assets.
(5) Yields on investment securities available-for-sale are calculated based
upon average amortized cost.
PROVISION FOR CREDIT LOSSES
The provision for credit losses was $16.0 million for the year ended
December 31, 1995, down $7.0 million (30.4%) from the $23.0 million provision
for 1994. Provisions for bankcard receivables were increased in 1995 to allow
for portfolio growth that occurred in 1995. This increase was more than offset
by reduced reserves allocated to the commercial and commercial real estate
portfolios prompted by improved credit quality.
The provision for credit losses was $23.0 million in 1994, down $22.3
million (49.2%) from the $45.3 million provision for 1993. The factors
contributing to this decline include a favorable loss experience, improved
loan quality, and a significant decline in the nonperforming asset portfolio.
NONINTEREST INCOME
The following table presents the components of noninterest income for the
years ended December 31, 1995, 1994 and 1993, and a year-to-year comparison
expressed in terms of percent changes.
NONINTEREST INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERCENT CHANGE
-------------------------- -------------------
1995 1994 1993 1995/1994 1994/1993
-------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Service charges on
deposit accounts....... $ 71,852 $ 72,300 $ 72,952 (0.6)% (0.9)%
Servicing income from
securitized assets,
net.................... 22,564 18,750 28,620 20.3 (34.5)
Trust fees.............. 22,228 19,513 19,212 13.9 1.6
Bankcard charges and
fees................... 17,352 17,062 18,770 1.7 (9.1)
Mortgage banking
income................. 16,216 16,426 26,964 (1.3) (39.1)
Securities gains, net... 2,136 15,616 19,976 (86.3) (21.8)
Other income:
Security sales and
fees................. 8,614 7,405 8,710 16.3 (15.0)
Customer service
fees................. 7,716 8,577 8,704 (10.0) (1.5)
Other................. 27,232 35,329 29,537 (22.9) 19.6
-------- -------- -------- ----- -----
Total other income...... 43,562 51,311 46,951 (15.1) 9.3
-------- -------- -------- ----- -----
Total noninterest
income............. $195,910 $210,978 $233,445 (7.1)% (9.6)%
======== ======== ======== ===== =====
</TABLE>
The Corporation's noninterest income for the year ended December 31, 1995
was $195.9 million , a $15.1 million (7.1%) decrease over noninterest income
for the year ended December 31, 1994. Servicing income from securitized assets
increased $3.8 million (20.3%). Favorable loss experience on securitized
assets offset declines in securitized asset yields in 1995 resulting in a net
increase in servicing income. Trust fees increased $2.7 million (13.9%) driven
primarily by increases in fees for custody services and mutual fund
management. Mortgage banking income decreased $210,000 (1.3%) in 1995. A $6.6
million decrease in gains on the sale of servicing was partially offset by
$5.0 million in capitalized originated mortgage servicing resulting from the
adoption of SFAS No. 122, "Accounting for Mortgage Servicing Rights" in the
second quarter of 1995 and a $1.3 million increase in mortgage placement fees.
Securities gains of $2.1 million were realized in 1995
14
<PAGE>
compared to $15.6 million in 1994. Securities sales are discussed in detail
under "Investment Portfolio". Securities sales and fees increased $1.2 million
primarily due to income from the sale of foreign exchange and hedging
products. Customer service fees decreased $861,000 primarily due to a decline
in appraisal fees for first and second mortgages. Other income decreased $8.1
million. Other income in 1995 included $2.1 million in gains on the payoff of
loans which were valued at a discount when a banking subsidiary was acquired,
$1.1 million in miscellaneous income from an OREO property and $365,000 in
trading income. Other income in 1994 included a $6.7 million gain on the sale
of six branches at a banking subsidiary of the Corporation, $3.0 million in
gains on the payoff of loans which were valued at a discount when a banking
subsidiary was acquired and $2.2 million in trading income.
The Corporation's noninterest income for the year ended December 31, 1994
was $211.0 million, a $22.5 million (9.6%) decrease over noninterest income
for the year ended December 31, 1993. Mortgage banking income decreased $10.5
million (39.1%) primarily due to lower gains on the sale of servicing and
lower origination fees resulting from a decline in origination volumes in
1994. Servicing income from securitized assets decreased $9.9 million (34.5%)
due to the outsourcing of the servicing of securitized manufactured housing
receivables in the fourth quarter of 1993, a lower volume of securitized
manufactured housing receivables and a decline in excess servicing income.
Bankcard charges and fees decreased $1.7 million (9.1%) primarily as a result
of increased competition and lower customer card usage. Securities gains of
$15.6 million were realized in 1994 compared to $20.0 million in 1993.
Securities sales are discussed in detail under "Investment Portfolio". Total
other income increased $4.4 million (9.3%) and in 1994 included a $6.7 million
gain on the sale of six branches at a banking subsidiary of the Corporation
and $3.0 million in gains on the payoff of loans which were valued at a
discount when a banking subsidiary was acquired. Offsetting these increases in
other income were a $2.4 million recovery in 1993 of interest on Argentine
loans previously charged-off and a $2.2 million decrease in leasing residual
gains in 1994.
NONINTEREST EXPENSE
The following table presents the components of noninterest expense for the
years ended December 31, 1995, 1994 and 1993 and a year to year comparison
expressed in terms of percent changes.
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31, PERCENT CHANGE
-------------------------- -------------------
1995 1994 1993 1995/1994 1994/1993
-------- -------- -------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Salaries and wages.......... $172,145 $165,774 $165,239 3.8% 0.3%
Other personnel costs....... 39,706 42,654 40,149 (6.9) 6.2
Net occupancy costs......... 32,850 33,285 30,983 (1.3) 7.4
Equipment costs............. 30,117 29,586 26,881 1.8 10.1
Other operating expenses:
External processing fees.. 20,543 15,792 17,455 30.1 (9.5)
Advertising and public
relations................ 16,299 15,967 12,302 2.1 29.8
Postage and
communications........... 14,997 13,661 13,238 9.8 3.2
Regulatory fees and
insurance................ 9,031 16,155 16,006 (44.1) 0.9
Professional fees......... 8,674 16,379 12,594 (47.0) 30.1
Lending and collection.... 6,225 9,319 10,798 (33.2) (13.7)
Other..................... 38,137 37,629 49,008 1.4 (23.2)
-------- -------- -------- ----- -----
Total other operating
expenses................... 113,906 124,902 131,401 (8.8) (4.9)
-------- -------- -------- ----- -----
Total noninterest
expense................ $388,724 $396,201 $394,653 (1.9)% 0.4%
======== ======== ======== ===== =====
</TABLE>
The Corporation's noninterest expenses for the year ended December 31, 1995
were $388.7 million, a $7.5 million (1.9%) decrease over noninterest expenses
for the year ended December 31, 1994. Salaries and wages increased $6.4
million (3.8%). Base salaries and wages increased $2.8 million (1.9%).
Incentives and commissions increased $11.2 million due to improved overall
financial performance in 1995. Offsetting higher
15
<PAGE>
incentives and commissions was a $7.6 million decrease in severance expense in
the current year. Other personnel costs decreased $2.9 million (6.9%). Pension
costs decreased $5.3 million due to executive retirements in 1994 which
resulted in $4.4 million in pension settlements in 1994 and lower pension
costs in 1995. Offsetting the decrease in pension costs was a $2.9 million
increase in medical costs. External processing costs increased $4.8 million
(30.1%) primarily due to higher bankcard processing costs and costs associated
with cash management services. Postage and communication expense increased
$1.3 million (9.8%) primarily due to higher telephone expense. Regulatory fees
and insurance decreased $7.1 million (44.1%) due to reductions in the FDIC
assessment rate. Professional fees decreased $7.7 million (47.0%) primarily
due to nonrecurring consulting expenses incurred in 1994 related to a
corporate reengineering project. Lower legal fees for collection services, a
decline in appraisal fees and lower loan servicing expense in 1995 resulted in
a $3.1 million (33.2%) decrease in lending and collection expenses.
The Corporation's noninterest expenses for the year ended December 31, 1994
were $396.2 million, a $1.5 million (0.4%) increase over noninterest expenses
for the year ended December 31, 1993. Salaries and wages increased $535,000
(0.3%). Base salaries and wages increased $3.9 million (2.7%). Incentives and
commissions declined $9.8 million primarily due a decline in short-term
incentive pay in 1994 and lower commissions at the Corporation's mortgage
banking subsidiary due to decreased origination activity in 1994. Offsetting
lower incentives and commissions was a $6.4 million increase in severance
expense in 1994. Severance expenses, which were $8.5 million in 1994 and $2.1
million in 1993, were primarily incurred as a result of a continuing effort to
improve the efficiency of the Corporation and eliminate redundant operations.
Other personnel costs increased $2.5 million (6.2%). The primary reason for
this increase was a $1.8 million increase in pension costs. This increase
included $4.4 million in additional pension costs due to pension settlements
stemming from executive retirements in 1994. Excluding these settlements,
pension expense declined $1.7 million in 1994 primarily due to an accounting
change, the use of a ten percent gain/loss corridor when determining the
amount of amortization of unrecognized actuarial gains and losses to be
included in pension costs and changes in actuarial assumptions regarding
increases in future compensation levels. An increase in the promotion of
retail products in 1994 resulted in a $3.7 million (29.8%) increase in
advertising and public relations expenses. Professional fees increased $3.8
million (30.1%) primarily due to consulting related to a corporate
reengineering project. Equipment costs increased $2.7 million (10.1%) due to
an increase in systems software lease expense and depreciation expense.
Increased property rental expense, higher depreciation on leasehold
improvements and costs incurred to comply with new Federal regulations such as
the Americans with Disabilities Act resulted in a $2.3 million (7.4%) increase
in occupancy costs. External processing fees decreased $1.7 million (9.5%) due
to the discontinuation of outsourced data processing for an acquired banking
subsidiary of the Corporation. Lower repossession expenses and legal fees
associated with collections efforts resulted in a $1.5 million (13.7%)
decrease in lending and collection expenses. Other noninterest expenses
decreased $11.4 million (23.2%) primarily due to a $6.2 million decrease in
provisions for other real estate and a $2.9 million decrease in the
amortization of bankcard premiums in 1994.
INCOME TAXES
The Corporation's effective tax rate on earnings in 1995 was 34.7%, compared
to 34.8% in 1994 and 35.6% in 1993. Additional information related to income
taxation is presented in Note 14 of the Notes to Consolidated Financial
Statements of the Corporation.
PROSPECTIVE ACCOUNTING CHANGES
In March 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
Statement 121 establishes accounting standards for the impairment of long-
lived assets, certain identifiable intangibles, and goodwill related to those
assets to be held and used and for long-lived assets and certain identifiable
intangibles to be disposed of. Statement 121 requires that long-lived assets
and certain identifiable intangibles to be held and used by an entity be
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. If the sum of the
16
<PAGE>
expected future cash flows from the use of the asset and its eventual
disposition is less than the carrying amount of the asset, an impairment loss
should be recognized. Measurement of an impairment loss should be based on the
fair value of the asset. Also under Statement 121, long-lived assets and
certain identifiable intangibles to be disposed of should be reported at the
lower of carrying amount or fair value less cost to sell, except for assets
that are covered by Accounting Principles Board Opinion No. 30, "Reporting the
Results of Operations-- Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions." Assets covered by Opinion 30 will continue to be reported at
the lower of carrying amount or net realizable value. Statement 121 is
effective for fiscal years beginning after December 31, 1995. The adoption of
Statement 121 is not expected to have a material effect on the financial
statements of the Corporation.
QUARTERLY SUMMARY
The following table presents a summary of earnings by quarter for the years
ended December 31, 1995 and 1994:
SUMMARY OF QUARTERLY EARNINGS
<TABLE>
<CAPTION>
1995 QUARTERS ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest and dividend income........ $167,166 $175,889 $177,940 $186,546
Net interest income................. 97,621 97,459 98,074 99,839
Provision for credit losses......... 4,000 3,961 2,373 5.666
Income before income taxes.......... 43,795 44,847 47,595 47,942
Net income.......................... 28,536 29,131 31,032 31,488
<CAPTION>
1994 QUARTERS ENDED
------------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- -------- ------------ -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Interest and dividend income........ $150,731 $153,794 $153,339 $161,882
Net interest income................. 92,666 94,574 94,339 97,068
Provision for credit losses......... 8,999 5,999 5,998 2,000
Income before income taxes.......... 39,829 43,798 43,347 43,454
Net income.......................... 26,056 28,070 28,527 28,487
</TABLE>
LIQUIDITY
Liquidity is the ability of the Corporation to meet a demand for funds, such
as deposit outflows, new loan requests and other corporate funding
requirements. Liquidity can be obtained either through the maturity or sale of
assets or the issuance of liabilities at acceptable costs within an acceptable
period of time.
The liquidity of the Corporation is enhanced by asset and liability
management policies. The Asset and Liability Committee (ALCO) is responsible
for setting general guidelines regarding the Corporation's sources and uses of
funds, asset and liability sensitivity, and interest margins, pursuant to the
Corporation's Funds Management Policy approved by the Board of Directors. The
Committee's goals foster the stable generation of increased net interest
income without sacrificing credit quality, jeopardizing capital or adversely
impacting liquidity. The Corporation maintains a level of asset and liability
liquidity based on an internal assessment of its ability to meet obligations
under both normal and adverse conditions.
The Corporation experienced high levels of liquidity during 1995. The ratio
of liquid assets to total assets at December 31, 1995 was 26.9% compared to
24.1% at December 31, 1994. Liquid assets are defined as vault cash, balances
with the Federal Reserve Banks of Richmond and Philadelphia, unencumbered
investment securities, assets available as collateral for immediate borrowing
from the Federal Reserve Banks of Richmond and Philadelphia and money market
assets. Additionally, the Corporation measures liquidity by calculating the
17
<PAGE>
ratio of its liquid assets to credit sensitive liabilities. Credit sensitive
liabilities are defined as wholesale liabilities where the credit rating of
the Corporation would have a significant impact on the Corporation's ability
to roll over maturing liabilities. At December 31, 1995, the ratio of liquid
assets to credit sensitive liabilities was 162.9% compared to 228.8% at
December 31, 1994. The Corporation expects the high level of liquidity to
decline in 1996 due to the acquisition of 1st Washington, dividend payments to
AIB and increased loan demand.
ASSET/LIABILITY MANAGEMENT
Asset and liability management is a process that involves the development
and implementation of strategies to maximize net interest margin while
minimizing the earnings risk associated with changing interest rates. ALCO has
responsibility for the overall management of the Corporation's asset and
liability position, pursuant to the Corporation's Funds Management Policy
approved by the Board of Directors. The Committee manages the Corporation's
asset and liability position within the constraints of maintaining capital
adequacy, liquidity and safety.
Management of the interest rate risk of the Corporation is effected through
adjustments to the size and duration of the available-for-sale investment
portfolio, the duration of purchased funds and other borrowings, and through
the use of off-balance sheet financial instruments such as interest rate
swaps, interest rate caps and floors, financial futures, and options. The use
of off-balance sheet financial instruments augments the Corporation's
management of interest rate risk, liquidity risk, basis risk, and also assists
customers in the management of their exposures. Additional information related
to asset/liability management instruments is presented in Note 17 of the Notes
to Consolidated Financial Statements of the Corporation.
Measurement of the Corporation's sensitivity to changing interest rates is
accomplished primarily through a simulation model. The Corporation identifies
its tolerance for interest rate risk in terms of a probable maximum loss
("PML"). The essence of the PML approach is to calculate the potential
financial impact of probability-derived, worst case interest rate changes.
Measuring risk and establishing the possible worst case is a statistical
exercise. The statistical concept used to measure volatility and risk is the
standard deviation of interest rate or price movements. The greater the
standard deviation, the higher the measured risk. The standard deviation is
determined by observing historical price/rate movements. The PML approach
assumes that the pattern of current and future interest rate or price
movements will be similar to those experienced in the past. Market
volatilities are raised to 2.33 standard deviations of risk to obtain probable
maximum changes in interest rates given a 99% degree of certainty over a one
month period. These changes in interest rates for each point on the yield
curve are input into the Corporation's simulation model to determine the PML.
Sensitivity to rate risk is measured from an economic perspective (equity at
risk) and an income perspective (earnings at risk).
Equity At Risk
Equity at risk measures changes in the value of the balance sheet as a
result of an adverse and sustained movement in interest rates. The fundamental
premises of the exercise are threefold: that the value of a fixed rate asset
or liability will vary with a change in interest rates; that the value of a
long-term obligation will vary more than the value of a short-term obligation
for the same change in rates; and that floating rate assets and liabilities do
not reprice in tandem or immediately upon a change in market rates. In the
equity at risk simulation, all interest earning assets and interest bearing
liabilities are marked to market (regardless of accounting treatment), the
present value of all balance sheet items are determined, and a simulated
balance sheet is constructed. The Corporation's current policy authorizes a
PML of equity arising from an adverse shift in rates as determined by worst
case scenarios of no more than $40 million or approximately 3% of
stockholders' equity. The PML of equity at December 31, 1995 was well within
the Corporation's Board approved policy limit.
Earnings At Risk
The PML impact on income is known as earnings at risk. Earnings at risk is
expressed in terms of a percentage of forecasted pre-tax profits. The earnings
impact of various interest rate scenarios is measured over multiple time
horizons. The results are then compared to current earnings projections to
detect changes due to
18
<PAGE>
rising or falling rates. The income change over a rolling one year time frame
is the earnings impact. The same interest rate shock methodology used to
calculate the change in the value of equity is used to calculate the PML of
earnings in any one given year under the Corporation's current policy. The PML
of income should not exceed 10% of budgeted pre-tax income for the current
calendar year. The earnings at risk over the next twelve months as of December
31, 1995 is well within the Corporation's maximum risk allowable as outlined
by Board approved policies.
The net interest rate sensitivity of the Corporation at December 31, 1995 is
illustrated in the following table. This information is presented for six
different time periods reflecting the balances of assets and liabilities with
rates that are subject to change, any rate sensitive off-balance sheet
contracts and data regarding funds which are not sensitive to interest rates.
As indicated in the following table, the Corporation is liability sensitive
over a one year time horizon. The table shows the sensitivity of the balance
sheet at one point in time and is not necessarily indicative of the position
on other dates.
INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------------------------------------
REPRICING IN
----------------------------------------------------------
0-30 31-90 91-180 181-365 1-5 OVER 5 RATE
DAYS DAYS DAYS DAYS YEARS YEARS INSENSITIVE TOTAL
-------- -------- -------- -------- -------- -------- ----------- ---------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Money market
investments............ $ 366.4 $ -- $ -- $ -- $ -- $ -- $ -- $ 366.4
Loans held for sale..... 58.0 58.0 -- -- -- -- -- 116.0
Investment securities
available-for-sale..... 180.2 104.8 123.0 253.5 1,507.2 585.7 39.6 2,794.0
Loans, net of unearned
income:
Commercial............. 1,160.4 225.7 106.2 58.7 143.9 58.3 45.1 1,798.3
Real estate,
construction.......... 189.4 20.6 14.6 11.3 55.5 -- (1.2) 290.2
Real estate, mortgage:
Residential............ 12.2 18.2 68.4 141.9 223.5 180.2 6.2 650.6
Commercial............. 446.5 36.5 31.8 60.5 307.5 90.4 2.3 975.5
Retail................. 408.3 44.2 61.7 108.9 394.0 86.1 (4.3) 1,098.9
Bankcard............... 654.7 -- -- -- -- -- -- 654.7
Leases receivable...... 2.3 5.8 7.6 19.1 246.9 56.8 (4.0) 334.5
Foreign................ 143.9 103.5 80.2 3.4 2.2 -- 2.9 336.1
-------- -------- -------- -------- -------- -------- --------- ---------
Total loans, net of
unearned income...... 3,017.7 454.5 370.5 403.8 1,373.5 471.8 47.0 6,138.8
Other assets............ 153.9 -- -- -- -- -- 897.1 1,051.0
-------- -------- -------- -------- -------- -------- --------- ---------
Total assets.......... $3,776.2 $ 617.3 $ 493.5 $ 657.3 $2,880.7 $1,057.5 $ 983.7 $10,466.2
======== ======== ======== ======== ======== ======== ========= =========
Cumulative total
assets................. $3,776.2 $4,393.5 $4,887.0 $5,544.3 $8,425.0 $9,482.5 $10,466.2
======== ======== ======== ======== ======== ======== =========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Domestic deposits:
Noninterest bearing
deposits.............. $ -- $ 573.4 $ -- $ -- $ -- $ -- $ 1,481.8 $ 2,055.2
Interest bearing
deposits.............. 3,004.3 416.7 360.4 289.7 780.2 7.7 -- 4,859.0
Interest bearing
deposits in foreign
banking office......... 88.2 0.8 35.0 -- 5.1 -- -- 129.1
-------- -------- -------- -------- -------- -------- --------- ---------
Total deposits........ 3,092.5 990.9 395.4 289.7 785.3 7.7 1,481.8 7,043.3
Federal funds purchased
and securities sold
under repurchase
agreements............. 505.5 -- 10.0 -- -- -- -- 515.5
Other borrowed funds,
short term............. 658.6 175.0 75.0 -- -- -- -- 908.6
Long term debt.......... -- -- 135.0 200.0 80.0 99.7 -- 514.7
Interest rate swaps,
caps, floors, and other
derivatives............ 114.4 492.8 (175.0) (237.0) (220.7) 25.5 -- --
Other liabilities....... -- -- -- -- -- -- 300.5 300.5
Stockholders' equity.... -- -- -- -- -- -- 1,183.6 1,183.6
-------- -------- -------- -------- -------- -------- --------- ---------
Total liabilities and
equity............... $4,371.0 $1,658.7 $ 440.4 $ 252.7 $ 644.6 $ 132.9 $ 2,965.9 $10,466.2
======== ======== ======== ======== ======== ======== ========= =========
Cumulative total
liabilities and
equity................. $4,371.0 $6,029.7 $6,470.1 $6,722.8 $7,367.4 $7,500.3 $10,466.2
======== ======== ======== ======== ======== ======== =========
Interest sensitivity
gap.................... $ (595) $ (1,041) $ 53 $ 405 $ 2,236 $ 924 $ (1,982)
Cumulative interest
sensitivity gap........ (595) (1,636) (1,583) (1,178) 1,058 1,982 --
Ratio of interest
sensitive assets to
liabilities............ 0.86x 0.37x 1.12x 2.60x 4.47x 7.96x 0.33x
Ratio of cumulative,
interest sensitive
assets to liabilities.. 0.86 0.73 0.76 0.82 1.14 1.26 1.00
</TABLE>
19
<PAGE>
In developing the classifications used for the preceding table, it was
necessary to make certain assumptions and approximations in assigning assets
and liabilities to the different maturity categories. These assumptions have
been developed by management over a period of time and reflect its best
assessment of current conditions. These assumptions are continuously reviewed
since they are subject to factors brought about by the development of new
products and changes in consumer behavior patterns.
INVESTMENT PORTFOLIO
Investment securities are held in one of three separate portfolios. When the
Corporation has the intent and ability to hold a security to maturity, it will
be held in the held-to-maturity ("HTM") portfolio. Such securities are
recorded at cost, net of amortization of premium and accretion of discount. If
and when the Corporation intends to hold a security for an indefinite time
period, or intends to use a security to manage the interest rate risk or
liquidity of the balance sheet, those securities will be held in the
available-for-sale ("AFS") portfolio. The AFS portfolio is marked-to-market on
a monthly basis. Changes in the fair value of the AFS portfolio are excluded
from earnings and reported as a separate component of equity, net of taxes. On
December 8, 1995, the Corporation elected to move all existing HTM securities
to the AFS portfolio under provisions allowed by the FASB in the November 15,
1995 Special Report titled "A Guide to the Implementation of Statement 115 on
Accounting for Certain Debt and Equity Securities." These transfers do not
preclude the Corporation from purchasing securities for the HTM portfolio in
the future. Lastly, investment securities purchased for very short time
horizons with the intent to benefit from changes in market rate or price are
held in the trading account. This portfolio is carried at fair value which was
$326,000 on December 31, 1995. Changes in the fair value of the trading
account are recorded in the income statement.
The securities of no single issuer other than those of the U.S. Government
and related government agencies exceeded 10% of stockholders' equity at
December 31, 1995. All of the obligations of states and political subdivisions
("Municipals") are rated A or higher by Moody's Investors Service, Inc. and
approximately 80% are rated AAA. Investment securities classified as other
securities are generally unrated.
At December 31, 1995, the book value of the investment portfolio was $2.8
billion compared with $2.4 billion at December 31, 1994, a $404.4 million
(16.9%) increase. The portfolio size increased from 26.2% of total assets at
December 31, 1994 to 26.7% at December 31, 1995. Mortgage-backed obligations
of federal agencies and government-sponsored agencies ("MBS's") increased
$361.2 million (40.9%). Municipals decreased $90.0 million (46.4%) primarily
due to calls on these obligations during 1995.
Available-for-Sale Investment Portfolio
The AFS portfolio is managed from an interest income and total return
perspective. As such, securities will often be sold out of the AFS portfolio
when management deems that a greater return can be earned in another type of
security (including cash) or that the interest rate risk in the balance sheet
is not appropriate for the prevailing micro and macro-economic climate. All of
the Corporation's investment securities were held in the AFS portfolio on
December 31, 1995.
The AFS investment portfolio is primarily comprised of four basic types of
securities: U.S. Treasury and U.S. Government Agency securities ("U.S.
Treasury and Agencies"), MBS's, collateralized mortgage obligations ("CMO's"),
and Municipals. The book value of other investment securities accounted for
only 4.2% of the book value of the total portfolio at December 31, 1995.
As noted above, the Corporation transferred all existing HTM securities to
the AFS portfolio on December 8, 1995. The total book (fair) value transferred
was $1.3 billion and included the following types of securities: $640.6
million of U.S. Treasury and Agencies, $140.7 million in MBS's, $520.8 million
in CMO's and $1.0 million in other debt securities.
20
<PAGE>
The following table sets forth the book value (fair value) of the available-
for-sale securities owned by the Corporation.
AVAILABLE-FOR-SALE INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1995 1994 1993
---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury & U.S. Government Agencies..... $ 900,347 $ 48,716 $ --
Mortgage backed obligations.................. 1,245,339 723,752 914,215
Collateralized mortgage obligations (1)...... 425,157 15,871 138,926
Obligations of states and political
subdivisions................................ 104,886 195,791 220,467
Other investment securities.................. 118,294 67,184 33,291
---------- ---------- ----------
Total...................................... $2,794,023 $1,051,314 $1,306,899
========== ========== ==========
</TABLE>
- --------
(1) At December 31, 1995, 1994 and 1993, $377.9 million, $14.5 million and
$126.6 million of CMO's, respectively, were issues of the Federal Home
Loan Mortgage Corporation or the Federal National Mortgage Association.
At December 31, 1995, the fair value of the Corporation's AFS investment
portfolio was approximately $39.6 million above the amortized cost of the
portfolio. Gross unrealized gains on AFS debt securities were $44.1 million
and gross unrealized losses were $4.5 million at year end. More specifically,
the net unrealized gain at December 31, 1995 on U.S. Treasury and Agencies was
$9.1 million, on MBS's, $12.7 million, on CMO's, $4.0 million and on
Municipals, $6.9 million. Gross unrealized gains on AFS equity securities were
$6.9 million at December 31, 1995. On December 31, 1994, the Corporation's AFS
portfolio had a fair value of $43.0 million below its amortized cost.
The following table shows the maturity distribution of the available-for-
sale investment portfolio of the Corporation at December 31, 1995 based upon
amortized cost.
MATURITY OF AVAILABLE-FOR-SALE INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------
MATURING
----------------------------------------
AFTER AFTER
IN ONE YEAR THROUGH THROUGH AFTER
OR LESS 5 YEARS 10 YEARS 10 YEARS TOTALS
----------- ---------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
U.S. Treasury & U.S.
Government Agencies...... $ 89,619 $ 778,269 $ 23,375 $ -- $ 891,263
Mortgage backed
obligations(1)........... 161,002 577,072 361,998 132,580 1,232,652
Collateralized mortgage
obligations(1)........... 118,901 228,003 66,227 7,979 421,110
Obligations of states and
political subdivisions... 10,983 35,133 18,677 33,216 98,009
Other investment
securities............... 107,326 -- 1,000 3,034 111,360
-------- ---------- -------- -------- ----------
Total................... $487,831 $1,618,477 $471,277 $176,809 $2,754,394
======== ========== ======== ======== ==========
</TABLE>
- --------
(1) The maturity distribution is based upon long-term Wall Street dealer
consensus estimates for each security type and coupon rate.
21
<PAGE>
The following table reflects the approximate weighted average tax equivalent
yield (at an assumed Federal tax rate of 35%) of the available-for-sale
investment portfolio at December 31, 1995 based upon amortized cost.
AVAILABLE-FOR-SALE INVESTMENT PORTFOLIO
(Tax Equivalent Yields)
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-----------------------------------------------
MATURING
----------------------------------------
AFTER AFTER
ONE YEAR FIVE YEARS
IN ONE YEAR THROUGH THROUGH AFTER
OR LESS 5 YEARS 10 YEARS 10 YEARS TOTALS
----------- -------- ---------- -------- ------
<S> <C> <C> <C> <C> <C>
U.S. Treasury & U.S. Govern-
ment Agencies................ 6.05% 5.67% 5.99% -- % 5.72%
Mortgage-backed obliga-
tions(1)..................... 6.77 6.79 6.87 7.44 6.88
Collateralized mortgage obli-
gations(1)................... 6.38 6.37 6.36 6.27 6.37
Obligations of states and po-
litical subdivisions......... 10.44 10.72 10.17 7.80 9.59
Other investment securities... 4.83 -- 8.50 7.55 4.94
----- ----- ----- ---- ----
Total....................... 6.20% 6.28% 6.89% 7.46% 6.44%
===== ===== ===== ==== ====
</TABLE>
- --------
(1) Computation of weighted average tax equivalent yields includes $239.4
million of floating rate MBS's and $37.2 million of floating rate CMO's.
Held-to-Maturity Investment Portfolio
Securities that the Corporation has the intent and ability to hold to
maturity are placed in the HTM portfolio. These securities are held to
maturity because they are used to match off against liabilities of comparable
duration. The high levels of liquidity maintained by the Corporation
eliminates any need to sell these securities prior to maturity to fund other
obligations. Securities will not be sold out of the HTM portfolio in response
to changes in loan demand, interest rates, or prepayment speeds. The HTM
portfolio is managed from an interest income perspective. The Corporation did
not hold securities in the HTM portfolio at December 31, 1995.
The following table sets forth the book value (amortized cost) of the held-
to-maturity securities owned by the Corporation.
HELD-TO-MATURITY INVESTMENT PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
------------------------------
1995 (1) 1994 1993
-------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury and U.S. Government Agencies..... $ -- $ 793,517 $ 970,554
Mortgage-backed obligations.................... -- 160,319 211,920
Collateralized mortgage obligations(2)......... -- 383,426 520,306
Obligations of states and political subdivi-
sions......................................... -- -- --
Other investment securities.................... -- 1,005 6,868
----- ---------- ----------
Total........................................ $ -- $1,338,267 $1,709,648
===== ========== ==========
</TABLE>
- --------
(1) As described above, on December 8, 1995, the Corporation transferred the
entire balance of the HTM portfolio to the AFS portfolio.
(2) At December 31, 1994 and 1993, $328.4 million and $450.4 million of CMO's,
respectively, were issues of the Federal Home Loan Mortgage Corporation or
the Federal National Mortgage Association.
22
<PAGE>
Investment Securities Sales
In the AFS portfolio, proceeds from the sale of fixed income investment
securities during 1995 amounted to $867.1 million resulting in pretax net
gains of $11,000. This compares to realized gains of $11.6 million on
$1.3 billion of sales in 1994 and gains of $20.0 million on $711.1 million of
security sales in 1993. Proceeds from the sale of equity securities during
1995 totaled $2.7 million resulting in pretax gains of $2.1 million. This
compares to $7.1 million in proceeds from the sale of equity securities which
resulted in pretax gains of $4.0 million in 1994.
In the HTM portfolio, there were no sales of investment securities during
1995. Proceeds from the sale of fixed income investment securities during 1994
amounted to $20.4 million resulting in a pretax net gain of $28,000. The
securities were sold as a result of the dissolution of a nonbanking subsidiary
of the Corporation.
CREDIT RISK MANAGEMENT
Credit approval policies for the Corporation are designed to provide an
effective and timely response to loan requests and to ensure the maintenance
of a sound loan portfolio. The Corporation manages credit risk and the credit
approval process by adhering to written policies which generally specify
underwriting standards by industry and in some cases limit credit exposure by
industry, country or product type. All such policies are reviewed and approved
annually by the Board of Directors.
The subsidiary Banks each establish individual loan authority levels based
on the specific job responsibilities of their officers. The Banks also have
loan committees which approve credit exposure above individual loan
authorities. Larger credit exposures are reviewed by executive committees
appointed by the Boards of Directors of the Banks.
The Credit Review function, which reports independently to the Board of
Directors' Loan Portfolio Review Committee, periodically reviews all lending
units throughout the Corporation. It continuously monitors the loan portfolio
to ensure the accuracy of risk ratings, to verify the identification of
problem credits, to provide executive management with an independent and
objective evaluation of the quality of the portfolio, and to assist the Board
of Directors in evaluating the adequacy of the allowance for credit losses,
which the Board of Directors is required to approve quarterly.
LOAN PORTFOLIO
The following table sets forth the composition of the loan portfolio by type
of loan and the percentage of loans by category.
COMPOSITION OF THE LOAN PORTFOLIO
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------------------------------------
1995 1994 1993 1992 1991
---------------- ---------------- ---------------- ---------------- ----------------
AMOUNT % AMOUNT % AMOUNT % AMOUNT % AMOUNT %
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $1,798,248 29.3% $1,633,275 29.9% $1,626,080 31.3% $1,748,910 33.7% $1,848,044 32.7%
Real estate, construc-
tion................... 290,262 4.7 268,683 4.9 284,008 5.5 327,134 6.3 375,776 6.6
Real estate, mortgage:
Residential............ 650,588 10.6 593,642 10.9 497,543 9.6 382,171 7.4 549,334 9.7
Commercial............. 975,474 15.9 978,164 17.9 957,568 18.4 912,085 17.6 901,866 15.9
Retail.................. 1,098,955 17.9 984,403 18.0 885,117 17.0 940,728 18.1 1,028,742 18.2
Bankcard................ 654,653 10.7 496,608 9.1 527,657 10.1 494,851 9.5 566,712 10.0
Leases receivable....... 334,504 5.4 259,633 4.8 211,821 4.1 206,346 4.0 212,792 3.8
Foreign:
Commercial and
industrial............ 323,038 5.3 226,718 4.2 186,492 3.6 151,036 2.9 128,873 2.3
Banks and financial
institutions.......... -- -- 120 -- 1,780 - 30 -- -- --
Governments and
official
institutions.......... 13,102 0.2 17,645 0.3 19,655 0.4 24,321 0.5 44,485 0.8
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total loans, net of
unearned income........ $6,138,824 100.0% $5,458,891 100.0% $5,197,721 100.0% $5,187,612 100.0% $5,656,624 100.0%
========== ===== ========== ===== ========== ===== ========== ===== ========== =====
</TABLE>
23
<PAGE>
The following table displays the contractual maturities and interest rate
sensitivities of the loans of the Corporation at December 31, 1995. The
Corporation's experience indicates that certain of the loans will be renewed,
rescheduled, or repaid, and that other loans will be charged-off, in each case
prior to scheduled maturity. Accordingly, the table should not be regarded as
a forecast of future cash collections.
CONTRACTUAL LOAN MATURITIES
<TABLE>
<CAPTION>
DECEMBER 31, 1995
-------------------------------------------------------------
MATURING
--------------------------------------------------
AFTER ONE YEAR
THROUGH 5 YEARS AFTER 5 YEARS
--------------------- -----------------
IN ONE FIXED VARIABLE FIXED VARIABLE
YEAR INTEREST INTEREST INTEREST INTEREST
OR LESS(1) RATES RATES(2) RATES RATES(2) TOTAL
---------- ---------- ---------- -------- -------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 903,432 $ 143,168 $ 393,357 $ 66,728 $291,563 $1,798,248
Real estate, construc-
tion................... 125,401 54,712 92,670 639 16,840 290,262
Real estate, mortgage:
Residential........... 106,407 76,773 188,469 75,059 203,880 650,588
Commercial............ 194,238 303,019 254,129 90,326 133,762 975,474
Retail.................. 278,049 388,863 131,298 86,942 213,803 1,098,955
Bankcard................ 274,535 -- 320,787 -- 59,331 654,653
Leases receivable....... 33,792 243,879 -- 56,833 -- 334,504
Foreign................. 121,000 -- 150,716 570 63,854 336,140
---------- ---------- ---------- -------- -------- ----------
Total............... $2,036,854 $1,210,414 $1,531,426 $377,097 $983,033 $6,138,824
========== ========== ========== ======== ======== ==========
</TABLE>
- --------
(1) Includes demand loans, loans having no stated schedule of repayments or
maturity, and overdrafts.
(2) The variable interest rates generally fluctuate according to a formula
based on various rate indices such as the prime rate and LIBOR.
COMMERCIAL LOANS
Commercial loans comprise 29.3% of the Corporation's total loans and leases
at December 31, 1995, and include short and medium term loans, revolving
credit arrangements, lines of credit, asset based lending and equipment
lending. The commercial loan portfolio is delineated by market sector as well
as geographic region.
There are three primary market sectors, Corporate Banking Group, Middle
Market and Small Business. The Corporate Banking Group has approximately 51%
of total commercial outstandings, generally to companies that often have a
significant presence in the Maryland marketplace and have revenues in excess
of $100 million. Within the Corporate Banking Group are several specialized
lending functions including Communications, Healthcare, International, Asset
Based Lending, Commercial Leasing, Transportation and Financial Institutions.
Middle Market lending, which comprises approximately 39% of total commercial
outstandings, serves customers in Maryland, south central Pennsylvania and
surrounding areas with sales volumes of $5 to $100 million. Small Business
lending, which comprises approximately 10% of total commercial outstandings,
is focused on customers with sales volumes of less than $5 million. Both the
Middle Market and Small Business lending activities are directed through the
Corporation's regional structure and utilize the Corporation's market presence
and branch network to develop market opportunities.
Approximately 66% of the commercial outstandings are to borrowers located in
the Maryland marketplace, which consists of Maryland, Washington, D.C.,
northern Virginia and south central Pennsylvania. Although the State of
Maryland continued to lag the nation in key economic indicators in 1995, a
generally stable economic environment contributed to increased loan volume
overall as well as to loan growth within the specialized lending groups.
24
<PAGE>
In addition to monitoring exposure based on market segment, the Corporation
monitors exposure based on industry classifications and establishes exposure
limits that are reviewed by a committee of the Board of Directors.
LOAN PORTFOLIO DISTRIBUTION BY INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------
OUTSTANDING UNFUNDED TOTAL NONPERFORMING
BALANCE COMMITMENT EXPOSURE LOANS
----------- ---------- -------- -------------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Transportation(1)................. $433,989 $ 24,549 $458,538 $ 788
Healthcare(2)..................... 324,047 102,211 426,258 185
Communications(3)................. 316,712 165,133 481,845 2,388
</TABLE>
- --------
(1) Includes loans and leases for vessel, commercial aircraft and railroad
equipment financing.
(2) Includes exposure to hospitals, nursing care and noninstitutional
borrowers, comprised of both commercial and real estate secured loans.
(3) Includes exposure to cable, publishing/newspapers, wireless communications
and broadcasting.
Exposure to the Transportation industry grew 30% during 1995. The loans in
the Transportation portfolio are to borrowers located throughout the world. A
healthy shipping industry and growth within the railroad industry provided
financing opportunities for the Corporation in 1995.
Exposure to the Healthcare industry grew 14% during 1995. Consolidation in
the Healthcare industry continues to provide financing opportunities for the
Corporation.
Loans in the Communications portfolio are to companies located throughout
the United States. Most of the growth in 1995 was in Cable and Wireless
Communications. Other Communication lending is to mature industries with most
loans representing the purchase and/or expansion of existing companies and
systems.
COMMERCIAL REAL ESTATE
The Corporation's commercial real estate portfolio represents loans secured
primarily by real property, other than loans secured by mortgages on 1-4
family residential properties. The commercial real estate portfolio includes
the loan categories in the following table.
COMMERCIAL REAL ESTATE OUTSTANDINGS
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Real estate, construction................................ $ 290,262 $ 268,683
Real estate, commercial mortgages........................ 975,474 978,164
---------- ----------
Total.................................................. $1,265,736 $1,246,847
========== ==========
</TABLE>
Commercial real estate outstandings of $1.3 billion comprised 20.6% of the
total loan portfolio at December 31, 1995 compared to 22.8% at December 31,
1994. Growth occurred in the construction portfolio, which increased 8.0%
since December 31, 1994. The commercial mortgage portfolio decreased $2.7
million or 0.3% for the same period. Asset quality continued to improve in
1995, with nonperforming loans declining by 81% to $5.9 million and other real
estate owned declining by 13% to $10.7 million.
The commercial real estate portfolio continues to be well-balanced by
project type. The largest property type concentration was office buildings at
27.3% of total commercial real estate outstandings, followed by industrial
warehouses and retail at 16.5% and 15.6%, respectively. Property types showing
the largest growth in 1995 were apartments, retail and healthcare industry
related properties including nursing homes.
25
<PAGE>
LOANS SECURED BY REAL ESTATE AND OTHER ASSETS OWNED BY PROPERTY TYPE
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------
TOTAL LOANS
-------------------------
OTHER
REAL ESTATE, REAL ESTATE, NONPERFORMING REAL ESTATE
CONSTRUCTION MORTGAGE LOANS OWNED
------------ ------------ ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Office buildings.......... $ 84,327 $261,144 $ 549 $ 274
Industrial warehouse and
other commercial
properties............... 44,864 163,587 737 --
Retail.................... 71,116 126,436 2,181 4,029
Hospitals/nursing home
medical centers.......... 4,361 88,911 -- --
Hotels/motels............. -- 61,394 -- --
Commercial land........... 39,002 -- 457 5,254
Churches, restaurants and
other special purpose
properties............... 12,928 59,849 441 --
Apartments................ 21,638 55,064 136 128
Mixed use................. 2 47.736 2 --
Residential land.......... 7,560 -- 667 1.282
Other land--farm
recreational facilities.. -- 7,650 581 --
Residential properties
held for resale.......... 3,517 -- -- --
Miscellaneous............. 947 103,703 159 --
-------- -------- ------ -------
Total................... $290,262 $975,474 $5,910 $10,967
======== ======== ====== =======
</TABLE>
The commercial real estate portfolio is geographically centered in the
Corporation's regional marketplace, with 68.7% of the portfolio secured by
properties in Maryland, 14.0% in Pennsylvania, and 4.9% in Virginia.
LOANS SECURED BY REAL ESTATE AND OTHER ASSETS OWNED BY GEOGRAPHIC REGION
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------------------------------------
TOTAL LOANS
-------------------------
OTHER
REAL ESTATE, REAL ESTATE, NONPERFORMING REAL ESTATE
CONSTRUCTION MORTGAGE LOANS OWNED
------------ ------------ ------------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Maryland.................... $215,258 $654,096 $2,780 $ 6,243
Pennsylvania................ 24,684 152,099 3,123 1,854
Virginia.................... 23,065 39,282 -- 2,096
Washington, D.C............. 18,725 30,319 -- 274
Florida..................... 6,251 26,278 -- 500
New Jersey.................. -- 27,464 -- --
Delaware.................... -- 9,194 7 --
All other................... 2,279 36,742 -- --
-------- -------- ------ -------
Total..................... $290,262 $975,474 $5,910 $10,967
======== ======== ====== =======
</TABLE>
REAL ESTATE, CONSTRUCTION
Real estate construction outstandings include land acquisition and
development loans, and building construction loans. Since December 31, 1994,
real estate construction outstandings have increased $21.6 million (8.0%). The
local construction market was relatively weak in 1995 although there was
renewed demand in the Washington, D.C. suburbs for retail and residential
development. The Corporation continues to pursue high quality loan
opportunities.
26
<PAGE>
REAL ESTATE MORTGAGE, COMMERCIAL
Commercial mortgage outstandings decreased $2.7 million (0.3%) since
December 31, 1994. Increased liquidity within the marketplace provided for an
escalation of repayments within the portfolio during the year. The Corporation
continues to focus on acquisition and refinancing loans for quality projects
with strong sponsorship.
As of December 31, 1995, $403 million or 41% of total commercial mortgage
outstandings were owner-occupied, being defined as a property that is 51% or
more physically occupied by the borrower or an affiliate of the borrower. The
Corporation intends to continue to actively solicit these types of loans to
support its role as a relationship lender for regional companies.
REAL ESTATE MORTGAGE, RESIDENTIAL
The Corporation originates residential mortgage loans primarily for sale in
the secondary market. New residential mortgage loan originations are normally
financed through the Corporation's mortgage banking subsidiary, First National
Mortgage Corporation, and are limited to Maryland, Washington, D.C., Virginia,
Delaware, Pennsylvania, West Virginia, Kentucky, Tennessee, Indiana, and
Mississippi. These markets have generally shown growth in per capita income, a
relatively low unemployment rate, a diversified and stable economic base and,
despite recent local economic weakness, charge-offs have been negligible.
Substantially all loans originated by the mortgage banking subsidiary are
classified as loans held-for-sale on the consolidated statements of condition
of the Corporation. New originations retained for the Corporation's
residential real estate mortgage portfolio consist primarily of low-income
housing and non-convertible adjustable rate mortgages ("ARMS"). Residential
mortgages retained in the portfolio at December 31, 1995 increased $56.9
million from December 31, 1994 primarily as a result of originations of the
non-convertible ARM product.
RETAIL
The Corporation provides a comprehensive range of retail loan and line of
credit products. These products include home equity, automobile, marine and
unsecured installment loans as well as home equity and unsecured lines of
credit. The principal means by which these products are made available is on a
direct basis through the branch banking system of the Corporation. In
addition, automobile and marine loans are also made available to the
marketplace on an indirect basis by means of select third party referral
sources. During 1995, the product of choice in the Corporation's marketplace
as well as nationally was the home equity loan. The overall delinquency and
net charge-off experience of the Corporation's retail loan portfolio continues
to be better than industry averages.
As compared to December 31, 1994, retail loans increased $114.6 million to
$1.1 billion at December 31, 1995. Retail loan demand is anticipated to be
stable in 1996.
BANKCARD
The Corporation, through its subsidiary, First Omni, offers both VISA and
MasterCard bankcards on a nationwide basis. Outstanding bankcard receivables
totaled $654.7 million at December 31, 1995 compared to $496.6 million at
December 31, 1994, a $158.0 million (31.8%) increase. At December 31,1995,
First Omni's managed bankcard receivables totaled $819.7 million which
included $165.0 million in securitized bankcard receivables.
In July 1995, First Omni entered into a Co-branding Agreement with Bell
Atlantic Network Services, Inc. pursuant to which First Omni issues bankcards
bearing the Bell Atlantic name and trademarks. Bell Atlantic Network Services,
Inc. is a subsidiary of Bell Atlantic Corporation, a regional Bell holding
company serving over 11,000,000 customers in New Jersey, Delaware,
Pennsylvania, Maryland, Virginia, West Virginia and the District of Columbia.
Customers of Bell Atlantic who apply for and are qualified to receive a
cobranded First
27
<PAGE>
Omni bankcard will receive "rewards", funded by First Omni, based on the use
of the card. The reward check which carries the customer's name, address and
telephone number is good toward payment of the cardholder's Bell Atlantic
residential phone bill. At December 31, 1995, bankcard receivables related to
the Bell Atlantic cobranding totaled $82.9 million.
LEASES RECEIVABLE
Leases receivable include retail automobile, small equipment and general
equipment leasing portfolios. Leases receivable increased to $334.5 million at
December 31, 1995 from $259.6 million at December 31, 1994. The general
equipment leasing portfolio represents approximately 89.5% of total lease
receivables with an emphasis on transportation equipment. The primary market
for direct sales efforts with respect to customers and prospects is the Mid-
Atlantic region. Other parts of the country comprise a secondary market for
direct sales calling but with a greater reliance on outside referral sources.
Competition includes other banks, as well as nonbank, independent and captive
finance and leasing companies and income funds.
FOREIGN
Foreign commercial and industrial loans were $323.0 million at December 31,
1995, an increase of $96.3 million when compared to December 31, 1994.
Commercial and industrial loan exposure consists of maritime industry exposure
(71.6%), non-maritime trade exposure (17.2%), foreign direct investment
exposure (10.6%), and rail exposure (0.6%). The maritime portfolio is widely
diversified, both geographically and by asset type, and is secured by first
mortgages/liens. Government and official institutions exposure consists of
loans to central, state, provincial, and local governments in foreign
countries and their ministries, departments, and agencies.
ASSET QUALITY
Nonperforming Assets
Nonperforming assets totaled $44.8 million at December 31, 1995, a decrease
of $29.3 million (39.5%) when compared to $74.1 million in nonperforming
assets at December 31, 1994. The most significant changes in nonperforming
assets during 1995 were paydowns of $38.2 million, loans reclassified to
accrual status of $11.3 million, other real estate owned sales of $9.4
million, and charge-offs of $3.1 million. These decreases were partially
offset by $32.7 million in additions to nonperforming assets primarily due to
the transfer of loans to nonaccrual status. The most significant paydowns were
on a variety of commercial and real estate transactions in which cash payments
were received on nonaccrual loans. Loans reclassified to accrual status
included $6.5 million in commercial and real estate loans which met the
regulatory tests for return to accrual status and $4.8 million in commercial
and real estate loans which were upgraded from troubled debt restructuring
status and returned to accrual. The most significant charge-offs were on
nonaccrual commercial and real estate loans. At this time, the Corporation
does not anticipate significant new nonaccruals in 1996; however it is
unlikely that reductions of the magnitude that occurred over the past several
years will continue in 1996.
Loans are placed on nonaccrual status: when interest or principal has been
in default for 90 days or more and the loan is not both well-secured and in
the process of collection; when payment in full of interest or principal is
not expected; or when the loan is on a cash basis because of deterioration in
the financial position of the borrower. A loan remains on nonaccrual status
until it is either current as to payment of principal and interest with the
borrower demonstrating the ability to pay and remain current, or it meets
regulatory guidelines on returning a loan to accrual status even though the
loan has not been brought fully current. Under these guidelines, two criteria
must be met: (1) all principal and interest amounts contractually due
(including arrearages) are reasonably assured of repayment within a reasonable
period, and (2) there is a sustained period of repayment performance
(generally a minimum of six months) by the borrower, in accordance with the
contractual terms involving payments of cash or cash equivalents.
On January 1, 1995, the Corporation adopted the provisions of Statements of
Financial Accounting Standards No. 114 and 118, "Accounting by Creditors for
Impairment of a Loan". The impairment of a loan is
28
<PAGE>
measured at the present value of expected future cash flows using the loan's
effective interest rate, the fair value of the collateral if the loan is
collateral dependent or the loan's observable market price. Loans to be
considered for evaluation of collectibility under SFAS 114 and 118 include
loans classified as doubtful, certain substandard loans, certain nonaccrual
loans and any other loans for which collection of all principal and interest
payments under the contractual terms is not considered probable. Impaired
loans do not include large groups of smaller balance, homogeneous loans such
as residential mortgages, retail loans and bankcard loans that are evaluated
collectively for impairment, or leases and loans measured at fair value or
lower of cost or fair value. A valuation allowance is recorded if the measured
value of the impaired loan is less than its recorded investment (outstanding
principal balance, accrued interest receivable, net deferred loan fees or
costs and unamortized premium or discount). The valuation allowances for
impaired loans are included in the allowance for credit losses through changes
in the provision for credit losses. See Note 5 of the Notes to Consolidated
Financial Statements for further discussion of the Corporation's impaired
loans at December 31, 1995.
Restructured loans are "troubled debt restructurings" as defined in
Statement of Financial Accounting Standards No. 15, "Accounting by Debtors and
Creditors for Troubled Debt Restructurings." Nonaccrual loans would not be
included in troubled debt restructurings.
Other real estate and other assets owned represent collateral on loans to
which the Corporation has taken title. This property, which is held for
resale, is carried at fair value minus estimated costs to sell.
The following table sets forth nonperforming assets and accruing loans which
are 90 days or more past due as to principal or interest payments as of the
dates indicated.
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1995 1994 1993 1992 1991
------- ------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
NONACCRUAL LOANS
Domestic:
Commercial................... $16,587 $13,326 $ 47,521 $ 71,538 $ 71,220
Real estate, construction.... 1,125 2,709 5,787 17,917 25,958
Real estate mortgage,
commercial.................. 4,785 27,633 44,853 64,757 37,803
Real estate mortgage,
residential................. 6,375 5,250 5,381 6,351 8,409
Leases receivable............ -- 85 863 1,174 282
Foreign........................ 4,321 5,300 3,800 10,487 10,174
------- ------- -------- -------- --------
Total nonaccrual loans..... 33,193 54,303 108,205 172,224 153,846
Restructured loans............. 143 4,974 4,692 4,515 2,601
Other assets owned:
Other real estate............ 11,546 18,920 26,427 30,993 43,610
Valuation reserves........... (295) (4,185) (4,412) (9,195) (7,713)
Other assets................. 250 118 510 1,210 5,644
------- ------- -------- -------- --------
Total other assets owned....... 11,501 14,853 22,525 23,008 41,541
------- ------- -------- -------- --------
Total nonperforming assets..... $44,837 $74,130 $135,422 $199,747 $197,988
======= ======= ======== ======== ========
Nonperforming assets as a % of
total loans, net of unearned
income plus other foreclosed
assets owned.................. 0.73% 1.35% 2.59% 3.83% 3.47%
======= ======= ======== ======== ========
Accruing loans contractually
past due 90 days or more as to
principal or interest:
Domestic..................... $18,808 $13,338 $ 17,172 $ 19,231 $ 25,796
Foreign...................... -- -- -- -- 3,800
------- ------- -------- -------- --------
Total...................... $18,808 $13,338 $ 17,172 $ 19,231 $ 29,596
======= ======= ======== ======== ========
</TABLE>
29
<PAGE>
The following table details the gross interest income that would have been
received during the year ended December 31, 1995 on nonaccrual loans had such
loans been current in accordance with their original terms throughout the year
and the interest income on such loans actually included in income for the
year.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995
------------------------------
DOMESTIC FOREIGN
LOANS LOANS
--------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Gross interest income that would have been
recorded had nonaccrual loans been current in
accordance with original terms................ $ 2,510 $ 636
Interest income actually recorded.............. 726 528
</TABLE>
At December 31, 1995, the Corporation was monitoring loans totaling $38.3
million not classified as nonaccrual, restructured or past due loans. These
loans demonstrate characteristics which may result in classification as such
in the future. There were no other interest bearing assets, other than loans,
at December 31, 1995 which were classifiable as nonaccrual, restructured, past
due or potential problem assets.
ALLOWANCE FOR CREDIT LOSSES
The Allowance for Credit Losses (the "Allowance") is created by direct
charges against income in the form of quarterly provisions for credit losses.
The amount of the Allowance equals the cumulative total of the provisions made
from time to time, reduced by credit charge-offs, and increased by recoveries
of credits previously charged off. Increases and decreases in the Allowance
include changes in the measurement value of impaired loans. In addition, the
Allowance will increase by the allowance for credit losses of loan assets
acquired and will be reduced by the allowance for credit losses associated
with loan assets sold (including securitizations of loan assets).
It is the policy of the Corporation to comply with OCC Banking Circular 201
(Revised) and the supplementary Interagency Policy Statement on the Allowance
for Loan and Lease Losses released December 21, 1993. The Corporation
maintains an Allowance sufficient to absorb all estimated inherent losses in
the loan and lease portfolio. Inherent losses are losses that meet the
criteria in Statement of Financial Accounting Standards No. 5 for recognition
of charges to income. Generally, a charge to income is appropriate if it is
determined that it is probable that an asset has been impaired.
All outstanding loans, leases and legally binding commitments to lend are
considered in evaluating the adequacy of the Allowance. In addition, a
provision for inherent losses arising from off-balance sheet credit related
commitments such as standby letters of credit are included in the Allowance.
The Allowance does not provide for inherent losses stemming from uncollectible
interest because Corporation policy requires all accrued but unpaid interest
to be reversed once a loan is placed on nonaccrual status.
All loans classified as doubtful and all nonaccrual loans classified as
substandard are analyzed individually to determine specific reserves,
consistent with SFAS 114 and 118. All other loans and leases are segmented
into pools based on their risk ratings. Reserve allocation for these pools is
based upon historical loss experience. The methodologies used for determining
historical loss rate factors include actual loss experience over a period of
years, loss migration analysis, or a combination of the two. In addition, the
historical loss percentage for each pool is adjusted to reflect current
conditions. Among the factors considered are the levels and trends in
delinquencies and nonaccruals; trends in volumes and terms of loans; effects
of any changes in lending policies and procedures; the experience, ability and
depth of the lending management and staff; national and local economic trends
and conditions; and concentrations of credit.
The Corporation's Credit Review function reports independently to the Board
of Directors' Loan Portfolio Review Committee. This unit's responsibility is
to continuously monitor the loan portfolio to ensure the accuracy of risk
ratings, to verify the identification of problem credits, to provide executive
management with an independent and objective evaluation of the quality of the
portfolio and to assist the Board of Directors in
30
<PAGE>
evaluating the adequacy of the Allowance. In the retail loan and residential
loan areas, this review is conducted primarily by a retail credit review staff
which monitors performance trends. Formal reviews are supported by management
information systems which are designed to identify accounts which deviate from
established lending policies. In other lending areas, a team of credit review
officers systematically inspects the credit files to identify potential credit
problems.
The following table details certain information relating to the Allowance of
the Corporation for the five years ended December 31, 1995. See also Note 5 of
the Notes to Consolidated Financial Statements of the Corporation.
ANALYSIS OF THE ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------------------
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Allowance at beginning
of year................ $ 191,024 $ 200,006 $ 201,451 $ 205,397 $ 155,089
Provision for credit
losses................. 16,000 22,996 45,291 58,126 69,496
Losses charged off:
Commercial loans...... 1,848 2,852 10,580 14,082 4,329
Real estate loans,
construction......... 635 1,333 1,079 3,692 2,968
Real estate loans,
mortgage:
Residential......... 110 328 467 150 54
Commercial.......... 635 5,693 9,723 8,100 2,704
Retail loans.......... 2,988 4,798 6,005 6,569 6,616
Bankcard receivables.. 30,352 27,180 25,360 30,219 33,169
Leases receivable..... 40 343 516 919 650
Foreign loans......... 1,840 -- 2,561 6,360 12,359
---------- ---------- ---------- ---------- ----------
Total losses
charged off...... 38,448 42,527 56,291 70,091 62,849
---------- ---------- ---------- ---------- ----------
Recoveries of losses
previously charged off:
Commercial loans...... 1,025 3,908 1,108 393 3,661
Real estate loans,
construction......... 114 304 37 35 21
Real estate loans,
mortgage:
Residential......... 28 29 16 56 --
Commercial.......... 338 438 129 348 222
Retail loans.......... 2,194 2,846 2,573 2,526 1,322
Bankcard receivables.. 5,127 5,203 4,696 4,574 3,934
Leases receivable..... 219 431 331 367 196
Foreign loans......... -- -- 4,924 1,047 411
---------- ---------- ---------- ---------- ----------
Total recoveries.. 9,045 13,159 13,814 9,346 9,767
---------- ---------- ---------- ---------- ----------
Net losses charged off.. 29,403 29,368 42,477 60,745 53,082
Allowance of loans
acquired or (sold)..... -- (2,610) (4,259) (1,327) 33,894
---------- ---------- ---------- ---------- ----------
Total allowance at end
of year................ $ 177,621 $ 191,024 $ 200,006 $ 201,451 $ 205,397
========== ========== ========== ========== ==========
Average loans, net of
average unearned
income................. $5,804,653 $5,291,240 $5,099,293 $5,293,930 $4,832,877
========== ========== ========== ========== ==========
Year end loans, net of
unearned income........ $6,138,824 $5,458,891 $5,197,721 $5,187,612 $5,656,624
========== ========== ========== ========== ==========
Net charge-offs to
average loans, net of
average unearned
income................. 0.51% 0.56% 0.83% 1.15% 1.10%
Allowance as a
percentage of year end
loans, net of unearned
income................. 2.89 3.50 3.85 3.88 3.63
Allowance as a
percentage of
nonperforming loans.... 532.82 322.26 177.16 113.98 131.29
</TABLE>
31
<PAGE>
The following table provides an allocation of the Allowance by loan
classification. The Corporation does not believe that the Allowance can be
fragmented by category with any precision. The allocation of the Allowance is
based on a consideration of all of the factors discussed above which are used
to determine the Allowance as a whole. Since all of those factors are subject
to change, the allocation of the Allowance detailed below is not necessarily
indicative of future losses or future allocations. The Allowance at December
31, 1995 is available to absorb losses occurring in any category of loans.
ALLOCATION OF THE ALLOWANCE FOR CREDIT LOSSES
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------------
1995 1994 1993 1992 1991
-------- -------- -------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Commercial loans.................. $ 17,092 $ 19,222 $ 32,453 $ 39,544 $ 60,445
Real estate loans, construction... 5,144 7,556 9,376 19,150 16,092
Real estate loans, mortgage:
Residential..................... 1,150 1,022 1,087 546 943
Commercial...................... 11,533 23,818 39,845 41,090 23,200
Retail loans...................... 3,257 3,213 6,266 7,026 11,072
Bankcard receivables.............. 36,141 30,830 35,950 37,420 35,004
Leases receivable................. 13,407 16,323 3,304 3,970 2,290
Foreign loans..................... 9,970 11,748 9,322 14,045 24,329
Unallocated....................... 79,927 77,292 62,403 38,660 32,022
-------- -------- -------- -------- --------
Total Allowance............... $177,621 $191,024 $200,006 $201,451 $205,397
======== ======== ======== ======== ========
</TABLE>
DEPOSITS
The table below provides information on the average balances of and rates
paid on the deposit categories indicated for the years ended December 31,
1995, 1994 and 1993. The aggregate amount of foreign deposits did not exceed
10% of average total deposits. The majority of deposits in the foreign banking
office were in amounts in excess of $100,000.
AVERAGE DEPOSITS AND AVERAGE RATES PAID
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------------------------
1995 1994 1993
---------------- ---------------- ----------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
BALANCES RATES BALANCES RATES BALANCES RATES
-------- ------- -------- ------- -------- -------
(DOLLARS IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Deposits in domestic
offices:
Noninterest bearing
demand............... $1,760.4 -- % $1,730.1 -- % $1,771.0 -- %
-------- --- -------- --- -------- ---
Interest bearing
demand............... 523.4 2.3 548.9 2.3 535.5 2.5
Money market
accounts............. 1,146.5 3.5 1,312.3 3.0 1,433.1 3.0
Savings............... 1,048.1 2.7 1,144.4 2.7 1,017.0 2.9
Other consumer time... 1,532.0 5.3 1,410.7 4.2 1,480.3 4.3
Large denomination
time................. 586.6 6.0 374.9 5.6 342.8 5.4
Deposits in foreign
banking office......... 147.1 5.9 114.0 5.4 72.1 3.7
-------- --- -------- --- -------- ---
Total interest
bearing deposits... 4,983.7 4.1 4,905.2 3.5 4,880.8 3.5
-------- -------- --------
Total deposits.......... $6,744.1 $6,635.3 $6,651.8
======== ======== ========
Total core deposits(1).. $6,010.4 $6,146.4 $6,236.9
======== ======== ========
</TABLE>
- --------
(1) Core deposits include all deposits in the preceding table except large
denomination time deposits and deposits in the Corporation's foreign
banking office.
32
<PAGE>
The following table details the maturity of domestic deposits of $100,000 or
more on December 31, 1995.
MATURITY DISTRIBUTION OF CERTIFICATES OF DEPOSIT AND OTHER TIME DEPOSITS IN
AMOUNTS OF $100,000 OR MORE
<TABLE>
<CAPTION>
DECEMBER 31, 1995
------------------------------
CERTIFICATES OTHER TIME
OF DEPOSIT, DEPOSITS,
$100,000 $100,000
OR MORE OR MORE TOTAL
------------ ---------- ------
(IN MILLIONS)
<S> <C> <C> <C>
Within three months............................. $188.6 $ -- $188.6
After three months but within six months........ 98.7 -- 98.7
After six months but within twelve months....... 73.5 7.0 80.5
After twelve months............................. 319.5 10.5 330.0
------ ----- ------
Total......................................... $680.3 $17.5 $697.8
====== ===== ======
</TABLE>
SHORT-TERM BORROWINGS
To the extent that deposits are not adequate to fund customer loan demand in
the Banks, or to the extent that long-term borrowings are inadequate to fund
loan demand of other subsidiaries of the Corporation, then the Corporation
will seek to meet its liquidity needs in the short-term funds markets. The
Corporation utilizes many sources to meet these short-term needs. The
following table provides information with respect to each of these sources for
the three years ended December 31, 1995.
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Federal funds purchased:
End of year outstandings........................ $300,895 $205,856 $345,676
Highest month-end balance....................... 621,771 331,547 460,933
Average balance................................. 420,093 288,762 451,042
Average rate of interest:
At end of year................................ 5.70% 5.55% 3.03%
During year................................... 5.67 4.27 3.05
Repurchase agreements:
End of year outstandings........................ $214,630 $313,916 $402,590
Highest month-end balance....................... 556,115 628,028 720,542
Average balance................................. 328,874 354,644 444,378
Average rate of interest:
At end of year................................ 5.06% 5.13% 2.35%
During year................................... 5.62 3.60 2.33
Master demand notes of the Corporation:
End of year outstandings........................ $402,489 $402,539 $463,645
Highest month-end balance....................... 408,894 454,941 463,645
Average balance................................. 385,582 441,384 424,181
Average rate of interest:
At end of year................................ 5.20% 4.95% 2.85%
During year................................... 5.55 3.79 2.86
Other borrowed funds, short-term:
End of year outstandings........................ $506,155 $138,968 $181,724
Highest month-end balance....................... 618,516 656,846 439,474
Average balance................................. 370,218 330,616 309,645
Average rate of interest:
At end of year................................ 6.04% 3.93% 3.37%
During year................................... 6.26 3.71 3.02
</TABLE>
33
<PAGE>
As indicated, short-term borrowings include master demand notes of the
Corporation. The master demand note ("masternote") is an unsecured obligation
of the Corporation which was developed to meet the investment needs of the
Corporation's cash management customers. Under the masternote program,
available customer balances are invested overnight in masternotes. The
proceeds of these notes are used to provide short-term funding to the
Corporation's nonbank subsidiaries, with any excess funds invested in short-
term liquid assets. Outstanding masternote balances are determined by the
investable balances of the Corporation's sweep account customers that elect
the masternote investment option.
STOCKHOLDERS' EQUITY AND CAPITAL ADEQUACY
The following table shows the changes in the Corporation's stockholders'
equity for the years ended December 31, 1995, 1994 and 1993.
CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------
1995 1994 1993
---------- ---------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance, beginning of year................... $1,024,024 $ 976,794 $694,158
Net income................................... 120,187 111,140 113,868
Issuance of preferred stock.................. -- -- 144,803
Dividends declared on preferred stock........ (11,820) (11,820) (1,575)
Change in net cost not yet recognized as
periodic pension expense.................... (200) 1,443 (1,073)
Change in unrealized gains and losses on
investment securities available-for-sale,
net of income (tax) benefits................ 51,383 (53,582) 26,613
Adjustment to preferred stock issuance
costs....................................... -- 49 --
---------- ---------- --------
Balance, end of year......................... $1,183,574 $1,024,024 $976,794
========== ========== ========
</TABLE>
The Corporation's stockholders' equity was $1.2 billion at December 31, 1995
compared to $1.0 billion at December 31, 1994. The $159.6 million (15.6%)
increase in stockholders' equity is primarily due to $120.2 million of net
income in 1995 and an increase in the fair value of investment securities
available-for-sale, net of income taxes. Partially offsetting these increases
were $11.8 million in preferred stock dividends declared in 1995. The primary
source of growth in stockholders' equity from 1993 to 1994 was $111.1 million
in net income partially offset by a $53.6 million decline in the fair value of
investment securities available-for-sale, net of income taxes.
34
<PAGE>
The following table details the Corporation's capital components and ratios
at December 31, 1995, 1994 and 1993 based upon the capital requirements of the
regulatory agencies discussed in Part I under "Business-Supervision and
Regulation." Tier 1 and total capital increased $111.9 million and $117.6
million, respectively, when December 31, 1995 is compared to December 31, 1994
due to $120.2 million in net income in 1995 which was partially offset by
$11.8 million in preferred dividends declared in 1995. Significant
transactions affecting regulatory capital in 1994 included $111.1 million in
net income which was partially offset by $11.8 million in preferred dividends
declared in 1994.
CAPITAL COMPONENTS
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------------------
1995 1994 1993
----------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Preferred stockholders' equity............ $ 144,852 $ 144,852 $ 144,803
Common stockholder's equity............... 1,038,722 879,172 831,991
Disallowed intangibles.................... (37,178) (40,956) (35,657)
Unrealized losses (gains) on investment
securities available-for-sale, net of
income taxes............................. (24,414) 26,969 (26,613)
----------- ---------- ----------
Tier 1 capital.......................... 1,121,982 1,010,037 914,524
----------- ---------- ----------
Qualifying long term debt................. 103,721 109,676 115,629
Allowance for credit losses............... 102,754 91,105 90,153
Mandatory convertible securities.......... 59,969 59,960 59,951
----------- ---------- ----------
Tier 2 capital.......................... 266,444 260,741 265,733
----------- ---------- ----------
Total capital............................. $ 1,388,426 $1,270,778 $1,180,257
=========== ========== ==========
Risk-adjusted assets...................... $ 8,145,412 $7,188,442 $7,102,379
Average quarterly assets (fourth
quarter)................................. $10,316,684 $9,180,622 $9,557,793
Risk based capital ratios:
Tier 1 capital to risk adjusted assets.. 13.77% 14.05% 12.88%
Regulatory minimum...................... 4.00 4.00 4.00
Total capital to risk adjusted assets... 17.05 17.68 16.62
Regulatory minimum...................... 8.00 8.00 8.00
Leverage ratio............................ 10.91 11.05 9.60
</TABLE>
35
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
FIRST MARYLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans......................... $510,874 $435,012 $411,021
Interest and dividends on investment securities
held-to-maturity:
Taxable.......................................... 82,873 87,502 146,720
Tax exempt....................................... -- -- 12,165
Interest on investment securities available-for-
sale:
Taxable.......................................... 70,403 47,634 20,391
Tax exempt....................................... 13,769 15,701 3,966
Dividends........................................ 1,229 1,092 23
Interest on loans held-for-sale.................... 7,305 7,732 11,580
Interest on money market investments............... 21,088 25,073 11,371
-------- -------- --------
Total interest and dividend income............. 707,541 619,746 617,237
-------- -------- --------
INTEREST EXPENSE
Interest on deposits............................... 205,566 169,191 171,122
Interest on Federal funds purchased and other
short-term borrowings............................. 86,858 54,106 45,604
Interest on long-term debt......................... 22,124 17,802 17,312
-------- -------- --------
Total interest expense......................... 314,548 241,099 234,038
-------- -------- --------
Net interest income................................ 392,993 378,647 383,199
Provision for credit losses (note 5)............... 16,000 22,996 45,291
-------- -------- --------
Net interest income after provision for credit
losses............................................ 376,993 355,651 337,908
-------- -------- --------
NONINTEREST INCOME
Service charges on deposit accounts................ 71,852 72,300 72,952
Servicing income from securitized assets, net...... 22,564 18,750 28,620
Trust fees......................................... 22,228 19,513 19,212
Bankcard charges and fees.......................... 17,352 17,062 18,770
Mortgage banking income............................ 16,216 16,426 26,964
Securities gains, net.............................. 2,136 15,616 19,976
Other income (note 13)............................. 43,562 51,311 46,951
-------- -------- --------
Total noninterest income....................... 195,910 210,978 233,445
-------- -------- --------
NONINTEREST EXPENSES
Salaries and wages................................. 172,145 165,774 165,239
Other personnel costs (notes 12 and 18)............ 39,706 42,654 40,149
Net occupancy costs (notes 6 and 15)............... 32,850 33,285 30,983
Equipment costs (notes 6 and 15)................... 30,117 29,586 26,881
Other operating expenses (note 13)................. 113,906 124,902 131,401
-------- -------- --------
Total noninterest expenses..................... 388,724 396,201 394,653
-------- -------- --------
Income before income taxes......................... 184,179 170,428 176,700
Income tax expense (note 14)....................... 63,992 59,288 62,832
-------- -------- --------
NET INCOME......................................... $120,187 $111,140 $113,868
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements
36
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
----------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash and due from banks............................... $ 775,582 $ 554,878
Money market investments (note 2)..................... 366,355 346,194
Investment securities available-for-sale (note 3)..... 2,794,023 1,051,314
Investment securities held-to-maturity (fair value of
$1,270,485 in 1994) (note 3)......................... -- 1,338,267
Loans held-for-sale................................... 116,002 75,366
Loans, net of unearned income of $114,813 in 1995 and
$84,809 in 1994:
Commercial.......................................... 1,798,248 1,633,275
Real estate, construction........................... 290,262 268,683
Real estate, mortgage:
Residential....................................... 650,588 593,642
Commercial........................................ 975,474 978,164
Retail.............................................. 1,098,955 984,403
Bankcard............................................ 654,653 496,608
Leases receivable (note 4).......................... 334,504 259,633
Foreign............................................. 336,140 244,483
----------- ----------
Total loans, net of unearned income............. 6,138,824 5,458,891
Allowance for credit losses (note 5).................. (177,621) (191,024)
----------- ----------
Loans, net...................................... 5,961,203 5,267,867
Premises and equipment (note 6)....................... 104,379 102,157
Due from customers on acceptances..................... 14,144 26,059
Other assets.......................................... 334,484 343,500
----------- ----------
Total assets.................................. $10,466,172 $9,105,602
=========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Domestic deposits:
Noninterest bearing deposits........................ $ 2,055,129 $1,766,648
Interest bearing deposits........................... 4,859,031 4,786,592
Interest bearing deposits in foreign banking office... 129,022 80,306
----------- ----------
Total deposits.................................. 7,043,182 6,633,546
Federal funds purchased and securities sold under
repurchase agreements (note 9)....................... 515,525 519,772
Other borrowed funds, short term (note 10)............ 908,644 541,507
Bank acceptances outstanding.......................... 14,144 26,059
Accrued taxes and other liabilities (note 14)......... 286,416 146,062
Long-term debt (note 11).............................. 514,687 214,632
----------- ----------
Total liabilities............................. 9,282,598 8,081,578
----------- ----------
Commitments and contingent liabilities (notes 15 and
17)
Stockholders' equity:
7.875% Noncumulative Preferred Stock, Series A, $5
par value per share, $25 liquidation preference per
share; authorized 9,000,000 shares; issued
6,000,000 shares................................... 30,000 30,000
Common stock, $1/7 par value per share; authorized
600,000,000 shares; issued 594,480,215 shares...... 84,926 84,926
Capital surplus..................................... 198,176 198,176
Retained earnings................................... 846,058 737,891
Unrealized gains (losses) on investment securities
available-for-sale (net of income (tax) benefits of
$(15,214) and $16,024)............................. 24,414 (26,969)
----------- ----------
Total stockholders' equity...................... 1,183,574 1,024,024
----------- ----------
Total liabilities and stockholders' equity.... $10,466,172 $9,105,602
=========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
37
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
UNREALIZED
GAINS
(LOSSES) ON
INVESTMENT
SECURITIES
AVAILABLE-
PREFERRED COMMON CAPITAL RETAINED FOR-SALE,
STOCK STOCK SURPLUS EARNINGS NET OF TAX TOTAL
--------- ------- -------- -------- ----------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
BALANCE ON DECEMBER 31,
1992................... $ -- $84,926 $ 83,324 $525,908 $ -- $ 694,158
Net income.............. 113,868 113,868
Issuance of preferred
stock.................. 30,000 114,803 144,803
Dividends declared on
preferred stock........ (1,575) (1,575)
Change in net cost not
yet recognized as
periodic pension
expense................ (1,073) (1,073)
Unrealized gains on
investment securities
available-for-sale, net
of income tax.......... 26,613 26,613
------- ------- -------- -------- ------- ----------
BALANCE ON DECEMBER 31,
1993................... 30,000 84,926 198,127 637,128 26,613 976,794
Net income.............. 111,140 111,140
Dividends declared on
preferred stock........ (11,820) (11,820)
Change in net cost not
yet recognized as
periodic pension
expense................ 1,443 1,443
Change in unrealized
gains and losses on
investment securities
available-for-sale, net
of income tax
benefits............... (53,582) (53,582)
Adjustment to preferred
stock issuance costs... 49 49
------- ------- -------- -------- ------- ----------
BALANCE ON DECEMBER 31,
1994................... 30,000 84,926 198,176 737,891 (26,969) 1,024,024
Net income.............. 120,187 120,187
Dividends declared on
preferred stock........ (11,820) (11,820)
Change in net cost not
yet recognized as
periodic pension
expense................ (200) (200)
Change in unrealized
gains and losses on
investment securities
available-for-sale, net
of income tax.......... 51,383 51,383
------- ------- -------- -------- ------- ----------
BALANCE ON DECEMBER 31,
1995................... $30,000 $84,926 $198,176 $846,058 $24,414 $1,183,574
======= ======= ======== ======== ======= ==========
</TABLE>
See accompanying notes to consolidated financial statements
38
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
----------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income................................ $ 120,187 $ 111,140 $ 113,868
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for credit losses.............. 16,000 22,996 45,291
Provision for other real estate losses... 264 44 6,202
Depreciation and amortization............ 32,089 32,033 35,319
Deferred income tax expense (benefits)... 32,268 18,399 (1,977)
Net gain on the sale of assets........... (3,037) (25,014) (22,488)
Net (increase) decrease in loans
originated for sale..................... (40,636) 181,361 (115,511)
Decrease (increase) in trading account
securities.............................. 27,679 (3,273) (45,721)
(Increase) decrease in accrued interest
receivable.............................. (2,750) (5,648) 1,452
Increase (decrease) in accrued interest
payable................................. 22,240 (1,493) (5,295)
Other, net............................... 65,426 (46,114) 13,712
----------- ---------- ----------
Net cash provided by operating
activities.............................. 269,730 284,431 24,852
----------- ---------- ----------
INVESTING ACTIVITIES
Proceeds from sales of investment
securities available-for-sale............ 869,803 1,271,669 --
Proceeds from sales of investment
securities held-to-maturity.............. -- 20,383 711,058
Proceeds from paydowns and maturities of
investment securities available-for-
sale..................................... 6,346,840 147,244 --
Proceeds from paydowns and maturities of
investment securities held-to-maturity... 22,843,092 360,323 1,487,190
Purchases of investment securities
available-for-sale....................... (7,563,941) (1,198,841) --
Purchases of investment securities held-
to-maturity.............................. (22,809,646) (22,832) (2,530,988)
Net increase in short term investments.... (163,207) (38,114) (120,708)
Proceeds from sales of loans.............. -- 48,420 57,240
Purchase of loans......................... (19) (255) (9,637)
Net disbursements from lending activities
of banking subsidiaries.................. (704,398) (321,126) (120,613)
Principal collected on loans of nonbank
subsidiaries............................. 31,858 25,846 27,275
Loans originated by nonbank subsidiaries.. (40,272) (30,250) (49,511)
Principal payments received under leases.. 4,652 4,916 14,241
Purchases of assets to be leased.......... (7,549) (3,090) (1,311)
Proceeds from the sale of other real
estate................................... 10,727 12,189 25,400
Proceeds from the sale of premises and
equipment................................ 798 2,850 499
Purchases of premises and equipment....... (25,826) (24,464) (21,373)
Proceeds from the sale of deposits........ -- (193,945) (8,712)
Purchases of deposits..................... 6,694 96,600 --
Purchase of mortgage company.............. -- (905) --
Other, net................................ (17,874) (19,259) (29,984)
----------- ---------- ----------
Net cash (used for) provided by investing
activities.............................. (1,218,268) 137,359 (569,934)
----------- ---------- ----------
FINANCING ACTIVITIES
Net increase (decrease) in deposits....... 402,805 (43,008) (35,682)
Net increase (decrease) in short term
borrowings............................... 362,890 (332,356) 413,446
Principal payments on long-term debt...... -- -- (875)
Proceeds from the issuance of preferred
stock.................................... -- -- 144,803
Proceeds from the issuance of medium-term
bank notes............................... 325,000 25,000 --
Repayment of medium-term bank notes....... (25,000) -- --
Cash dividends paid....................... (11,820) (10,440) --
----------- ---------- ----------
Net cash provided by (used for) financing
activities.............................. 1,053,875 (360,804) 521,692
----------- ---------- ----------
Increase (decrease) in cash and cash
equivalents.............................. 105,337 60,986 (23,390)
Cash and cash equivalents at beginning of
year..................................... 692,123 631,137 654,527
----------- ---------- ----------
Cash and cash equivalents at December
31,...................................... $ 797,460 $ 692,123 $ 631,137
=========== ========== ==========
SUPPLEMENTAL DISCLOSURES
Interest payments........................ $ 292,308 $ 241,465 $ 239,333
Income tax payments...................... 48,244 44,881 50,941
NONCASH INVESTING AND FINANCING ACTIVITIES
Loan charge-offs......................... 38,448 42,527 56,291
Transfers to other real estate........... 6,392 2,813 30,070
</TABLE>
See accompanying notes to consolidated financial statements
39
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Maryland Bancorp and
subsidiaries (the "Corporation") conform to generally accepted accounting
principles. The following is a description of the more significant of these
policies:
Business--The Corporation is a wholly owned subsidiary of Allied Irish
Banks, p.l.c. and provides a full range of banking services through its
banking subsidiaries, The First National Bank of Maryland, First Omni Bank,
N.A., and The First National Bank of Maryland, D.C. (collectively the
"National Banks") and The York Bank and Trust Company (collectively with the
National Banks, the "Banks"). Other subsidiaries of the Corporation are
primarily engaged in consumer banking, construction lending, and equipment,
consumer, and commercial financing. The Corporation's primary market area is
the Baltimore/Washington marketplace which encompasses all of Maryland,
Washington, D.C., northern Virginia and south central Pennsylvania. The
Corporation is subject to the regulations of certain Federal agencies and
undergoes periodic examinations by those regulatory agencies.
Basis of Presentation--The consolidated financial statements include the
Corporation and its subsidiaries, principally The First National Bank of
Maryland ("First National"), The York Bank and Trust Company ("York Bank") and
First Omni Bank, N.A. ("First Omni"). All significant intercompany
transactions have been eliminated.
In preparing the financial statements in conformity with generally accepted
accounting principles, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities as of
the date of the statement of condition and revenues and expenses for the
period. Actual results could differ significantly from those estimates.
Material estimates that are particularly susceptible to significant change
in the near-term relate to the determination of the allowance for credit
losses and the valuation of real estate acquired in connection with
foreclosures or in satisfaction of loans. In connection with the determination
of the allowances for credit losses and real estate owned, management obtains
independent appraisals for significant properties.
Management believes that the allowances for losses on loans and real estate
owned are adequate. While management uses available information to recognize
losses on loans and real estate owned, future additions to the allowances may
be necessary based on changes in economic conditions, particularly in the Mid-
Atlantic region of the United States. In addition, as an integral part of
their examination process, various regulatory agencies periodically review the
Corporation's allowance for losses on loans and real estate owned. Such
agencies may require the Corporation to recognize additions to the allowances
based on their judgments about information available to them at the time of
their examination.
Foreign Currency Transactions--Foreign currency amounts, including those
related to foreign branches, are remeasured into the functional currency (the
U.S. dollar) at relevant exchange rates. Aggregate transaction gains and
losses are included in other income and other expense and are not material to
the financial statements.
Money Market Investments--Money market investments are stated at cost, which
approximates fair value except for trading account securities which are
carried at fair value. Adjustments to the fair value of trading account
securities and trading account gains and losses are classified as other income
in the accompanying consolidated statements of income.
Securities--Securities are classified into one of three categories: trading,
available-for-sale, or held-to-maturity. At the time of purchase, management
determines the appropriate designation for debt and equity securities.
40
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Trading account securities are purchased principally with the intent to earn
a profit by trading or selling the security. These securities are stated at
fair value. Adjustments to the carrying value of trading account securities
are reported in other noninterest income.
Held-to-maturity securities are purchased with the ability and intent to
hold them to maturity and are, therefore, carried at cost adjusted for
premiums and discounts.
Securities not classified as held-to-maturity or trading are classified as
available-for-sale. Available-for-sale securities are stated at fair value,
with unrealized gains or losses, net of income taxes reported as a separate
component of stockholders' equity.
Amortization and accretion of discounts and premiums associated with
securities classified as held-to-maturity or available-for-sale are computed
on the straight-line basis adjusted for expected prepayment experience, which
does not differ significantly from the level yield method. Realized gains and
losses, and declines in value judged to be other-than-temporary, are included
as part of noninterest income. The cost of securities sold is determined based
on the specific identification method.
Loans Held-For-Sale--Loans held-for-sale are stated at the lower of
aggregate cost or fair value.
Derivative Financial Instruments
Trading Instruments--The Corporation maintains active trading positions
in interest rate swaps, caps and floors, futures, and options on futures as
well as foreign exchange forward rate agreements, options, and futures.
These positions result from activity generated for corporate customers as
well as for the Corporation's own trading account. Trading instruments are
carried at fair value. The positive and negative fair values are included
in other assets and other liabilities, respectively, in the consolidated
statements of condition. Realized and unrealized gains or losses are
included as a component of other noninterest income.
Risk Management Instruments--The Corporation enters into derivative
financial instruments, primarily interest rate swaps, interest rate caps
and floors, and purchased options for risk management purposes. These risk
management instruments are designated to interest bearing assets and
liabilities of the Corporation and are entered into to modify the
characteristics of the designated assets or liabilities. Interest rate
swaps used for risk management purposes are accounted for on the accrual
basis with net interest income or expense on the swaps recognized as an
adjustment to the interest income or expense of the designated assets or
liabilities. For interest rate caps and floors and purchased options, any
premiums or other cash flows are recorded systematically as a component of
the income or expense of the designated assets or liabilities. Upon early
termination of these derivative financial instruments, any realized gain or
loss is deferred and amortized as an adjustment to the yield of the
designated assets or liabilities over the life of the original hedge, as
long as the designated assets or liabilities remain.
Income on Loans Receivable--Loans are stated at the amount of unpaid
principal, reduced by unearned income and an allowance for credit losses. The
net asset amounts for leased equipment also reflect both related estimated
residual values and unearned investment tax credits to the extent such amounts
are taken into income as yield adjustments over the lives of the related
leases. Discounts on discounted loans and interest on other loans are
generally recognized as income on the level yield method (interest method).
Commitment and origination fees are generally recognized as income over the
commitment and loan periods, respectively. Loans are placed on nonaccrual
status: when interest or principal has been in default for 90 days or more and
the loan is not both well-secured and in the process of collection; when
payment in full of interest or principal is not expected; or the loan is on a
cash basis because of deterioration in the financial position of the borrower.
A loan remains on nonaccrual status until it is either current as to payment
of both principal and interest with the
41
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
borrower demonstrating the ability to pay and remain current, or it meets
regulatory guidelines on returning to accrual status even though the loan has
not been brought fully current.
The Corporation adopted the provisions of Statements of Financial Accounting
Standards (SFAS) No. 114 and 118, "Accounting by Creditors for Impairment of a
Loan" on January 1, 1995. SFAS 114 and 118 apply to loans for which it is
probable that the creditor will not collect all principal and interest
payments according to the loan's contractual terms. The impairment of a loan
is measured at the present value of expected future cash flows using the
loan's effective interest rate, the fair value of the collateral, if the loan
is collateral dependent, or the loan's observable market price. Loans to be
considered for evaluation of collectibility under SFAS 114 and 118 include
loans classified as doubtful, certain substandard loans, certain nonaccrual
loans and any other loans for which collection of all principal and interest
payments under the contractual terms is not considered probable. A valuation
allowance is recorded if the measured value of the impaired loan is less than
its recorded investment (outstanding principal balance, accrued interest
receivable, net deferred loan fees or costs and unamortized premium or
discount). The valuation allowances for impaired loans are included in the
allowance for credit losses through changes in the provision for credit
losses.
Premises and Equipment--Premises and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation and amortization are
charged to operating expenses. Depreciation is computed on the straight line
basis over the estimated useful lives of the assets. Leasehold improvements
are amortized over the lesser of the term of the respective leases or the
lives of the assets. Maintenance and repairs are expensed as incurred. Leases
are accounted for as operating leases since none which meet the criteria for
capitalization would have a material effect if capitalized.
Income Taxes--The Corporation files a consolidated federal income tax
return. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is
recognized as income or expense in the period that includes the enactment
date.
Other Real Estate and Assets--Other real estate and other assets owned
represent property acquired through foreclosure or deeded to the Corporation
in lieu of foreclosure on loans on which borrowers have defaulted as to the
payment of principal and interest. Other real estate and assets, at the time
of foreclosure, are recorded at the asset's fair value minus estimated costs
to sell. Any write-downs at the date of acquisition are charged to the
allowance for credit losses. Subsequent write downs to reflect declines in
fair value minus the estimated costs to sell are charged to operating expenses
through the establishment of a valuation allowance. If there is an improvement
in fair value, the valuation allowance is reduced, but not below zero.
Increases and decreases in the valuation allowance are charged or credited to
income. Expenses incurred in maintaining assets are included in other
operating expenses.
Trust Assets--Property held in fiduciary or agency capacities for First
National's and York Bank's customers is not included in the consolidated
statements of condition since such assets are not assets of the Corporation.
Statement of Cash Flows--For purposes of reporting cash flows, cash
equivalents include cash and due from banks and interest bearing deposits in
other banks of $21,878,000, $137,245,000 and $406,000 at December 31, 1995,
1994 and 1993, respectively, which are included in money market investments in
the consolidated statements of condition.
42
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Servicing Income From Securitized Assets--Servicing income from securitized
assets represents the financial spread (the difference between finance and
other charges earned on such assets and the pass-through rate due to
investors) retained as seller/servicer reduced by estimated credit losses
chargeable against such spread.
Reclassifications--Certain amounts in the 1993 and 1994 consolidated
financial statements have been reclassified to conform with the 1995
presentation.
2. MONEY MARKET INVESTMENTS
Money market investments at December 31, 1995 and 1994 include the
following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Interest bearing deposits in other banks.................. $ 21,878 $137,245
Trading account securities................................ 326 28,005
Federal funds sold........................................ 322,275 154,800
Securities purchased under agreements to resell........... 21,876 26,144
-------- --------
Total money market investments.......................... $366,355 $346,194
======== ========
</TABLE>
3. INVESTMENT SECURITIES
The amortized cost and fair values of available-for-sale securities at
December 31, 1995 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S. Govern-
ment Agencies................. $ 891,263 $10,092 $(1,008) $ 900,347
Mortgage backed obligations.... 1,232,652 13,899 (1,212) 1,245,339
Collateralized mortgage obliga-
tions......................... 421,110 6,103 (2,056) 425,157
Obligations of states and po-
litical subdivisions.......... 98,009 7,040 (163) 104,886
Other debt securities.......... 77,906 -- -- 77,906
Equity securities.............. 33,454 6,934 -- 40,388
---------- ------- ------- ----------
Total........................ $2,754,394 $44,068 $(4,439) $2,794,023
========== ======= ======= ==========
</TABLE>
The amortized cost and fair values of available-for-sale securities at
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government Agencies........... $ 52,084 $ 1 $ (3,369) $ 48,716
Mortgage backed obligations.... 773,388 169 (49,805) 723,752
Collateralized mortgage obliga-
tions......................... 15,689 182 -- 15,871
Obligations of states and po-
litical subdivisions.......... 190,144 8,052 (2,405) 195,791
Other debt securities.......... 38,716 -- -- 38,716
Equity securities.............. 24,286 4,216 (34) 28,468
---------- ------- -------- ----------
Total........................ $1,094,307 $12,620 $(55,613) $1,051,314
========== ======= ======== ==========
</TABLE>
43
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The amortized cost and fair values of available-for-sale debt securities at
December 31, 1995 by contractual maturity are shown in the following table.
Expected maturities will differ from contractual maturities because many
issuers have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE>
<CAPTION>
DECEMBER 31, 1995
---------------------
AMORTIZED FAIR
COST VALUE
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less............................... $ 177,507 $ 174,924
Due after one year through five years................. 813,404 824,657
Due after five years through ten years................ 43,052 46,340
Due after ten years................................... 33,217 37,218
Mortgage backed securities(1)......................... 1,653,760 1,670,496
---------- ----------
Total $2,720,940 $2,753,635
========== ==========
</TABLE>
- --------
(1) Includes mortgage-backed securities and collateralized mortgage
obligations.
Proceeds from the sale of investment securities available-for-sale were
$869,803,000 and $1,271,669,000 during 1995 and 1994. Gross gains and losses
realized on the sale of investment securities available-for-sale were as
follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------
1995 1994
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Gross gains....................................... $ 5,910 $ 22,305
Gross losses...................................... (3,774) (6,717)
----------- ------------
Total........................................... $ 2,136 $ 15,588
=========== ============
</TABLE>
On December 8, 1995, consistent with the implementation guidance provided in
the FASB Special Report titled "A Guide to the Implementation of Statement 115
on Accounting for Certain Debt and Equity Securities", the Corporation
reassessed the appropriateness of the classification of securities in the
held-to-maturity portfolio and elected to transfer all securities in the held-
to-maturity portfolio to the available-for-sale portfolio. The investment
securities transferred had an amortized cost of $1,302,308,000 and net
unrealized gains of $780,000 on the date of transfer.
The amortized cost and fair values of held-to-maturity securities at
December 31, 1994 are as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury and U.S.
Government Agencies.......... $ 793,517 $240 $(37,301) $ 756,456
Mortgage backed obligations... 160,319 -- (9,966) 150,353
Collateralized mortgage obli-
gations...................... 383,426 20 (20,775) 362,671
Other debt securities......... 1,005 -- -- 1,005
---------- ---- -------- ----------
Total....................... $1,338,267 $260 $(68,042) $1,270,485
========== ==== ======== ==========
</TABLE>
44
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
There were no sales of investment securities held-to-maturity during 1995.
Proceeds from the sale of investment securities held-to-maturity were
$20,383,000 during 1994. These sales occurred as a result of the dissolution
of a nonbanking subsidiary of the Corporation. Proceeds from the sale of
investment securities held-for-possible-sale were $711,058,000 during 1993.
Gross gains and losses realized on the sale of investment securities held-to-
maturity and held-for-possible-sale were as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993(1)
------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C>
Gross gains....................................... $ -- $ 67 $ 19,978
Gross losses...................................... -- (39) (2)
------- ------ ---------
Total........................................... $ -- $ 28 $ 19,976
======= ====== =========
</TABLE>
- --------
(1) Held-for-possible-sale portfolio
Investment securities from the consolidated investment portfolio with a book
value of $627,561,000 at December 31, 1995 and $818,179,000 at December 31,
1994 were pledged to secure public funds, trust deposits, repurchase
agreements and funds transactions and for other purposes required by law.
4. LEASES RECEIVABLE
The Corporation's direct financing portfolio consists of general equipment
leases with an emphasis on transportation equipment in addition to retail
automobile leases. The leveraged leases consist of general and transportation
equipment leasing. The following table details the components of the net
investment in leases at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1994
--------- --------
(IN THOUSANDS)
<S> <C> <C>
Direct financing leases:
Lease payments receivable............................. $ 205,184 $153,324
Estimated residual values............................. 38,308 33,234
--------- --------
243,492 186,558
Less unearned income.................................. (55,128) (38,201)
--------- --------
Net investment in direct financing leases............. $ 188,364 $148,357
========= ========
Leveraged leases:
Lease payments receivable............................. $ 76,071 $ 66,336
Estimated residual values............................. 108,228 72,133
--------- --------
184,299 138,469
Less unearned income.................................. (38,159) (27,193)
--------- --------
Investment in leveraged leases........................ 146,140 111,276
Less related deferred taxes........................... (104,598) (85,572)
--------- --------
Net investment in leveraged leases.................... $ 41,542 $ 25,704
========= ========
</TABLE>
Minimum lease payments receivable at December 31, 1995 are due as follows:
<TABLE>
<CAPTION>
AFTER
1996 1997 1998 1999 2000 2000 TOTAL
------- ------- ------- ------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
$40,406 $36,860 $42,439 $32,298 $41,300 $234,488 $427,791
</TABLE>
45
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
5. IMPAIRED LOANS AND ALLOWANCE FOR CREDIT LOSSES
The Corporation adopted the provisions of Statements of Financial Accounting
Standards (SFAS) No. 114 and 118, "Accounting by Creditors for Impairment of a
Loan" on January 1, 1995. SFAS 114 and 118 apply to loans for which it is
probable that the creditor will not collect all principal and interest
payments according to the loan's contractual terms. The impairment of a loan
is measured at the present value of expected future cash flows using the
loan's effective interest rate, or as a practical expedient, at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. A valuation allowance is recorded if the measured value
of the impaired loan is less than its recorded investment (outstanding
principal balance, accrued interest receivable, net deferred loan fees or
costs and unamortized premium or discount). The valuation allowances for
impaired loans are included in the allowance for credit losses through changes
in the provision for credit losses.
Loans to be considered for evaluation of collectibility under SFAS 114 and
118 include loans classified as doubtful, certain substandard loans, certain
nonaccrual loans and any other loans for which collection of all principal and
interest payments under the contractual terms is not considered probable. A
loan would not be considered impaired during a period of "minimum delay" in
payment, regardless of the amount of shortfall, if the ultimate collectibility
of all amounts due is expected. The Corporation defines "minimum delay" as
past due less than 90 days.
Impaired loans include commercial, construction, commercial mortgage and
foreign loans. Impaired loans do not include large groups of smaller balance,
homogeneous loans such as residential mortgages, retail loans and bankcard
loans that are evaluated collectively for impairment, or leases and loans
measured at fair value or lower of cost or fair value. Reserves for probable
future credit losses related to impaired loans are included in the allowance
for credit losses applicable to other than impaired loans. The Corporation's
charge-off policy for impaired loans is consistent with its policy for loan
charge-offs to the allowance. Impaired loans are charged-off when an impaired
loan, or portion thereof, is considered uncollectible. Interest income
received on impaired loans is recorded on a cash basis, which is consistent
with the Corporation's method of interest recognition on nonaccrual loans.
In certain circumstances, a nonaccrual loan may not meet the definition of
an impaired loan under SFAS 114 and 118. At December 31, 1995, the difference
between total nonaccrual loans and total impaired loans was $10.2 million
which included the following: nonaccrual residential loans of $6.4 million
which were considered smaller balance homogeneous loans and a $3.8 million
nonaccrual foreign loan which is classified as a nonaccrual loan due to
regulatory requirements but does not meet the definition of an impaired loan.
The following table presents impaired loans by type and any related
valuation allowance at December 31, 1995:
<TABLE>
<CAPTION>
IMPAIRED IMPAIRED
TOTAL LOANS WITH LOANS WITH RELATED
IMPAIRED NO VALUATION A VALUATION VALUATION
LOANS ALLOWANCE ALLOWANCE ALLOWANCE
-------- ------------ ----------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Commercial..................... $16,588 $15,370 $1,218 $570
Real estate, construction...... 1,125 1,033 92 35
Real estate mortgage, commer-
cial.......................... 4,785 4,020 765 130
Foreign........................ 521 521 -- --
------- ------- ------ ----
Total........................ $23,019 $20,944 $2,075 $735
======= ======= ====== ====
</TABLE>
<TABLE>
<S> <C>
Year-to-date average recorded investment in impaired loans......... $33,604
Year-to-date interest income recognized during impairment.......... 396
Year-to-date interest income recognized on a cash basis during
impairment........................................................ 396
</TABLE>
46
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
At December 31, 1995, $15,399,000 of the total impaired loans were measured
using the fair value of the loan's collateral and $1,022,000 were measured
using the present value of expected future cash flows. The remaining impaired
loans of $6,598,000 represented loans with recorded investments of less than
$500,000 which were measured at the outstanding loan balance less any specific
reserves. The $735,000 valuation allowance for impaired loans at December 31,
1995 and the activity related to impaired loans for the year ended December
31, 1995 is included in the allowance for credit losses discussed below.
The provision for credit losses is determined by analyzing the status of
individual loans, reviewing historical loss experience and reviewing the
delinquency of principal and interest payments where pertinent. Management
believes that all uncollectible amounts have been charged off and that the
allowance is adequate to cover all losses inherent in the portfolio at
December 31, 1995. A summary of the activity in the allowance for the three
years ended December 31, 1995 follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance beginning of year.................... $191,024 $200,006 $201,451
Provision charged to operating expenses...... 16,000 22,996 45,291
Allowance of loans acquired or (sold)........ -- (2,610) (4,259)
Less charge offs, net of recoveries of
$9,045, $13,159, and $13,814................ (29,403) (29,368) (42,477)
-------- -------- --------
Balance at end of year....................... $177,621 $191,024 $200,006
======== ======== ========
</TABLE>
6. PREMISES AND EQUIPMENT
Components of premises and equipment at December 31, 1995 and 1994 are as
follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------------ ------------------------------
ACCUMULATED ACCUMULATED
DEPRECIATION DEPRECIATION
AND AND
COST AMORTIZATION NET COST AMORTIZATION NET
-------- ------------ -------- -------- ------------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Land.................... $ 11,107 $ -- $ 11,107 $ 11,118 $ -- $ 11,118
Buildings and land
improvements........... 46,567 20,238 26,329 46,679 20,155 26,524
Leasehold improvements.. 38,580 21,261 17,319 33,749 18,438 15,311
Furniture and
equipment.............. 54,178 38,411 15,767 67,430 52,640 14,790
Computer hardware and
software............... 82,114 48,257 33,857 83,538 49,124 34,414
-------- -------- -------- -------- -------- --------
Total................. $232,546 $128,167 $104,379 $242,514 $140,357 $102,157
======== ======== ======== ======== ======== ========
</TABLE>
Depreciation and amortization on premises and equipment charged to
operations amounted to $22,354,000 in 1995, $20,359,000 in 1994, and
$18,020,000 in 1993.
47
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
7. MORTGAGE SERVICING RIGHTS
Mortgage servicing rights activity for the three years ended December 31,
1995 is as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------------------
1995 1994 1993
-------------------- --------- ---------
ORIGINATED PURCHASED PURCHASED PURCHASED
---------- --------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance beginning of year......... $ -- $1,270 $ 777 $ --
Capitalized mortgage servicing
rights........................... 5,610 311 889 1,083
Amortization...................... (538) (514) (396) (306)
Valuation allowance............... (39) -- -- --
------ ------ ------ ------
Balance at end of year............ $5,033 $1,067 $1,270 $ 777
====== ====== ====== ======
</TABLE>
The Corporation adopted Statement of Financial Accounting Standards (SFAS)
No. 122, "Accounting for Mortgage Servicing Rights" in 1995 which requires an
allocation of a portion of the total cost of applicable mortgage loans to
originated mortgage servicing rights based upon their relative fair values on
the date of mortgage origination. Market quotes were used to determine the
fair value of the mortgage servicing rights at origination. The capitalized
mortgage servicing rights are amortized in proportion to and over the
estimated period of net servicing income. As related loans pay off during the
period of amortization, the related unamortized mortgage servicing rights are
written off.
The Corporation analyzes the capitalized mortgage servicing rights for
impairment on a quarterly basis using a discounted cash flow analysis.
Impairment losses are determined by stratifying the population of mortgage
servicing rights based upon the following risk characteristics of the
underlying loans: loan type and term. A valuation allowance will be recorded
if the unamortized mortgage servicing rights exceed their fair value. In 1995,
a provision for impaired mortgage servicing rights of $39,000 was recorded.
8. VALUATION ALLOWANCE FOR OTHER REAL ESTATE OWNED
A summary of the activity in the valuation allowance for other real estate
owned is provided below:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Balance beginning of year...................... $ 4,185 $ 4,412 $ 9,195
Provision for other real estate losses......... 264 44 6,202
Writedowns..................................... (4,154) (271) (10,985)
-------- ------- ---------
Balance at end of year......................... $ 295 $ 4,185 $ 4,412
======== ======= =========
</TABLE>
9. FUNDS SOLD AND PURCHASED AND REPURCHASE AGREEMENTS
Federal funds generally represent one-day transactions, a portion of which
arise because of the Corporation's market activity in Federal funds for
correspondent banks. Securities sold or purchased under agreements to resell
or repurchase are secured by U.S. Treasury and U.S. Government agency
securities and mature within three months.
At December 31, 1995, securities purchased under agreements to resell
amounted to $21,876,000. All securities purchased were delivered either
directly to the Corporation or to an agent for safekeeping. The aggregate fair
value of all securities purchased under agreements to resell did not exceed
10% of total assets and
48
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
the amount at risk with any individual counterparty or group of related
counterparties did not exceed 10% of total stockholders' equity.
At December 31, 1995, securities sold under agreements to repurchase
amounted to $214,630,000. The aggregate fair value of all securities sold
under agreements to repurchase did not exceed 10% of total assets and the
amount at risk with any individual counterparty or group of related
counterparties did not exceed 10% of total stockholders' equity.
10. OTHER BORROWED FUNDS, SHORT-TERM
Following is a summary of short-term borrowings exclusive of overnight
Federal funds purchased and securities sold under agreements to repurchase at
December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Master demand notes of the Corporation.................... $402,489 $402,539
Bank notes................................................ 400,000 130,000
Federal funds purchased-term.............................. 80,000 --
Other..................................................... 26,155 8,968
-------- --------
Total................................................... $908,644 $541,507
======== ========
</TABLE>
At December 31, 1995, the Corporation had available lines of credit with
third-party banks aggregating $100,000,000 to support commercial paper
borrowings for which a fee is generally paid in lieu of compensating balances.
11. LONG-TERM DEBT
Following is a summary of the long-term debt of the Corporation at December
31, 1995 and 1994 which is all unsecured:
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
5.75% Medium term bank note due September 1, 1995........ $ -- $ 25,000
Floating Rate Medium term bank note due October 2, 1996.. 75,000 --
Floating Rate Medium term bank note due October 23,
1996.................................................... 100,000 --
5.72% Medium term bank note due October 31, 1996......... 100,000 --
Floating Rate Medium term bank note due November 1,
1996.................................................... 50,000 --
10.375% Subordinated Capital Notes due August 1, 1999.... 59,969 59,960
9.15% Notes due June 1, 1996............................. 10,000 10,000
8.68% Notes due January 31, 1997......................... 9,998 9,997
8.67% Notes due March 20, 1997........................... 9,998 9,997
8.375% Subordinated Notes due May 15, 2002............... 99,722 99,678
-------- --------
Total.................................................. $514,687 $214,632
======== ========
</TABLE>
All of the notes other than the 10.375% Subordinated Capital Notes and the
8.375% Subordinated Notes are senior indebtedness. There is no provision in
any of the Notes or related indentures for a sinking fund. Several of the
notes or related indentures also prohibit the sale, transfer, or disposal of
any capital stock of the Corporation.
49
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The Floating Rate, $75,000,000 Medium term bank note matures October 2, 1996
and bears interest at a rate equal to 5 basis points below the London inter-
bank offered rates (LIBOR) for 1-month Eurodollar deposits. The rate at
December 31, 1995 was 5.92656%. Interest is payable monthly and the note is
not redeemable prior to maturity.
The Floating Rate, $100,000,000 Medium term bank note matures October 23,
1996 and bears interest at a rate equal to 18.75 basis points above the LIBOR
rates for 3-month Eurodollar deposits. The rate at December 31, 1995 was
5.90%. Interest is payable at maturity and the note is not redeemable prior to
maturity.
The 5.72%, $100,000,000 Medium term bank note matures October 31, 1996 with
interest payable at maturity and is not redeemable prior to maturity.
The Floating Rate, $50,000,000 Medium term bank note matures November 1,
1996 and bears interest at a rate of 5 basis points below the LIBOR rates for
1-month Eurodollar deposits. The rate at December 31,1995 was 5.92266%.
Interest is payable monthly and the note is not redeemable prior to maturity.
The 10.375% Subordinated Capital Notes mature August 1, 1999 with interest
payable semiannually and at maturity and will be exchanged for Common Stock of
the Corporation having a fair value equal to the principal amount of the
Notes, except to the extent that the Corporation, at its option, elects to pay
in cash the principal amount of the Notes, in whole or in part, from amounts
representing proceeds of other issuances of securities qualifying as capital,
designated for such purpose.
The 9.15% Notes mature June 1, 1996 with interest payable semiannually and
are not redeemable except under certain conditions. The notes contain various
financial covenants, including tangible net worth requirements and the
maintenance of indebtedness ratios. The Corporation was in compliance with the
financial covenants at December 31, 1995.
The 8.68% Notes mature January 31, 1997 with interest payable semiannually
and are not redeemable prior to maturity.
The 8.67% Notes mature March 20, 1997 with interest payable semiannually and
are not redeemable prior to maturity.
The 8.375% Subordinated Notes mature May 15, 2002, with interest payable
semiannually and are not redeemable prior to maturity.
12. EMPLOYEE BENEFIT PLANS
The Corporation sponsors three defined benefit pension plans. The largest
plan covers substantially all employees of the Corporation and its
subsidiaries; the two smaller plans provide supplemental benefits to certain
key employees. Benefits under the plans are generally based on age, years of
service and compensation levels. Net periodic pension costs totaled $6,714,000
in 1995, $12,002,000 in 1994, and $10,209,000 in 1993.
Effective January 1, 1994, the Corporation implemented a change in the
methodology used to determine the amortization of unrecognized actuarial gains
and losses to be included in current period pension costs. Prior to 1994, the
Corporation amortized all actuarial gains and losses over a period of ten
years, the estimated remaining service period of active employees who are
expected to receive benefits under the Corporation's pension plan. In 1994,
the Corporation, in compliance with the provisions of Statement of Financial
Accounting Standards No. 87, elected to amortize these gains and losses only
to the extent that they exceed ten percent of (a) the projected benefit
obligation or (b) the fair market value of plan assets, whichever is greater.
This change in methodology
50
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
was implemented to reduce the volatility of the Corporation's pension expense
from year to year due to the dramatic swings in interest rates used to set the
annual discount rate. This change in accounting methodology reduced pension
expense by approximately $933,000 in 1994. Prior year pension costs have not
been restated.
Effective January 1, 1994, the Corporation also changed its actuarial
assumptions regarding the increase in future compensation levels used in
determining the actuarial present value of the projected benefit obligation
from 5.5% to 4.5%. The 4.5% increase in compensation levels reflects the
Corporation's actual experience during 1994. Future compensation increases are
not expected to exceed 4.5% over the next five years.
The following tables set forth the combined financial status of the plans
for 1995 and 1994, and the composition of net periodic pension costs for 1995,
1994 and 1993.
<TABLE>
<CAPTION>
DECEMBER 31
-----------------
1995 1994
-------- --------
(IN THOUSANDS)
<S> <C> <C>
Accumulated benefit obligation:
Vested................................................. $104,669 $ 75,826
Non vested............................................. 3,199 3,138
-------- --------
Total................................................ $107,868 $ 78,964
======== ========
Projected benefit obligation............................. $149,413 $107,522
Plan assets at fair value (primarily marketable
securities)............................................. 112,855 87,372
-------- --------
Unfunded status........................................ $ 36,558 $ 20,150
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------------------------------------------
1995 1994
---------------------------- ---------------------------
FUNDED UNFUNDED FUNDED UNFUNDED
PLAN PLANS TOTAL PLAN PLANS TOTAL
-------- -------- -------- ------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Unrecognized net
transition asset
(liability)............ $ 5,470 $ (498) $ 4,972 $ 6,881 $ (597) $ 6,284
Unrecognized prior
service benefit
(costs)................ 2,179 (2,503) (324) 2,359 (2,696) (337)
Unrecognized net loss... (47,701) (3,402) (51,103) (25,969) (2,004) (27,973)
Prepaid (accrued)
pension costs.......... 17,243 (7,346) 9,897 7,372 (5,496) 1,876
-------- -------- -------- ------- -------- --------
Unfunded status......... $(22,809) $(13,749) $(36,558) $(9,357) $(10,793) $(20,150)
======== ======== ======== ======= ======== ========
</TABLE>
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
---------------------------
1995 1994 1993
-------- -------- -------
(IN THOUSANDS)
<S> <C> <C> <C>
Net periodic pension costs:
Service cost.................................. $ 5,869 $ 6,709 $ 6,098
Interest cost................................. 8,589 8,519 8,151
Return on assets.............................. (19,488) 3,194 (9,489)
Net amortization and deferral................. 11,744 (10,854) 5,449
Settlement expense............................ -- 4,434 --
-------- -------- -------
Total....................................... $ 6,714 $ 12,002 $10,209
======== ======== =======
</TABLE>
Included in accrued pension costs and netted against retained earnings in
1995, 1994 and 1993 are accruals of $834,000, $634,000, and $2,078,000,
respectively. The adjustments were made to reflect the excess of the unfunded
accumulated benefit obligation (the excess of the accumulated benefit
obligations over the fair value of plan assets) over the existing unrecognized
prior service costs for one of the supplemental plans.
51
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The 1995 weighted average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 6.95% and 4.50%, respectively. The expected
long-term rate of return on assets was 9.25% in 1995. For 1994, the rates were
7.89%, 4.50% and 9.25%, respectively.
The Corporation sponsors defined benefit postretirement plans that provide
medical and life insurance coverage to eligible retirees and dependents based
on age and length of service. Medical coverage options are the same as those
available to active employees. The cost of plan coverage for retirees and
their qualifying dependents is based upon a credit system that combines age
and years of service. Substantially all employees become eligible for these
benefits when they retire. Benefits are provided through an insurance company
whose premiums are based on the benefits paid during the year.
In 1993, the Corporation adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions," and elected to amortize the
transition obligation of $19.8 million on a straight-line basis over a period
of twenty years. Postretirement benefit costs totaled $3.7 million , $3.8
million and $3.7 million in 1995, 1994 and 1993, respectively.
The following table sets forth the plan's funded status and amounts
recognized in the Corporation's Consolidated Statements of Condition.
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
---------------------------- ----------------------------
LIFE LIFE
MEDICAL INSURANCE TOTAL MEDICAL INSURANCE TOTAL
-------- --------- -------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Accumulated
Postretirement Benefit
Obligation:
Retirees.............. $ (9,867) $(1,649) $(11,516) $ (8,495) $(1,360) $ (9,855)
Dependents of retirees
eligible for
benefits............. (3,542) -- (3,542) (3,100) -- (3,100)
Active employees fully
eligible for
benefits............. (619) (146) (765) (478) (120) (598)
Active employees not
eligible for
benefits............. (10,456) (918) (11,374) (8,911) (702) (9,613)
-------- ------- -------- -------- ------- --------
Accumulated
postretirement benefit
obligation............. (24,484) (2,713) (27,197) (20,984) (2,182) (23,166)
Plan assets at fair
value.................. -- -- -- -- -- --
-------- ------- -------- -------- ------- --------
Accumulated
postretirement benefit
obligation in excess of
plan assets............ (24,484) (2,713) (27,197) (20,984) (2,182) (23,166)
Unrecognized prior
service cost........... -- -- -- -- -- --
Unrecognized net (gain)
loss................... 1,955 289 2,244 (126) (144) (270)
Unrecognized transition
obligation............. 14,956 1,914 16,870 15,836 2,026 17,862
-------- ------- -------- -------- ------- --------
Net postretirement
benefit liability
included in other
liabilities............ $ (7,573) $ (510) $ (8,083) $ (5,274) $ (300) $ (5,574)
======== ======= ======== ======== ======= ========
</TABLE>
The assumptions used in developing the present value of the postretirement
benefit obligation are as follows:
<TABLE>
<CAPTION>
1995 1994
----- -----
<S> <C> <C>
General inflation.............................................. 4.50% 4.50%
Weighted average discount rate................................. 7.25 8.50
Weighted average rate of compensation increase................. 4.50 4.50
Rate of increase in health care costs-initial.................. 12.50 13.50
Rate of increase in health care costs-ultimate................. 5.50 5.50
</TABLE>
52
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The resulting net periodic postretirement benefit costs consist of the
following components:
<TABLE>
<CAPTION>
DECEMBER 31, 1995 DECEMBER 31, 1994
------------------------- ------------------------
LIFE LIFE
MEDICAL INSURANCE TOTAL MEDICAL INSURANCE TOTAL
------- --------- ------ ------- --------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Service cost............. $1,002 $ 54 $1,056 $1,031 $ 69 $1,100
Interest cost............ 1,517 178 1,695 1,570 175 1,745
Amortization of net
gain.................... (71) -- (71) -- -- --
Amortization of
unrecognized transition
obligation.............. 880 112 992 879 113 992
------ ---- ------ ------ ---- ------
Net periodic
postretirement benefit
costs................. $3,328 $344 $3,672 $3,480 $357 $3,837
====== ==== ====== ====== ==== ======
</TABLE>
The weighted average annual assumed rate of increase in the per capita cost
of covered benefits is 12.2% for 1995 and is assumed to decrease gradually to
5.3% in the year 2005 after which the trend increases 0.01% per year. This
health care cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend rates
by one percentage point would increase the accumulated post retirement benefit
obligation at December 31, 1995 by $1,931,000 and the aggregate of the service
and interest cost components of net periodic postretirement benefit costs for
1995 by $129,000.
The Corporation provides all salaried and eligible hourly employees with a
defined contribution plan. Eligible employees may enter the plan on January 1
or July 1 following their date of employment. Employees may contribute varying
percentages of their annual base compensation up to a maximum of 16% (highly
compensated maximum of 10% during 1995). The Corporation matches 50% of the
first 6% of an employee's contribution. In addition, the Corporation makes
contributions based on accumulated, unused sick leave accrued at the end of
the plan year for non-officer employees. The defined contribution plan
expenses totaled $3.2 million, $3.3 million and $3.5 million in 1995, 1994 and
1993, respectively.
13. OTHER INCOME AND OTHER OPERATING EXPENSES
The following table summarizes the more significant elements of these
accounts for the three years ended December 31, 1995:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Other income:
Security sales and fees........................ $ 8,614 $ 7,405 $ 8,710
Customer service fees.......................... 7,716 8,577 8,704
Other.......................................... 27,232 35,329 29,537
-------- -------- --------
Total........................................ $ 43,562 $ 51,311 $ 46,951
======== ======== ========
Other operating expenses:
External processing fees....................... $ 20,543 $ 15,792 $ 17,455
Advertising and public relations............... 16,299 15,967 12,302
Postage and communications..................... 14,997 13,661 13,238
Regulatory fees and insurance.................. 9,031 16,155 16,006
Professional fees.............................. 8,674 16,379 12,594
Lending and collection......................... 6,225 9,319 10,798
Other.......................................... 38,137 37,629 49,008
-------- -------- --------
Total........................................ $113,906 $124,902 $131,401
======== ======== ========
</TABLE>
53
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
14. INCOME TAXES
The Corporation follows an asset and liability approach for accounting for
income taxes. Its objective is to recognize the amount of taxes payable or
refundable in the current year, and deferred tax assets and liabilities for
future tax consequences attributable to differences between the financial
statement carrying amount of existing assets and liabilities and their
respective tax bases. The measurement of tax assets and liabilities is based
on enacted tax laws. Deferred tax assets are reduced, if necessary, by the
amount of such benefits that are not expected to be realized based on
available evidence.
The following is an analysis of income tax amounts included in the
consolidated statements of condition at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DECEMBER 31
---------------
1995 1994
------- ------
(IN THOUSANDS)
<S> <C> <C>
Federal income taxes currently payable...................... $ 961 $5,102
State income taxes currently (receivable) payable........... (446) 493
Deferred Federal and State income tax liability............. 54,441 229
</TABLE>
The components of income tax expense for the three years ended December 31,
1995 are as follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Taxes currently payable:
Federal........................................ $28,708 $36,496 $55,041
Foreign........................................ 377 342 333
State.......................................... 2,639 4,051 9,435
-------- -------- --------
Total taxes currently payable................ 31,724 40,889 64,809
-------- -------- --------
Deferred income taxes:
Federal........................................ 29,329 15,170 (2,648)
State.......................................... 2,939 3,229 671
-------- -------- --------
Total deferred income taxes.................. 32,268 18,399 (1,977)
-------- -------- --------
Total income tax expense......................... $63,992 $59,288 $62,832
======== ======== ========
</TABLE>
Foreign income taxes represent taxes on interest received from foreign
borrowers and foreign dividends received.
The reconciliation of the statutory Federal income tax rate to the effective
tax rate for the three years ended December 31, 1995 follows:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
----------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Percent of pre-tax income:
Statutory Federal income tax rate.......... 35.00% 35.00% 35.00%
Increase (decrease) in tax rate resulting
from:
Tax-exempt income.......................... (2.74) (3.85) (4.09)
State income taxes, net of Federal
benefits.................................. 1.97 2.78 3.72
Other, net................................. 0.51 0.86 0.93
-------- -------- --------
Effective tax rate........................... 34.74% 34.79% 35.56%
======== ======== ========
</TABLE>
54
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 and 1994 are presented below:
<TABLE>
<CAPTION>
DECEMBER 31
--------------------
1995 1994
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Bad debt........................................... $ 74,937 $ 76,171
Deferred compensation.............................. 12,635 13,012
Income on loans.................................... 4,937 4,140
Unrealized losses on investment securities
available-for-sale................................ -- 16,025
Depreciation....................................... 605 --
Other.............................................. 6,923 7,796
--------- ---------
Total gross deferred tax assets.................. 100,037 117,144
--------- ---------
Deferred tax liabilities:
Leases............................................. (130,410) (106,738)
Depreciation....................................... -- (1,696)
Unrealized gains on investment securities
available-for-sale................................ (15,225) --
Debt and securities sales.......................... (2,981) (6,925)
Pensions........................................... (1,705) --
Other.............................................. (4,157) (2,014)
--------- ---------
Total gross deferred tax liabilities............. (154,478) (117,373)
--------- ---------
Net deferred tax liability....................... $ (54,441) $ (229)
========= =========
</TABLE>
The composition of the 1995 income tax liability and provision between
current and deferred portions is subject to final determination based on the
1995 consolidated Federal income tax return.
15. LEASE COMMITMENTS
The Corporation occupies various office facilities under lease arrangements,
virtually all of which are operating leases. Rental expense under these
leases, net of subleases, was $17,980,000 in 1995, $17,196,000 in 1994, and
$16,469,000 in 1993. Rental expense under equipment lease arrangements, all of
which are considered short-term commitments, was $2,639,000 in 1995,
$3,978,000 in 1994, and $2,731,000 in 1993. The following is a summary of the
annual noncancellable long-term commitments, net of subleases:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996..................... $17,664
1997..................... 13,357
1998..................... 8,910
1999..................... 7,268
2000..................... 6,210
2001-2005................ 22,176
2006-and beyond.......... 19,839
</TABLE>
The lease amounts represent minimum rentals not adjusted for property tax
and operating expenses which the Corporation may be obligated to pay. Such
amounts are insignificant in relation to the minimum obligations. It is
expected that in the normal course of business, leases that expire will be
renewed or replaced by leases on other properties; thus, it is anticipated
that future annual minimum lease commitments will not be less than the rental
expense for 1995.
55
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
16. REGULATORY REQUIREMENTS AND RESTRICTIONS
The payment of dividends to the Corporation by subsidiary banks is subject
to various Federal and state regulatory limitations. A national bank must
obtain the approval of the Comptroller of the Currency if the total of all
dividends declared in any calendar year exceeds that bank's net profits for
that year combined with its retained net profits for the preceding two
calendar years. Under this formula, the amount available for dividends without
the prior approval of the Comptroller of the Currency was $123,951,000 at
January 1, 1996.
The Federal Reserve Act limits extensions of credit that can be made from
the Banks to any affiliate (with certain exceptions), including the Parent
Company. Loans to any one affiliate may not exceed 10% of a bank subsidiary's
capital and surplus and loans to all affiliates cannot exceed 20% of such bank
subsidiary's capital and surplus. Additionally, all loans must be
collateralized and must have terms comparable to those with unaffiliated
companies.
The Banks are required to maintain reserves, included in cash and due from
banks, with the Federal Reserve Bank against their deposits. Average reserve
balances maintained during 1995 and 1994 were $46,445,000 and $53,755,000,
respectively.
17. TRADING AND DERIVATIVE FINANCIAL INSTRUMENTS, COMMITMENTS AND CONTINGENT
LIABILITIES
Trading Instruments
The Corporation maintains active trading positions in a variety of financial
derivatives including foreign exchange and interest rate futures, interest
rate swaps, interest rate caps and floors, forward rate agreements, and
interest rate and foreign exchange options. Many of these positions are a
result of activity generated by corporate customers. The balance of the
positions represent strategic trading decisions of the Corporation's
derivative and foreign exchange traders. The managers and traders involved in
financial derivatives have the technical expertise to trade these products
effectively. The active involvement of the Corporation's traders in these
markets allows the Corporation to offer competitive pricing to customers and
the expertise necessary to advise the Corporation's asset/liability managers
on the proper timing and execution of hedging strategies for the Corporation's
balance sheet.
56
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Net Trading Income
The following table summarizes the Corporation's net trading income by
category of instrument. Net trading income is included in the income statement
as a component of other noninterest income.
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994
------------ ------------
(IN THOUSANDS)
<S> <C> <C>
Interest rate contracts:
Interest rate swaps............................ $ 4,087 $ 2,382
Futures........................................ (3,575) 504
Interest rate caps and floors.................. 40 69
Swaptions...................................... 3 13
Options........................................ 6 10
Securities..................................... (224) (1,749)
------------ ------------
337 1,229
------------ ------------
Foreign exchange contracts:
Spot and forward contracts..................... (2,065) 2,001
Futures........................................ (101) 457
Options........................................ 2,163 (1,534)
Miscellaneous.................................. 31 13
------------ ------------
28 937
------------ ------------
Total net trading income..................... $ 365 $ 2,166
============ ============
</TABLE>
57
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Nature and Terms of Trading Instruments
The following table presents the notional amounts, the end-of-period fair
values and the average fair values of the classes of trading instruments at
December 31, 1995 and 1994. The fair value in a receivable position for
interest rate swaps and forwards and the fair value of the interest rate caps
and floors and options held represent the credit exposure at December 31, 1995
and 1994.
<TABLE>
<CAPTION>
FAIR VALUES
----------------------------------
END-OF-PERIOD
NOTIONAL AMOUNTS DECEMBER 31, AVERAGE
----------------- ---------------- ----------------
1995 1994 1995 1994 1995 1994
-------- -------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Interest rate contracts:
Interest rate swaps.... $770,294 $433,743
In a receivable
position............ $12,257 $ 7,543 $ 6,952 $ 4,438
In a payable
position............ (6,043) (5,025) (3,137) (3,975)
Interest rate caps..... 308,819 364,195
Interest rate caps
held................ 191 2,899 1,223 689
Interest rate caps
written............. (191) (2,925) (1,229) (725)
Futures................ 75,500 62,000
In a favorable
position............ 1 32 -- --
In an unfavorable
position............ (274) (86) -- --
Foreign exchange
contracts:
Options................ 707,654 425,410
Options held......... 7,128 1,558 2,518 1,544
Options written...... (6,083) (1,711) (2,339) (1,134)
Forwards and futures... 825,137 346,937
In a favorable
position............ 1,566 1,138 1,224 856
In an unfavorable
position............ (1,365) (846) (881) (106)
Securities:
Commitments to
purchase.............. 57,545 16,148 -- -- -- --
Commitments to sell.... 59,625 16,343 -- -- -- --
</TABLE>
The classes of trading instruments disclosed in the preceding table are
identified and described in the following sections, including a discussion of
notional amounts, credit exposure, and market risk.
Notional amounts represent the underlying amounts that the instruments are
based upon and do not represent the amounts exchanged by the parties to the
instruments. In addition, these amounts do not measure the Corporation's
exposure to credit or market risks. Credit risk is the risk of loss in the
event a counterparty to a transaction defaults or fails to perform under the
terms of the contract. The Corporation's credit risk exposure is represented
by the instruments detailed above with a positive fair value. The Corporation
would incur a loss if it was necessary to replace these instruments due to
counterparty default. The Corporation minimizes the credit risk of these
instruments through adherence to credit approvals, risk control limits, and
monitoring procedures. Market risk is the risk of decline in the value of the
contract arising from adverse movements in price, index, or rate of the
instrument underlying the contract. Exposure to market risk is managed in
accordance with the Corporation's approved risk limits and by entering into
offsetting positions. In addition, trading systems are in place which measure
risks and profitability associated with trading positions as market movements
occur.
Interest Rate Contracts
Interest rate swaps--These instruments represent contracts between two
parties to exchange interest payments on a specified principal amount,
referred to as the notional principal, for a specified period. Trading
58
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
interest rate swap activity arises when the Corporation takes a fixed or
floating rate position in a swap or when the Corporation acts as an
intermediary in arranging interest rate swap transactions for customers and
becomes a principal in the exchange of interest payments between the parties.
Cash settlement on interest rate swaps occurs on a monthly, quarterly, or
semiannual basis as specified in each interest rate swap contract.
Interest rate caps and floors--These instruments are option-like contracts
that require the writer to pay the purchaser at specified future dates, the
amount, if any by which a specified market interest rate exceeds the fixed cap
rate or falls below the fixed floor rate, applied to a notional principal
amount. The option writer receives a premium for bearing the risk of
unfavorable interest rate changes. Interest rate caps and floors written do
not expose the Corporation to credit risk, since the obligation to perform, if
required, is on the Corporation.
Forwards and Futures--These instruments are contracts giving the holder the
right to purchase or sell a financial instrument at a future date for a
specified amount. Futures are traded on regulated exchanges. The credit risk
of futures contracts is limited by daily cash settlement of the net change in
value of open contracts with the exchange on which the contracts are traded.
Forwards are not traded on regulated exchanges and expose the Corporation to
credit risk as daily cash settlements are not required.
Options--These instruments are contracts that grant the purchaser the right
to either purchase from or sell to the writer a specified financial instrument
under agreed terms in exchange for a premium payment. Options written do not
expose the Corporation to credit risk since the obligation to perform, if
required, is on the Corporation.
Foreign Exchange Contracts
Options--These instruments are contracts conveying to the purchaser the
right, but not the obligation, to buy or sell an agreed amount of currency at
a specified exchange rate on or before a designated future date. The option
writer receives a premium for bearing the risk of unfavorable exchange rate
changes. Options written do not expose the Corporation to credit risk since
the obligation to perform, if required, is on the Corporation. At December 31,
1995, these contracts were principally denominated in pounds sterling and
Canadian dollars.
Forwards and Futures--These instruments are contracts to purchase or sell
currencies at a specified exchange rate on a future date. Futures are traded
on regulated exchanges. The credit risk of futures is limited by daily cash
settlement of the net change in value of open contracts with the exchange on
which the contracts are traded. Forwards are not traded on regulated exchanges
and expose the Corporation to credit risk as daily cash settlements are not
required. At December 31, 1995, these contracts were principally denominated
in deutschemarks, pounds sterling, French francs and Japanese yen.
Securities
Commitments to purchase--These amounts represent commitments to purchase
when-issued securities as well as purchases of securities for the
Corporation's trading portfolio which have not settled as of the reporting
date. When-issued securities are securities where an announcement has been
made of the forthcoming issue by the U. S. Treasury or some other issuer but
settlement has not yet occurred.
Commitments to sell--These amounts represent commitments to sell when-issued
securities as well as sales of securities in the Corporation's trading
portfolio which have not settled as of the reporting date.
Risk Management Instruments
Derivative financial instruments are an integral part of the Corporation's
risk management process. Derivatives allow the Corporation to modify the
repricing or maturity characteristics of assets and liabilities in a
59
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
cost-efficient manner. This flexibility helps the Corporation to achieve
liquidity, capital, and interest rate risk objectives.
Derivatives fluctuate in value as interest rates rise or fall just as on-
balance sheet assets and liabilities fluctuate in value. Derivatives are used
to modify the characteristics of assets or liabilities to which they are
designated as well as to provide basis risk protection.
For example, the Corporation utilizes interest rate swaps to convert fixed
rate assets to floating rate assets or vice versa. When the Corporation uses
swaps to match/fund fixed rate term loans to customers, the Corporation is
converting the fixed rate loans to floating rate loans that better match the
floating rate deposits received from core customers.
Interest rate swaps also are used to convert floating rate liabilities to
fixed rate liabilities or vice versa. Interest rate swaps designated to
certain liabilities are used to extend the period over which the Corporation's
short-term deposits reprice thus locking in fixed rates. This offers
protection against liabilities repricing faster than assets during periods of
rising interest rates. Interest rate swaps sold as liability hedges are used
to adjust fixed rate long-term deposits to floating rate deposits. The
Corporation receives a fixed rate on this type of swap that offsets the fixed
rate paid on the term deposits thus converting the deposits to a floating
rate. By issuing long-term deposits, the Corporation increases its overall
liquidity. Customer demand for long-term deposits is primarily fixed rate.
Interest rate swaps allow the Corporation to swap fixed rate liabilities for
floating rate liabilities when appropriate for interest rate sensitivity
purposes.
The Corporation also utilizes interest rate swaps to extend the period over
which floating rate assets (e.g. prime rate loans) reprice thus locking in a
fixed rate. This strategy is used to reduce the asset sensitivity of the
balance sheet or to better match maturities of assets or liabilities. Basis
swaps are sometimes utilized to protect the interest rate spread between
assets and liabilities that are repriced based on different indexes. Prime
rate loans are often funded by liabilities that reset off of a CD index,
treasury index, or LIBOR. Basis swaps lock in the spread between different
indexes during the life of the swaps. These swaps transfer the basis risk to
third parties willing to assume the risk and allow the Corporation to lock in
interest rate spreads between certain assets and liabilities.
To achieve its asset/liability management objectives, the Corporation uses a
combination of derivatives, particularly interest rate swaps, interest rate
caps and floors, and options. The nature of the instruments and the
significance of notional and credit exposure amounts are the same as described
in the preceding section on Trading Instruments. Credit risk and market risk
factors are also similar. The appropriateness of entering into derivative
instruments for risk management purposes is a function of the current or
desired interest rate sensitivity of the Corporation and is limited by
interest rate risk policies approved by the Corporation's Board of Directors.
60
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table presents the notional and fair value amounts for the risk
management instruments entered into by the Corporation at December 31, 1995 and
1994 as well as the weighted average maturity and weighted average receive and
pay rates for the instruments at December 31, 1995. The unrealized gross gains
for the various classes of instruments represent the credit exposure at
December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1995
WEIGHTED WEIGHTED ESTIMATED
NOTIONAL AMOUNT AVERAGE AVERAGE RATE FAIR VALUE
----------------- MATURITY ------------ ----------------
1995 1994 IN YEARS RECEIVE PAY 1995 1994
-------- -------- -------- ------- ---- ------ --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
DESIGNATED TO ASSETS
INTEREST RATE SWAPS SOLD
Convert floating rate to
fixed rate............. $375,000 $175,000 1.74 5.90% 5.87% $1,665 $ (3,900)
------ --------
Carrying amount(1)...... 7,702 11,172
Unrealized gross gains.. 1,685 --
Unrealized gross
losses................. (7,722) (15,072)
INTEREST RATE SWAPS
PURCHASED
Convert fixed rate to
floating rate.......... 46,708 40,450 4.49 5.94 6.28 (1,795) 2,675
------ --------
Carrying amount(1)...... (38) (255)
Unrealized gross gains.. 86 2,930
Unrealized gross
losses................. (1,843) --
INTEREST RATE SWAPS
PURCHASED FORWARD
Convert fixed rate to
floating rate.......... -- 12,657 -- -- -- -- 961
------ --------
Unrealized gross gains.. -- 961
Unrealized gross
losses................. -- --
DESIGNATED TO
LIABILITIES
INTEREST RATE SWAPS SOLD
Convert fixed rate to
floating rate.......... 304,000 139,000 1.73 6.36 5.86 6,255 (1,523)
------ --------
Carrying amount(1)...... 254 626
Unrealized gross gains.. 6,027 746
Unrealized gross
losses................. (26) (2,895)
INTEREST RATE SWAPS
PURCHASED
Convert floating rate to
fixed rate............. 25,000 435,500 0.07 5.94 5.11 53 3,557
------ --------
Carrying amount(1)...... (215) 333
Unrealized gross gains.. 268 3,311
Unrealized gross
losses................. -- (87)
INTEREST RATE CAPS
PURCHASED
Convert floating rate to
fixed rate............. 200,200 271,000 2.93 Cap-13.50%(2) -- --
------ --------
Carrying amount(1)...... 47 70
Unrealized gross gains.. -- --
Unrealized gross
losses................. (47) (70)
CALL OPTIONS PURCHASED.. 12,536 12,261 1.71 -- -- 821 49
------ --------
Carrying amount(1)...... 1,490 1,054
Unrealized gross gains.. -- --
Unrealized gross
losses................. (669) (1,005)
BASIS SWAP
Convert floating rate to
different index........ 30,000 30,000 3.19 4.83 5.61 (695) (2,426)
------ --------
Carrying amount(1)...... (76) 13
Unrealized gross gains.. -- --
Unrealized gross
losses................. (619) (2,439)
</TABLE>
- --------
(1) Carrying amounts for 1995 represent accrued interest receivable (payable)
and the following deferred fees: deferred losses on the early termination
of interest rate swaps sold, $7,722,000; deferred gain on the early
termination of an interest rate swap purchased, ($254,000); deferred
premiums on interest rate caps purchased, $47,000; and deferred premiums on
call options purchased, $669,000. Carrying amounts for 1994 represent
accrued interest receivable (payable) and the following deferred fees:
deferred losses on the early termination of interest rate swaps sold,
$11,155,000; deferred fees on the redesignation of an interest rate swap
purchased, ($195,000); deferred premiums on interest rate caps purchased,
$70,000; and deferred premiums on call options purchased, $1,005,000.
(2) Pays interest if interest rates exceed 13.50%.
61
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the estimated maturities of the risk
management instruments entered into by the Corporation at December 31, 1995.
<TABLE>
<CAPTION>
1 YEAR 1-5 5-10 TOTAL
OR LESS YEARS YEARS YEARS
-------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Designated to Assets
Notional amounts................... $275,000 $121,258 $25,450 $421,708
Weighted average receive rate...... 5.96% 5.79% 5.94% 5.91%
Estimated fair value............... $ 715 $ 927 $(1,772) $ (130)
Designated to Liabilities
Notional amounts................... $222,200 $319,536 -- $541,736
Weighted average receive rate...... 5.92% 6.89% -- 6.33%
Estimated fair value............... $ 582 $ 6,547 -- $ 7,129
Basis Swaps
Notional amounts................... -- $ 30,000 -- $ 30,000
Weighted average receive rate...... -- 4.83% -- 4.83%
Estimated fair value............... -- $ (695) -- $ (695)
</TABLE>
The following table summarizes the estimated maturities of the risk
management instruments entered into by the Corporation at December 31, 1994.
<TABLE>
<CAPTION>
1 YEAR 1-5 5-10 TOTAL
OR LESS YEARS YEARS YEARS
-------- -------- ------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Designated to Assets
Notional amounts................... $ -- $190,000 $38,107 $228,107
Weighted average receive rate...... -- 6.08% 5.63% 6.00%
Estimated fair value............... -- $ (2,401) $ 2,137 $ (264)
Designated to Liabilities
Notional amounts................... $452,669 $405,092 -- $857,761
Weighted average receive rate...... 6.08% 6.82% -- 6.43%
Estimated fair value............... $ 3,463 $ (1,380) -- $ 2,083
Basis Swaps
Notional amounts................... -- $ 30,000 -- $ 30,000
Weighted average receive rate...... -- 5.18% -- 5.18%
Estimated fair value............... -- $ (2,426) -- $ (2,426)
</TABLE>
62
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following table summarizes the activity of the risk management
instruments entered into by the Corporation, by notional amounts, for the
years ended December 31, 1995 and 1994.
<TABLE>
<CAPTION>
DESIGNATED TO DESIGNATED TO BASIS
ASSETS LIABILITIES SWAPS TOTAL
------------- ------------- ------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Balance at December 31,
1993..................... $ 10,500 $ 493,000 $ -- $ 503,500
Additions................. 428,107 652,354 30,000 1,110,461
Maturities/amortizations.. -- (298,093) -- (298,093)
Terminations.............. (200,000) -- -- (200,000)
Redesignations............ (10,500) 10,500 -- --
--------- --------- ------- ----------
Balance at December 31,
1994..................... 228,107 857,761 30,000 1,115,868
Additions................. 200,000 305,275 -- 505,275
Maturities/amortizations.. (70) (521,300) -- (521,370)
Terminations.............. (6,329) (100,000) -- (106,329)
--------- --------- ------- ----------
Balance at December 31,
1995..................... $ 421,708 $ 541,736 $30,000 $ 993,444
========= ========= ======= ==========
</TABLE>
Deferred losses on the early termination of interest rate swaps with
notional balances of $200.0 million designated to the Corporation's prime
based commercial loans were $7.7 million at December 31, 1995. These losses
are scheduled to be amortized into income in the following periods: $3.4
million in 1996, $3.4 million in 1997, and $858,000 in 1998.
The deferred gain on the early termination of an interest rate swap with
notional balance of $100.0 million designated to the Corporation's federal
funds purchased was $254,000 at December 31, 1995. This gain is scheduled to
be amortized into income in the following periods: $98,000 in 1996, $98,000 in
1997 and $58,000 in 1998.
As of December 31, 1995, the risk management instruments entered into by the
Corporation had the following impact on the components of net interest income:
gross interest income decreased $3.5 million and gross interest expense
decreased $3.6 million, which resulted in a $161,000 increase in net interest
income. As of December 31, 1994, the risk management instruments entered into
by the Corporation had the following impact on the components of net interest
income: gross interest income increased $2.6 million and gross interest
expense decreased $1.1 million, which resulted in a $3.7 million increase in
net interest income.
Hedges of Anticipated Transactions
The Corporation's mortgage banking subsidiary obtains both mandatory and
optional commitments to deliver securitized mortgages and whole mortgage
loans. These commitments hedge the risk associated with residential mortgages
held-for-sale and firm and anticipated commitments to originate mortgage loans
which are expected to settle within six months. At December 31, 1995 and 1994,
residential mortgages held-for-sale,
63
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
residential mortgage firm and anticipated commitments, and offsetting
commitments to deliver residential mortgages are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1995 1994
-------- -------
(IN THOUSANDS)
<S> <C> <C>
Residential mortgages held-for-sale........................ $113,252 $75,366
Commitments to originate mortgage loans:
Firm commitments......................................... 15,656 19,056
Anticipated commitments.................................. 41,978 58,625
Mandatory commitments to deliver:
Securitized mortgages.................................... 121,200 70,150
Whole mortgage loans..................................... -- 59,379
Optional commitments to deliver:
Whole mortgage loans..................................... 57,938 13,000
</TABLE>
The net fair values of the residential mortgages held-for-sale, firm and
anticipated commitments to originate mortgage loans, and the related
commitments to deliver residential mortgage loans were $114.5 million and
$76.1 million, respectively, at December 31, 1995 and 1994.
Credit-related Instruments
Financial instruments whose contract amounts represent potential credit risk
at December 31, 1995 and 1994 are shown below:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Commitments to extend credit:
Commercial.......................................... $2,307,569 $1,923,207
Real estate......................................... 115,728 110,321
Retail.............................................. 602,236 545,879
Bankcard............................................ 4,071,581 2,809,928
Leases receivable................................... 13,123 14,907
Foreign............................................. 123,199 172,388
---------- ----------
Total commitments to extend credit................ $7,233,436 $5,576,630
========== ==========
Letters of credit:
Commercial.......................................... $ 54,296 $ 52,423
Standby-financial................................... 267,003 188,656
Standby-performance................................. 218,537 247,963
Standby-other confirmed............................. 21,734 26,431
---------- ----------
Total letters of credit........................... $ 561,570 $ 515,473
========== ==========
Securities lent....................................... $ 163,836 $ 123,603
Loans sold with recourse.............................. 90,022 90,020
</TABLE>
Commitments to extend credit--The Corporation enters into contractual
commitments to extend credit, normally with fixed expiration dates or
termination clauses, at both fixed and variable specified rates and for
specific purposes. Customers use credit commitments to ensure that funds will
be available for working capital purposes, for capital expenditures and to
ensure access to funds at specified terms and conditions. Substantially
64
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
all of the Corporation's commitments to extend credit are contingent upon
customers' meeting and satisfying other conditions at the time of loan
funding. Since many of the commitments are expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements.
Commercial letters of credit--Letters of credit are conditional commitments
issued by the Corporation in connection with obligations of customers (account
parties) to other persons (beneficiaries). A draw on a letter of credit by the
beneficiary creates a reimbursement obligation from the account party to the
Corporation. A commercial letter of credit is normally a short-term instrument
used to finance a commercial contract for the shipment of goods from a seller
to a buyer. This type of letter of credit ensures prompt payment to the seller
upon compliance with specific terms of the commercial letter of credit.
Standby letters of credit--A standby letter of credit can be either
financial or performance based. Financial standby letters of credit obligate
the Corporation to disburse funds to a third party if the Corporation's
customer fails to repay an outstanding loan or debt instrument under the terms
of the agreement with the beneficiary. Performance standby letters of credit
obligate the Corporation to disburse funds if the customer fails to perform
some contractual or non-financial obligation under the terms of the agreement
with the beneficiary. In either case, the beneficiary must also comply with
the terms of the letter of credit. The Corporation's policies generally
require that all standby letter of credit arrangements contain security and
debt covenants similar to those contained in loan agreements. The credit risk
involved in issuing both commercial and standby of letters of credit is
essentially the same as that involved in extending loan facilities to
customers.
Securities lent--These instruments represent securities owned by the
Corporation or its customers which are lent to third parties. The contract
amount represents potential credit risk. However, the Corporation obtains
collateral, with a fair value exceeding 100 percent of the contract amount,
for all securities lent which is used to indemnify the Corporation and
customers against possible losses resulting from third party defaults.
Loans sold with recourse--These loans are sold to a party with an agreement
that the Corporation agrees to reimburse the purchaser for losses resulting
from the purchased loans.
Concentrations of Credit Risk
The majority of the Corporation's loan activity is with customers within the
Baltimore/Washington marketplace which encompasses all of Maryland,
Washington, D.C., northern Virginia, and south central Pennsylvania and as
such its performance will be influenced by the economy of this region.
Securitized Assets
The Corporation's subsidiaries have securitized and sold manufactured
housing receivables and credit card receivables with aggregate outstanding
balances totaling $304.5 million and $338.9 million at December 31, 1995 and
1994, respectively. The Corporation's subsidiaries continue to receive
servicing fees to service these receivables. These fees are comprised of the
financial spread less estimated credit losses. Credit recourse is generally
limited to future servicing income and certain balances maintained in trust
for the benefit of investors. No gains or losses were recorded in connection
with the sales. At December 31, 1995 and 1994, respectively, $139.5 million
and $173.9 million in manufactured housing receivables were serviced by
outside parties for a fixed fee under subservicing agreements.
Contingent Liabilities
The Corporation and its subsidiaries are defendants in various matters of
litigation generally incidental to their respective businesses. In the opinion
of management, based on its review with counsel of these matters to date,
disposition of all matters will not materially affect the consolidated
financial position or results of operations of the Corporation and its
subsidiaries.
65
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
18. RELATED PARTY TRANSACTIONS
Following the termination of the Corporation's Long Term Incentive Plan on
March 21, 1989, the Corporation adopted its 1989 Long-Term Incentive Plan and
Trust (the "1989 Plan"). The 1989 Plan provides for the award to key employees
who contribute to the continued growth, development and financial success of
the Corporation of up to 7 million Ordinary shares IR25p each of Allied Irish
("Common Stock") (or the equivalent thereof in Common Stock ADRs) and 200,000
Non-Cumulative Preference Share ADRs of Allied Irish ("Preferred Stock")
(together the "Restricted Stock"). An ADR or American Depository Receipt, is a
negotiable certificate issued by a U. S. bank for shares of stock of a foreign
corporation, and is the substantial equivalent of a stock certificate in a
domestic company. Awards are made to participants, without payment of
consideration by the participant, in the form of Restricted Stock purchased by
the Corporation in the open market and held in trust under the 1989 Plan until
the expiration of the relevant restriction period. During 1994, 1993, 1991 and
1989, awards were made under the 1989 Plan aggregating the equivalent of
342,156, 2,035,680, 1,986,954 and 1,834,700 shares of Common Stock and 11,886,
57,470, 70,361 and 50,704 shares of Preferred Stock, respectively. Expenses
relative to this plan totaled $2,015,000, $3,055,000 and $4,051,000 in 1995,
1994 and 1993, respectively. The awards are subject to a restriction period of
at least three years.
19. FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures about Fair Value of Financial Instruments"
requires disclosure of fair value information about financial instruments for
which it is practicable to estimate that value. In cases where quoted market
prices are not available, fair values are based on estimates using present
value or other valuation techniques. Those techniques are significantly
affected by the assumptions used, including the discount rate and estimates of
future cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, could
not be realized in immediate settlement of the instrument. SFAS No. 107
excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of the Corporation.
The following methods and assumptions were used by the Corporation in
estimating the fair value for its financial instruments as defined by SFAS No.
107.
Cash and Due From Banks: The carrying amount approximates fair value.
Money Market Investments: The carrying amount approximates fair value.
Investment securities: Fair values are based on published market prices or
dealer quotes.
Loans held-for-sale: Market quotes are used to estimate the value of loans
held-for-sale which are primarily residential mortgages unless there is a firm
commitment to sell the loans in which case the commitment price is used.
Loans: For credit card and equity line receivables with short-term or
variable characteristics, the total receivables outstanding approximate fair
value. This amount excludes any value related to the account relationship. The
fair value of other types of loans is estimated by discounting the future cash
flows using the comparable risk-free rate and adjusting for an appropriate
spread to cover credit risk and operating costs.
Interest Receivable and Interest Payable: The carrying amount approximates
fair value.
Noninterest Bearing Deposits: The fair value of these instruments, by the
SFAS No. 107 definition, is the amount payable on demand at the reporting
date.
66
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Interest Bearing Deposits: The fair value of demand deposits, savings
accounts and money market deposits with no defined maturity, by SFAS No. 107
definition, is the amount payable on demand at the reporting date. The fair
value of certificates of deposit is estimated by discounting the future cash
flows using the current rates at which similar deposits could be acquired.
Federal Funds Purchased, Securities Sold Under Repurchase Agreements, and
Other Short-term Borrowings: For these short-term instruments, the carrying
amount approximates fair value.
Long-term Debt: For these instruments, fair value is based on dealer quotes,
where available, and on estimates made by discounting the future cash flows
using the current rates at which similar borrowings could be acquired.
Commitments to Extend Credit, Standby and Commercial Letters of Credit: The
fair value of loan commitments and letters of credit, both commercial and
standby, with the exception of residential mortgage loan commitments, is
assumed to equal the carrying value which is immaterial. Extensions of credit
under these commitments, if exercised, would result in loans priced at market
terms. The Corporation does not separately estimate the fair values of
residential mortgage loan commitments. These fair values are included in the
loans held-for-sale valuation.
Foreign exchange contracts: The fair value of foreign exchange contracts
represents the net asset or liability of the Corporation, since these
contracts are revalued on a monthly basis.
Interest rate contracts: The fair value of these instruments is the
estimated amount the Corporation would receive or pay to terminate the
contracts or agreements, taking into account current interest rates,
volatility factors and, when appropriate, the credit worthiness of the
counterparties.
67
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The estimated fair values of the Corporation's financial instruments
required to be disclosed under SFAS No. 107 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------------------- ----------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
---------- ---------- ---------- ----------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
ASSETS:
Cash and due from banks..... $ 775,582 $ 775,582 $ 554,878 $ 554,878
Money market investments.... 366,355 366,355 346,194 346,194
Investment securities....... 2,794,023 2,794,023 2,389,581 2,321,799
Loans held-for-sale......... 116,002 117,296 75,366 75,798
Loans(a).................... 5,640,106 5,820,814 5,024,557 5,110,119
Interest receivable......... 64,229 64,229 61,479 61,479
LIABILITIES:
Noninterest bearing
deposits................... 2,055,129 2,055,129 1,766,648 1,766,648
Interest bearing deposits... 4,988,053 5,006,027 4,866,898 4,842,155
Funds sold and securities
sold under agreements to
repurchase................. 515,525 515,525 519,772 519,772
Other borrowed funds, short-
term....................... 908,644 908,644 541,507 541,507
Long-term debt.............. 514,687 537,972 214,632 220,712
Interest payable............ 52,315 52,315 30,075 30,075
OFF-BALANCE SHEET ASSETS
(LIABILITIES):
Interest rate swap
agreements................. 13,841 11,697 14,407 1,862
Interest rate caps.......... 47 -- 44 (26)
Interest rate futures....... -- (273) -- (54)
Interest rate options....... 1,490 821 1,054 49
Foreign exchange forwards
and futures................ 201 201 287 292
Foreign exchange options.... 1,045 1,045 (153) (153)
</TABLE>
- --------
(a) As required by SFAS No. 107, leases receivable with carrying values
totaling $321,097,000 and $243,310,000 at December 31, 1995 and 1994,
respectively, are excluded. The carrying values are net of the allowance
for loan losses and related unearned income.
68
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
20. CONDENSED PARENT COMPANY FINANCIAL INFORMATION
Following is condensed financial information of First Maryland Bancorp
(parent company only):
CONDENSED STATEMENTS OF INCOME
FIRST MARYLAND BANCORP
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------
1995 1994 1993
-------- -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Income:
Dividends from subsidiaries:
Bank subsidiaries.......................... $ 26,000 $ 51,200 $ 44,500
Nonbank subsidiaries....................... 3,124 11,050 6,554
Interest income from subsidiaries:
Bank subsidiaries.......................... 15,153 15,639 8,784
Nonbank subsidiaries....................... 12,159 9,787 11,753
Other interest and dividend income......... 27,665 18,564 9,697
Other income................................. 9,440 7,585 7,261
-------- -------- --------
Total income............................. 93,541 113,825 88,549
-------- -------- --------
Expenses:
Interest expense, short-term debt............ 21,392 16,727 12,513
Interest expense, long-term debt............. 17,475 17,309 17,312
Other expenses............................... 8,371 5,733 7,344
-------- -------- --------
Total expenses........................... 47,238 39,769 37,169
-------- -------- --------
Income before taxes and equity in undistributed
net income of subsidiaries.................... 46,303 74,056 51,380
Income tax expense (credit).................... 5,977 3,586 (222)
-------- -------- --------
Income before equity in undistributed net
income of subsidiaries........................ 40,326 70,470 51,602
Equity in undistributed net income of
subsidiaries.................................. 79,861 40,670 62,266
-------- -------- --------
Net income..................................... $120,187 $111,140 $113,868
======== ======== ========
</TABLE>
69
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
CONDENSED STATEMENTS OF CONDITION
FIRST MARYLAND BANCORP
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1994
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
ASSETS
Cash.................................................. $ 247 $ 115
Interest bearing deposits in other banks.............. 559,181 577,228
Securities purchased under agreements to resell....... -- 37,000
Investment securities available-for-sale.............. 67,921 32,767
Investment securities held-to-maturity................ -- 8,232
Investment in subsidiaries:
Bank subsidiaries................................... 807,817 676,796
Nonbank subsidiaries................................ 35,918 32,746
Loans and advances to subsidiaries:
Bank subsidiaries................................... 76,000 76,000
Nonbank subsidiaries................................ 205,192 156,289
Loans, net of unearned income......................... 11,795 2,252
Premises and equipment................................ 4,075 4,101
Other assets.......................................... 42,264 34,736
---------- ----------
Total assets...................................... $1,810,410 $1,638,262
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Short term debt....................................... $ 402,489 $ 402,539
Long term debt........................................ 189,687 189,632
Other liabilities..................................... 34,660 22,067
---------- ----------
Total liabilities................................. 626,836 614,238
---------- ----------
Stockholders' equity.................................. 1,183,574 1,024,024
---------- ----------
Total liabilities and stockholders' equity........ $1,810,410 $1,638,262
========== ==========
</TABLE>
70
<PAGE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
CONDENSED STATEMENTS OF CASH FLOWS
FIRST MARYLAND BANCORP
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
--------------------------------
1995 1994 1993
------------ -------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Income before undistributed net income of
subsidiaries............................... $ 40,326 $ 70,470 $ 51,602
Adjustments to reconcile net income to net
cash provided by operating activities...... 118 98 1,508
------------ -------- --------
Net cash provided by operating activi-
ties..................................... 40,444 70,568 53,110
------------ -------- --------
INVESTING ACTIVITIES
Proceeds from sales of investment securities
available-for-sale......................... 7,670 7,126 --
Proceeds from sales of investment securities
held-to-maturity........................... -- -- 2,100
Proceeds from paydowns and maturities of
investment securities available-for-sale... 6,042,678 5,866 --
Proceeds from paydowns and maturities of
investment securities held-to-maturity..... 22,604,000 3,105 3,000
Purchases of investment securities avail-
able-for-sale.............................. (6,068,789) (10,970)
Purchases of investment securities held-to-
maturity................................... (22,606,144) (2,828) (9,572)
Net decrease (increase) in short term in-
vestments.................................. 37,000 (36,942) (8)
Principal collected on loans of parent com-
pany....................................... 1,459 -- --
Loans originated by the parent company...... (11,002) (2,252) --
Investment in subsidiaries.................. (5,022) (1,850) (10,686)
Net (increase) decrease in loans to subsidi-
aries, short-term.......................... (48,903) 160,159 (67,284)
Long-term loans to subsidiaries............. (20,000) -- --
Principal collected on long-term loans to
subsidiaries............................... 20,000 -- 875
Purchase of restricted stock for compensa-
tion plan.................................. -- (1,704) (4,809)
Purchases of premises and equipment......... -- (7) (120)
Proceeds from sales of premises and equip-
ment....................................... -- 383 175
Other, net.................................. 564 4,650 (3,194)
------------ -------- --------
Net cash (used for) provided by investing
activities............................... (46,489) 124,736 (89,523)
------------ -------- --------
FINANCING ACTIVITIES
Net (decrease) increase in short-term
borrowings................................. (50) (61,143) 73,808
Proceeds from the issuance of preferred
stock...................................... -- -- 144,803
Cash dividends paid......................... (11,820) (10,440) --
------------ -------- --------
Net cash (used for) provided by financing
activities............................... (11,870) (71,583) 218,611
------------ -------- --------
(Decrease) increase in cash and cash equiva-
lents(1)................................... (17,915) 123,721 182,198
Cash and cash equivalents at beginning of
year....................................... 577,343 453,622 271,424
------------ -------- --------
Cash and cash equivalents at December 31.... $ 559,428 $577,343 $453,622
============ ======== ========
</TABLE>
- --------
(1) Cash and cash equivalents include those amounts under the captions "Cash"
and "Interest bearing deposits in other banks" on the condensed statements
of condition. There were no unconsolidated subsidiaries or 50% or less
owned persons accounted for by the equity method for the three years ended
December 31, 1995.
71
<PAGE>
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of First Maryland Bancorp has prepared and is responsible for
the accompanying financial statements, together with the financial data and
other information presented in this Annual Report on Form 10-K. Management
believes that the financial statements have been prepared in conformity with
generally accepted accounting principles appropriate in the circumstances to
reflect the substance of events and transactions that should be included. The
financial statements include amounts that are based on management's best
estimates and judgments.
Management maintains and depends upon an internal accounting control system
designed to provide reasonable assurance that transactions are executed in
accordance with management's authorization, that financial records are
reliable as the basis for the preparation of all financial statements, and
that the Corporation's assets are safeguarded. The design and implementation
of all systems of internal control are based on judgments required to evaluate
the costs and controls in relation to the expected benefits and to determine
the appropriate balance between these costs and benefits. The Corporation
maintains an internal audit program to monitor compliance with the system of
internal accounting control.
The Audit Committee of the Board of Directors, comprised solely of outside
directors, meets at least quarterly with the independent public accountants,
management and internal auditors to review accounting, auditing and financial
reporting matters. The independent public accountants and internal auditors
each meet privately with the committee, without management present, to discuss
the results of their audit work and their evaluations of the adequacy of
internal controls and the quality of financial reporting.
The financial statements in this Annual Report on Form 10-K have been
examined by the Corporation's independent public accountants for the purpose
of expressing an opinion as to the fair presentation of the financial
statements. Their independent professional opinion on the Corporation's
financial statements is presented on the following page.
72
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
First Maryland Bancorp:
We have audited the accompanying consolidated statement of condition of
First Maryland Bancorp and Subsidiaries as of December 31, 1995 and the
related consolidated statement of income, changes in stockholders' equity and
cash flows for the year then ended. These consolidated financial statements
are the responsibility of the Corporation's management. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides 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 First
Maryland Bancorp and Subsidiaries as of December 31, 1995, and the results of
their operations and cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in Note 7, the Corporation adopted the provisions of Statement
of Financial Accounting Standards (SFAS) No. 122 "Accounting for Mortgage
Servicing Rights" effective in 1995.
Coopers & Lybrand L.L.P.
Baltimore, Maryland
January 23, 1996
73
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
First Maryland Bancorp:
We have audited the accompanying consolidated statement of condition of
First Maryland Bancorp and Subsidiaries as of December 31, 1994 and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the years ended December 31, 1994 and 1993. These consolidated
financial statements are the responsibility of the Corporation's management.
Our responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes 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 First
Maryland Bancorp and Subsidiaries as of December 31, 1994 and the results of
their operations and cash flows for the years ended December 31, 1994 and 1993
in conformity with generally accepted accounting principles.
KPMG Peat Marwick LLP
Baltimore, Maryland
February 13, 1995
74
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
The information required by Items 10-13 of this report relating to
directors, executive compensation, ownership of the Corporation's securities,
and certain relationships and transactions is incorporated herein by reference
to the sections headed "Election of Directors" and "Compensation of Executive
Officers" contained in the Corporation's definitive Information Statement,
filed March 22, 1996 pursuant to Regulation 14C under the Securities Exchange
Act of 1934; provided that the subsection headed "Report of Management and
Compensation Committee" is not incorporated herein by reference or otherwise.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)1.Financial Statements: See Item 8.
2.Financial Statement Schedules: None.
3.Exhibits:
<TABLE>
<C> <S>
(3.1) (i) Articles of Incorporation, as amended (Incorporated by
reference to Exhibit 3.1 to the Form 8-A/A filed by the
Corporation on November 3, 1995).
(ii) Bylaws**
(4.1) The Corporation agrees to furnish to the Securities and Exchange
Commission upon request a copy of each instrument defining the
rights of holders of long-term debt of the Corporation and its
consolidated subsidiaries.
(10.1) Executive Incentive Pay Plan**
(10.2) First Maryland Bancorp 1989 Long-Term Incentive Plan and Trust,
dated June 20, 1989, and Amendment No. 1 thereto dated as of
January 18, 1991**
(10.3) Amendment No. 2, dated April 1, 1994, to First Maryland Bancorp
1989 Long-Term Incentive Plan and Trust, as amended
(10.4) First Maryland Bancorp Pension Plan for Executive Employees, as
amended, effective January 1, 1986**
(10.5) Amendment to First Maryland Bancorp Pension Plan for Executive
Employees, effective December 14, 1993
(10.6) First Maryland Bancorp Deferred Compensation Plan, as amended and
restated, effective January 1, 1990**
(10.7) Amendment No. 1 effective October 1, 1992, Amendment No. 2
effective January 20, 1993 and Amendment No. 3 effective
September 20, 1993, to First Maryland Bancorp Deferred
Compensation Plan
(10.8) First Maryland Bancorp Deferred Compensation Amended and Restated
Trust Agreement, dated September 23, 1988, Provident National
Bank, trustee**
(10.9) First Maryland Bancorp Deferred Compensation Trust Agreement No.
2, effective July 13, 1990, Provident National Bank, trustee**
(10.10) First Maryland Bancorp Deferred Compensation Trust Agreement No.
3, effective January 25, 1993, Provident National Bank, trustee
</TABLE>
75
<PAGE>
<TABLE>
<C> <S>
(10.11) First Maryland Bancorp Deferred Compensation Plan, effective
January 1, 1994
(10.12) First Maryland Bancorp Deferred Compensation Trust Agreement No.
4, effective January 1, 1994, Provident National Bank, trustee
(10.13) First Maryland Bancorp Supplemental Retirement Trust Agreement,
dated September 23, 1988, Provident National Bank, trustee**
(10.14) First Maryland Bancorp Executive Post-Retirement Trust Agreement,
dated October 7, 1988, Provident National Bank, trustee**
(10.15) First Maryland Bancorp Executive Life Plan, effective January 1,
1990**
(10.16) First Maryland Bancorp Executive Optional Life Plan, effective
January 1, 1990**
(10.17) First Maryland Bancorp Excess Benefit Plan, effective October 1,
1989**
(21) Subsidiaries of the Registrant
(24) Power of Attorney
(27) Financial Data Schedule
</TABLE>
- --------
** Incorporated by reference to the Corporation's Registration Statement on
Form S-1, Registration No. 33-46277, filed with the Commission on March 13,
1992.
(b) Reports on Form 8-K
There were no current reports on Form 8-K filed during the quarter ended
December 31, 1995.
76
<PAGE>
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 Maryland Bancorp
/s/ Frank P. Bramble
By __________________________________
(FRANK P. BRAMBLE, PRESIDENT AND
CHIEF EXECUTIVE OFFICER)
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE CAPACITIES AND ON THE
DATE INDICATED.
PRINCIPAL EXECUTIVE OFFICER:
/s/ Frank P. Bramble President and Chief March 22, 1996
- ------------------------------------- Executive Officer
(FRANK P. BRAMBLE)
PRINCIPAL FINANCIAL OFFICER:
/s/ Robert W. Schaefer Executive Vice March 22, 1996
- ------------------------------------- President
(ROBERT W. SCHAEFER)
PRINCIPAL ACCOUNTING OFFICER:
/s/ James A. Smith Senior Vice March 22, 1996
- ------------------------------------- President
(JAMES A. SMITH)
MAJORITY OF THE BOARD OF DIRECTORS:
Frank P. Bramble, Benjamin L. Brown, Jeremiah E. Casey, J. Owen Cole, Edward
A. Crooke, John F. Dealy, Mathias J. DeVito, Rhoda M. Dorsey, Jerome W.
Geckle, Frank A. Gunther, Jr., Curran W. Harvey, Jr., Margaret M. Heckler,
Kevin J. Kelly, Henry J. Knott, Jr., Thomas P. Mulcahy, William M. Passano,
Jr. and Robert I. Schattner.
/s/ Robert W. Schaefer Attorney-in-Fact March 22, 1996
By __________________________________
(ROBERT W. SCHAEFER)
77
<PAGE>
Exhibit 10.3
FIRST MARYLAND BANCORP
RESOLUTIONS OF THE BOARD OF DIRECTORS
AMENDING THE 1989 LONG-TERM INCENTIVE PLAN AND TRUST
WHEREAS, the Corporation has authority to amend the 1989 Long-Term
Incentive Plan and Trust and wishes to do so to provide more flexibility to the
Management and Compensation Committee as to the timing of grants of Awards under
the Plan; and
WHEREAS, the Board wishes to ratify and affirm previous actions of the
Committee taken since April 1, 1994 in granting Awards under the Plan,
ACCORDINGLY, BE IT
RESOLVED, that the Plan be and the same is hereby amended as set forth in
the Amendment attached to these Resolutions.
RESOLVED, that the Amendment herein approved shall be effective April 1,
1994 and any awards granted by the Management and Compensation Committee under
the Plan on or after April, 1994 and Prior to the date hereof be and the same
are approved, ratified, and confirmed as having been properly granted as of the
date of grant.
<PAGE>
AMENDMENT TO FIRST MARYLAND BANCORP
1989 LONG-TERM INCENTIVE PLAN AND TRUST
First Maryland Bancorp, pursuant to its authority under Section Eleven of
the foregoing Plan and Trust (the "Plan"), amends the Plan as hereinafter set
forth in order to provide more flexibility to the Management and Compensation
Committee as to the timing of grants of Awards to Eligible by removing the
requirement that awards be granted on a biennial basis and instead, allowing the
Committee to grant awards in its discretion.
Accordingly, the first clause of Section Five of the Plan is amended to
read as follows:
The Committee may grant Awards to one or more Eligible Employees at
such times as the Committee considers appropriate;...
This Amendment shall be effective April 1, 1994.
IN WITNESS WHEREOF, First Maryland Bancorp has caused this Amendment to be
executive April 1, 1994.
ATTEST: FIRST MARYLAND BANCORP
/s/ Brian L. King By: /s/ Jeremiah E. Casey
- -------------------------- ----------------------------
<PAGE>
Exhibit 10.5
FIRST MARYLAND BANCORP
Secretary's Certificate
The undersigned, Secretary of First Maryland Bancorp, certifies that the
attached is a true and accurate copy of resolutions duly adopted by the Board of
Directors of First Maryland Bancorp at its meeting December 14, 1993, and that a
copy of those resolutions has been placed in the Minute Books of the Board of
Directors of the Corporation.
/s/ Gary Sutton
-------------------------
<PAGE>
FIRST MARYLAND BANCORP
Resolutions of the Board of Directors
Amending the First Maryland Bancorp Pension Plan
For Executive Employees
WHEREAS the Management and Compensation Committee has recommended that
bonuses to certain executive employees for 1993, which would ordinarily be paid
in January of 1994, be paid instead in December 1993 if the executive so elects;
and
WHEREAS, the Board wishes to amend the First Maryland Bancorp Pension Plan
for Executive Employees (the "Plan") to provide that 1993 bonuses paid in
calendar 1993 will nonetheless be counted as compensation under the Plan as if
paid in 1994.
NOW, THEREFORE, BE IT
RESOLVED, that Section 2.1 of the First Maryland Bancorp Pension Plan for
Executive Employees be and is hereby amended to read as follows:
"2.1 Average Annual Total Compensation
---------------------------------
means the average of the Participant's total annual remuneration from
the Company for the highest three calendar years in the ten calendar
years immediately preceding his Normal Retirement Date or, if earlier,
his actual retirement, including (i) base pay, bonuses and other cash
payments, (ii) deferrals by salary reduction according to Internal
Revenue Code S401(k) or 125, (iii) deferrals under any non-qualified
pension plan or non-qualified plan of deferred compensation maintained
by the Company, but excluding (x) reimbursement for moving expenses
---------
and other reimbursements and allowances, (y) amounts realized from
the exercise of non-qualified stock options or from the exercise of
stock options or from the exercise of stock appreciation rights,
amounts realized from the sale, exchange or other disposition of stock
<PAGE>
acquired under a qualified stock option, amounts realized when
restricted stock or property becomes freely transferable, no longer
subject to a substantial risk of forfeiture, or otherwise includable
in gross income, and (z) amounts paid to the Participant under any
qualified or non-qualified pension plan or plan of deferred
compensation maintained by the Company. In determining a
Participant's annual remuneration for calendar year 1993, any bonus
received on account of 1993 performance shall be considered
remuneration for 1994, regardless of whether payment of the bonus is
received in 1994 or is accelerated and received in 1993."
RESOLVED, that the proper officers of the Corporation are authorized and
directed to take all actions which they consider necessary or desirable for
purposes of implementing the amendment adopted by these resolutions, including
issuing such notices to affected employees as they consider appropriate.
2
<PAGE>
Exhibit 10.7
FIRST MARYLAND BANCORP
DEFERRED COMPENSATION PLAN
AMENDMENT NO. 1
This Amendment No. 1 to the First Maryland Bancorp Deferred Compensation
Plan (the "Plan"), made effective October 1, 1992.
Witnesseth:
----------
First Maryland Bancorp ("Bancorp") maintains the Plan for the benefit of
its directors and key officers. Bancorp wishes to amend the Plan in order to
allow directors to direct that their Retirement Accounts under the Plan be
constructively invested in shares of common stock of Bancorp's parent, Allied
Irish Bank ("AIB"). As required by Section 8.1 of the Plan, this amendment has
been approved by the Management and Compensation Committee of Bancorp's Board of
Directors.
Accordingly, the Plan is amended as follows:
1. Section 1.15 is amended in its entirety to read as follows:
1.15 Index Funds. The following investments which are to be used as
-----------
earnings indices for the purposes of this Plan:
(a). Solely for Participants who are Directors, shares of common
stock of Allied Irish Bank
(b). For all Participants, including those who are Directors, the
following funds, known as "Portfolios," which are maintained as
separate funds by the Prudential Series Fund, Inc., an open-end
management investment company:
(i) Fixed Income Portfolios:
(a) Money Market Portfolio
(b) Bond Portfolio
(c) High Yield Portfolio
(d) Government Securities Portfolio
<PAGE>
(ii) Equity Portfolios:
(a) Common Stock Portfolio
(b) Stock Index Portfolio
(c) High Dividend Stock Portfolio
(d) Natural Resources Portfolio
(iii) Managed Portfolios:
(a) Conservatively Managed Flexible Portfolio
(b) Aggressively Managed Flexible Portfolio
(c) Zero Coupon Bond Portfolio 1995
(d) Zero Coupon Bond Portfolio 2000
(e) Zero Coupon Bond Portfolio 2005
No provision of this Plan shall be construed as giving any Participant an
interest in any of these Index Funds nor shall any provision require that
the Company make any investment in any such funds.
IN WITNESS WHEREOF, Bancorp and The First National Bank of Maryland have
duly executed this Amendment.
WITNESS: FIRST MARYLAND BANCORP
/s/ Andrew D. Hiduke By /s/ Mathias Devito
- ------------------------------- ---------------------------------
THE FIRST NATIONAL BANK OF MARYLAND
/s/ Linda Green By /s/ Jeremiah E. Casey
- -------------------------- -------------------------------------
- 2 -
<PAGE>
FIRST MARYLAND BANCORP
DEFERRED COMPENSATION PLAN
AMENDMENT NO. 2
This Amendment No. 2 to the First Maryland Bancorp Deferred Compensation
Plan (the "Plan"), made effective January 20, 1993,
WITNESSETH:
First Maryland Bancorp ("Bancorp") maintains the Plan for the benefit of
its directors and key officers. Bancorp wishes to amend the Plan in order to
increase the frequency with which participants can submit expressions of
investment preference with respect to their Plan accounts.
Accordingly, the Plan is amended as follows:
1. Section 3.4(a) is amended in its entirety to read as follows:
(a) Any initial or subsequent expression of investment preference
shall be in writing, on a form supplied by and filed with the Company,
and shall be effective as of the beginning of the next month after
such filing. Up to four changes in investment preference may be filed
each calendar year. Notwithstanding the foregoing, the investment
preference for a future contribution may be designated at the time of
the contribution and shall be effective on the first of the month
following the date of contribution.
IN WITNESS WHEREOF, Bancorp and The First National Bank of Maryland have
duly executed this Amendment.
WITNESS: FIRST MARYLAND BANCORP
/s/ Linda Green By: /s/ Jeremiah E. Casey
- ----------------------------- -----------------------------------
THE FIRST NATIONAL BANK
OF MARYLAND
/s/ Linda Green By: /s/ Jeremiah E. Casey
- ----------------------------- -----------------------------------
<PAGE>
FIRST MARYLAND BANCORP
Secretary's Certificate
The undersigned, Secretary of First Maryland Bancorp, certifies that the
attached is a true and accurate copy of resolutions duly adopted by the
Management and Compensation Committee of the Board of Directors of First
Maryland Bancorp at its meeting on September 20, 1993, and that a copy of these
resolutions has been placed in the Minute Book of said Committee of the Board of
Directors of the Corporation.
/s/ Gary Sutton
---------------
<PAGE>
FIRST MARYLAND BANCORP
RESOLUTIONS OF THE MANAGEMENT AND COMPENSATION COMMITTEE
AMENDING THE FIRST MARYLAND BANCORP
DEFERRED COMPENSATION PLAN
WHEREAS, on recommendation of management, the Committee, pursuant to its
authority under Section 8.1 of the Plan, has determined to amend the First
Maryland Bancorp Deferred Compensation Plan to provide more flexibility to
participants in electing the timing of benefits.
NOW THEREFORE, BE IT
RESOLVED, THAT Section 4.2(a) of the Plan is amended and restated to read
as follows:
(a) Commencement of Payments.
------------------------
(1) Employees. The Retirement Benefit of a Participant who is an
---------
Employee will begin at the earlier of the first day of the month following
Retirement or the first day of the month following attainment of age 65.
However, a Participant may elect that the Retirement Benefit begin (i) at
age 65 whether or not retirement has occurred on or before that date or
(ii) after age 65 but not later than age 70 whether or not retirement has
occurred on or before that date. Alternatives (i) and (ii) may be elected
when the Participant completes the Deferral Agreement. Once a Participant
completes the Deferral Agreement, the Participant will be allowed to make
one further election of one of these alternatives, provided that if an
alternative is elected after the Participant completes his Deferral
Agreement, the election of that alternative will become effective only if
(i) Retirement Benefits do not become payable under that alternative within
one (1) year after it is elected and (ii) the alternative is elected more
than one (1) year before Retirement Benefits would have become payable
under the Participant's Deferral Agreement as in effect immediately before
the alternative is elected. If an election of an alternative does not
become effective, Retirement Benefits will be paid on the basis of the
Deferral Agreement and elections in effect immediately before that
alternative was elected.
2) Directors. The Retirement Benefit of a Participant who is a
---------
Director will begin at the earlier of the first day of the month following
Retirement or the first day of the month following age 70. However, a
Director may elect that the Retirement Benefit begin (i) on a specified
date (not later than age 70), whether or not Retirement has occurred before
that date, (ii) on the later of a specified date (not later than age 70) or
Retirement, or (iii) on the earlier of a
- 2 -
<PAGE>
specified date (not later than age 70) or Retirement. Alternatives (i),
(ii) and (iii) may be elected when the Director completes the Deferral
Agreement. Once a Director completes the Deferral Agreement, the Director
will be allowed to make one further election of one of these alternatives,
provided that if an alternative is elected after the Director completes his
Deferral Agreement, the election of that alternative will become effective
only if (i) Retirement Benefits do not become payable under that
alternative within one (1) year after it is elected and (ii) the
alternative is elected more than one (1) year before Retirement Benefits
would have become payable under the Director's Deferral Agreement as in
effect immediately before the alternative is elected. If an election of an
alternative does not become effective, Retirement Benefits will be paid on
the basis of the Deferral Agreement and elections in effect immediately
before that alternative was elected.
RESOLVED, THAT Section 4.2(a) of Appendix A of the Plan (Appendix A sets
forth the terms of the Plan as originally adopted in 1986) is amended in its
entirety to read as follows:
(a) Commencement of Payments.
------------------------
(1) Employees. The Retirement Benefit of a Participant who is an
---------
Employee will begin at the earlier of his Retirement or age 65. However,
such a Participant may elect that his Retirement Benefit begin at age 65,
even if Retirement occurs earlier, if he makes that election when he
completes his Deferral Agreement. A Participant who makes such an election
and whose Retirement occurs before age 65 may, at his Retirement, request
the Committee to allow his Retirement Benefit to begin. The Committee shall
have complete discretion in responding to such a request, will be under no
obligation to respond favorably, and will not be bound by its past
practice.
(2) Directors. The Retirement Benefit of a Participant who is a
---------
Director will begin at the earlier of his Retirement or age 70. However, a
Director may elect that his Retirement Benefit begin (i) on a specified
date (not later than age 70), whether or not his Retirement has occurred
before that date, (ii) on the later of a specified date (not later than age
70) or his Retirement, or (iii) on the earlier of a specified date (not
later than age 70) or his Retirement. Alternatives (i), (ii) and (iii) may
be elected when the Director completes his Deferral Agreement. Once a
Director completes his Deferral Agreement, he will be allowed to make one
further election of one of these alternatives, provided that if an
alternative is elected after the Director completes his Deferral Agreement,
the election of that alternative will become effective only if (i)
Retirement Benefits do not become payable under that alternative within one
(1) year after it is elected and (ii) the alternative is elected more than
one year before Retirement Benefits would have become payable under the
Director's Deferral Agreement as in effect immediately before the
alternative is elected. If an election of an alternative does
- 3 -
<PAGE>
not become effective, Retirement Benefits will be paid on the basis of the
Deferral Agreement and elections in effect immediately before that
alternative was elected.
RESOLVED, THAT the amendments to the Plan herein adopted shall be effective
September 20, 1993.
RESOLVED, THAT the proper officers of the Corporation are authorized and
directed to take all actions which they consider necessary or desirable for
purposes of implementing the amendment adopted by these resolutions.
- 4 -
<PAGE>
Exhibit 10.10
FIRST MARYLAND BANCORP
DEFERRED COMPENSATION
TRUST AGREEMENT
NUMBER THREE
THIS TRUST AGREEMENT, effective January 25, 1993, by and between First
Maryland Bancorp, a corporation organized under the laws of Maryland
("Company"), and Provident National Bank, a national banking association
organized under the laws of the United States of America ("Trustee"),
W I T N E S S E T H:
WHEREAS, the Company has established a deferred compensation plan known as
the First Maryland Bancorp Deferred Compensation Plan (hereinafter referred to
as the "Plan");
WHEREAS, the Plan provides for the Company to pay all benefits from its
general revenues and assets;
WHEREAS, the Company has previously established two irrevocable trust funds
with the Trustee with respect to Participants in the Plan, subject to the claims
of Company's creditors in the event of the Company's Insolvency known as the
First Maryland Bancorp Deferred Compensation Amended and Restated Trust
Agreement effective September 25, 1988 (the "First Trust") and the First
Maryland Bancorp Deferred Compensation Trust Agreement Number Two effective July
13, 1990 (the "Second Trust");
WHEREAS, the Company wishes to establish a third irrevocable trust fund
with respect to participants in the Plan regarding deferrals for accounts
created on or after January 1, 1990 and earnings on such accounts in order to
expand the investment options available to the Trustee by eliminating certain
restrictions contained in the Second Trust;
WHEREAS, contributions to the third trust fund shall be held by the Trustee
and invested, reinvested and distributed in accordance with the provisions of
this Trust Agreement;
WHEREAS, the trust established by this Trust Agreement is intended to be a
"grantor trust" with the result that the corpus and income of the trust are
treated as assets and income of the Company pursuant to Sections 671 through 679
of the Internal Revenue Code of 1986, as amended ("Code").
NOW, THEREFORE, in consideration of the mutual covenants contained herein,
the Company and the Trustee, intending to be legally bound, declare and agree as
follows:
- 1 -
<PAGE>
ARTICLE I
ESTABLISHMENT
1.1 The Company hereby establishes with the Trustee an irrevocable
grantor trust ("Third Trust") in connection with accounts created on or after
January 1, 1990 on behalf of those Participants in the Plan who are executive
employees and directors of the Company and are designated by the Company and
agreed to by the Trustee ("Participants") in a separate written agreement or
agreements copies of which shall be delivered to the Trustee and attached hereto
as Exhibit A. The Third Trust so established shall be governed by the terms of
this Trust Agreement. Funding of the Third Trust shall be at the discretion of
the Company, and the Trustee shall have no obligation to require that the
Company fund the Third Trust.
1.2 The Third Trust shall consist of such sums of money and other
property acceptable to the Trustee as from time to time shall be paid or
delivered to the Trustee. All such money and other property, all investments and
reinvestments made therewith or proceeds thereof and all earnings and profits
thereon, less all payments and charges as authorized herein, are hereinafter
referred to as the "Third Trust Fund." The Third Trust shall be irrevocable, and
the Company shall have no right to direct the Trustee to return or divert any
Third Trust assets before the payment of all Plan benefits to the Participants
in connection with deferrals for accounts created on or after January 1, 1990,
together with earnings thereon except as provided in Section 7.4. The Third
Trust Fund shall be held by the Trustee and shall be dealt with in accordance
with the provisions of this Trust Agreement. Neither the Participants, nor the
Plan, shall have any preferred claim on, or any beneficial ownership interest
in, any assets of the Third Trust Fund prior to the time such assets are paid to
the Participants as provided in Article VII, and all rights created under the
Plan and this Trust Agreement shall be mere unsecured contractual rights or the
Participants against the Company.
1.3 The Company, in its absolute discretion, may from time to time
contribute to the Third Trust (i) the amount of deferrals under the Plan by
Participants, plus (ii) the amount of earnings credited under the Plan to the
accounts of Participants, plus (iii) amounts necessary to pay the premiums on
any life insurance policies held by the Trustee to the extent that such premiums
are not paid by policy loans taken under Section 5.3 below, plus (iv) amounts
necessary to pay the interest on any loans against life insurance policies held
by the Trustee to the extent that such interest is not paid by policy loans
taken under Section 5.3.
1.4 The Company shall retain an independent administrator
("Administrator") for the Plan whose duties shall include (i) reporting at least
annually to the Company and the Trustee the current account balance of each
Participant, (ii) advising the Trustee of the due date and amount of any
premiums on life insurance policies held in the Trust Fund sufficiently in
advance of such due date so as to allow the Trustee time for payment, (iii)
certifying to the Trustee the amount of benefit payments which the Trustee is to
make to any Participant, and (iv) directing the Trustee to
- 2 -
<PAGE>
file appropriate tax returns and reports as required by Section 9.6. The
selection of the Administrator and any successor Administrators shall be subject
to the prior written approval of the Trustee which approval shall not be
unreasonably withheld.
ARTICLE II
TRUSTEE ACCEPTANCE
2.1 The Trustee accepts the Third Trust established under this Trust
Agreement on the terms and subject to the provisions set forth herein and agrees
to discharge and perform fully and faithfully all of the duties and obligations
imposed upon it under this Trust Agreement.
ARTICLE III
DELIVERY OF PLAN
3.1 A copy of the Plan (which is attached as Exhibit B to this Trust
Agreement) and a copy of each Participant's deferral election under the Plan
have been delivered to the Trustee. All terms defined in the Plan shall have
the same meanings when used herein unless expressly provided to the contrary
herein. The Company will promptly deliver to the Trustee copies of all
amendments to the Plan and all deferral elections made after the date of this
Agreement.
3.2 The terms of the Plan shall govern the amount, form and timing of
benefit payments under the Plan to which a Participant is entitled.
ARTICLE IV
TRUST FUND
4.1 It is intended that the Third Trust constitute a grantor trust under
Code Sections 671 through 679, with the assets of the Third Trust Fund being
treated as assets of the Company for purposes of federal, state and local income
tax laws. The creation of this Third Trust is not intended to cause the Plan to
be treated as a funded plan for purposes of Title I of the Employee Retirement
Income Security Act of 1974, as amended from time to time.
4.2(a) The assets of the Third Trust Fund shall at all times be subject to
the rights of the general creditors of the Company. At any time the Trustee (i)
has been notified by the Board of Directors or the Chief Executive Officer of
the Company that the Company is Insolvent, (ii) has been notified by a court of
competent jurisdiction that the Company is Insolvent, or (iii) has been notified
by a duly authorized trustee of the Company's assets under federal bankruptcy
law or analogous provisions of applicable state law that the Company is
Insolvent, the Trustee shall
- 3 -
<PAGE>
discontinue payments to the Participants, shall hold the Third Trust Fund assets
for the benefit of the Company's general creditors, and shall deliver any
undistributed principal and income in the Third Trust fund to satisfy such
claims of the general creditors of the Company as a court of competent
jurisdiction may direct. The Board of Directors and the Chief Executive Officer
of the Company shall have the duty to inform the Trustee in writing of the
Company's Insolvency. The Trustee shall resume payments to the Participants in
accordance with Article VII of this Third Trust Agreement only after the Trustee
has been notified that the Company is not Insolvent by the Board of Directors or
the Chief Executive Officer of the Company or by a court of competent
jurisdiction or by a duly appointed trustee of the Company's assets under
federal bankruptcy law or analogous provisions of applicable state law. Nothing
in this Trust Agreement shall in any diminish any rights of the Participants to
pursue their rights as general creditors of the Company with respect to payments
under the Plan. The Company shall be considered "Insolvent" for purposes of this
Trust Agreement if (i) the Company is unable to pay its debts as they mature, or
(ii) the Company is subject to a pending proceeding as a debtor under the
Bankruptcy Code.
(b) If the Trustee discontinues payments to the Participants from the
Third Trust Fund pursuant to Section 4.2(a) and subsequently resumes such
payments, the first payment following such discontinuance shall include the
aggregate amount of all payments which would have been made to the Participants
(together with interest on the amount delayed at a rate equal to the "prime
rate" charged by the Trustee's commercial lending department) in accordance with
the Plan during the period of such discontinuance less the aggregate amount of
payments made to the Participants by the Company in lieu of the payments
provided for hereunder during any such period of discontinuance and less
interest on those amounts.
(c) It is intended that the rights of the general creditors of the
Company to enforce the provisions of this Article in the event of the Company's
Insolvency be enforceable with respect to the Third Trust fund at the time of
Insolvency under both federal and state law.
ARTICLE V
DUTIES AND POWERS OF THE TRUSTEE
WITH RESPECT TO INVESTMENTS
5.1 Subject to the provisions of Sections 5.2 and 5.3, the Trustee shall
have the following powers, the exercise of which shall be within the sole and
absolute discretion of the Trustee:
(i) The Trustee shall keep the Third Trust Fund invested, without
distinction between principal and income, in any property, whether real,
personal or mixed, and wherever situated and whether or not productive of
income, without regard to the proportion any such property may bear to the
entire amount of the Third Trust Fund. The Third Trust Fund investments may
include, without implied limitation, insurance policies purchased by or at the
- 4 -
<PAGE>
direction of the Company and American Depository Receipts relating to the common
--------
stock of Allied Irish Bank.
(ii) The Trustee in its discretion may keep such portion of the
Third Trust Fund in cash or cash balances or hold all or any portion of the
Third Trust Fund in savings accounts, certificates of deposit, and other types
of time or demand deposits with any appropriate financial institution or quasi-
financial institution (including any such institution operated or maintained by
the Trustee in its corporate capacity) as the Trustee may from time to time
determine to be in the best interests of the Trust Fund.
5.2 The Company shall have the right to request the Trustee invest and
reinvest the principal and income of the Third Trust fund as directed by the
Company; provided, however, that the trustee shall not be required to comply
with such a request and, in any event, the Trustee shall only comply with the
Company's request if the Trustee determines in its own judgment that the
Company's directions are reasonable. In no event shall a Participant have the
right to request or require the Trustee to make any particular investment of the
principal or income of the Third Trust Fund.
5.3 The Trustee shall invest in life insurance policies such portion of
the Third Trust Fund as the Company directs. As to any such policies which
permit investment selections, either the Company will make such selections
directly or the Trustee will make such selections as the Company directs. The
Trustee shall borrow from the cash value of such policies at the direction of
the Company and may do so without the direction of the Company if it chooses.
If any portion of the Third Trust fund is invested in a life insurance policy on
the life of a Participant, the owner of the policy shall be the Trustee except
as otherwise provided in Section 7.4. In no event shall the owner or
beneficiary of the policy be a Participant. If at any time the Company fails to
pay to the Third Trust Fund, as provided in Section 1.3 above, amounts
sufficient to pay when due the premium on any life insurance policy held by the
Trustee or any interest on loans against any such policy, the Trustee shall pay
such premiums and interest twice provided there is cash available to do so, and
thereafter, or whenever there is not sufficient cash available, shall have the
right to surrender such policy, but shall not be obligated to do so. Except as
provided in the preceding provisions of this Section 5.3 and in Section 7.4, the
Trustee shall not surrender any policy acquired at the direction of the Company
unless the Company so directs and then only if the Trustee, in the exercise of
its own judgment based on information provided by the Administrator, determines
that (i) all obligations of the Plan to the insured Participant have been
discharged or adequately provided for and (ii) after the surrender of the
policy, the Company would be entitled to a return of assets under Section 7.4.
5.4 If the Trustee invests any or all of the Third Trust fund in
insurance pursuant to the directions of the Company under Section 5.3, or
borrows from insurance policies at the direction of the Company, the Company
agrees to indemnify and hold harmless the Trustee from any claim of loss to the
Third Trust Fund arising out of the Trustee's compliance with the Company's
directions.
- 5 -
<PAGE>
ARTICLE VI
ADDITIONAL POWERS AND DUTIES OF THE TRUSTEE
6.1 The Trustee shall have the following additional powers and
authority, subject to Sections 5.1, 5.2 and 5.3, the exercise of which shall be
within the sole and absolute discretion of the Trustee unless otherwise stated
with respect to all property constituting part of the Third Trust Fund:
(i) To sell, lease (irrespective of the possible termination of
the Third Trust), improve, partition, mortgage, exchange or otherwise dispose of
any and all property at any time forming a part of any Third Trust in such
manner, for such purposes and upon such terms as the Trustee may deem desirable.
(ii) To participate in any plan of reorganization, consolidation,
merger, combination, liquidation or other similar plan relating to any such
property, and to consent to or oppose any such plan or any action thereunder, or
any contract, lease, mortgage, purchase, sale or other action by any corporation
or other entity.
(iii) To deposit any such property with any protective,
reorganization or similar committee; to delegate discretionary power to any such
committee; and to pay part of the expenses and compensation of any such
committee and any assessments levied with respect to any property so deposited.
(iv) To exercise any conversion privilege or subscription right
available in connection with any such property; to oppose or to consent to the
reorganization, consolidation, merger or readjustment of the finances of any
corporation, company or association, or to the sale, mortgage, pledge or lease
of the property of any corporation, company or association any of the securities
of which may at any time be held in the Third Trust Fund and to do any act with
reference thereto, including the exercise of options, the making of agreements
or subscriptions and the payment of expenses, assessments or subscriptions,
which may be deemed necessary or advisable in connection therewith, and to hold
and retain any securities or other property which it may so acquire.
(v) To commence or defend suits or legal proceedings and to
represent the Third Trust fund in all suits or legal proceedings; to settle,
compromise or submit to arbitration any claims, debts or damages due or owing to
or from the Third Trust.
(vi) To exercise, personally or by general or limited power of
attorney, any right, including the right to vote, appurtenant to any securities
or other such property.
- 6 -
<PAGE>
(vii) To borrow money from any lender in such amounts and upon such
terms and conditions as shall be deemed advisable or proper to carry out the
purposes of the Third Trust and to pledge any securities or other property for
the repayment of any such loan.
(viii) To engage any legal counsel, including counsel to the Company
or to the Trustee, or any other suitable agents, to consult with such counsel or
agents with respect to the construction of this Trust Agreement, the duties of
the Trustee hereunder, the transactions contemplated by this Trust Agreement or
any act which the Trustee proposes to take or omit, to rely upon the advice of
such counsel or agents, and to pay its reasonable fees, expenses and
compensation.
(ix) To register any securities held by it in its own name or in
the name of any custodian of such property or of its nominee including the
nominee of any system for the central handling of securities, with or without
the addition of words indicating that such securities are held in a fiduciary
capacity, to deposit or arrange for the deposit of any such securities with such
a system and to hold any securities in bearer form.
(x) To execute, acknowledge and deliver any and all instruments
in writing which the Trustee may deem advisable to carry out any of the
foregoing powers, including the power to indicate any division or distribution
of any part of the Third Trust by deeds or other writings or instruments
recorded among the public records of any jurisdiction where any such property
may be located; and no party to any such instrument in writing signed by the
Trustee shall be bound to see to the application by the Trustee of any money or
other property paid or delivered to them pursuant to the terms of such
instrument.
(xi) To make distributions of all or any part of the assets of the
Third Trust, in money or in kind, or partly in money and partly in kind,
including real estate.
ARTICLE VII
PAYMENTS BY THE TRUSTEE
7.1 Payments pursuant to the terms of the Plan for deferrals for
accounts created before January 1, 1990 and earnings thereon shall be paid by
the Trustee from the First Trust as provided therein. Unless the Company has
provided written evidence to the Trustee that the Company has made such payments
directly to Participants pursuant to the terms of the Plan or that such payments
have been made out of the Second Trust, the Trustee shall make payments to the
Participants for deferrals for accounts created on or after January 1, 1990 and
earnings thereon pursuant to the terms of the Plan provided that the Trustee has
not received notice that the Company is Insolvent at the time of such payments.
If a Participant or Beneficiary does not receive a payment payable from the
Third Trust that he believes he has become entitled to under the Plan, he shall
notify the Trustee of such entitlement. The Trustee shall within ten (10) days
after its receipt of such notice forward a copy of such notice to the Company.
If the Company
- 7 -
<PAGE>
fails to notify the Trustee within ten (10) days after its receipt of such
notice that it denies the claim of the Participant or Beneficiary to payment by
the Trustee, the Trustee shall make payment to the Participant or Beneficiary
under the terms of the Plan as soon as practicable, and in any event, within
thirty (30) days after the expiration of said ten (10) day notice period. The
Trustee shall provide the Company with written confirmation of the fact and
amount of such payment after it is made. If the Company shall notify the Trustee
within said ten- (10) day notice period that it denies the claim of the
Participant to payment by the Trustee, then within thirty (30) days after
receipt by the Trustee of such notice from the Company, the Trustee shall
commence an action or proceeding in court in the nature of interpleader so that
the dispute may be resolved. Such action or proceeding shall be commenced in the
federal or state court at the situs of the Third Trust Fund, subject to removal
by any party in accordance with the rules of practice applicable thereto.
7.2 The Trustee shall deduct from each payment any federal, state or
local withholding or other taxes or charges which the Trustee is directed to
deduct by the Company or the Administrator of the Plan and pay the amount
deducted to the appropriate agency.
7.3 The insufficiency of assets in the Third Trust shall not relieve the
Company of its obligation or liability to make benefit payments otherwise due
under the terms of the Plan.
7.4 Upon payment by the Trustee or by the Company of all benefits due
under the Plan on account of deferrals for accounts created on or after January
1, 1990 by a Participant, all remaining proceeds from any insurance policy on
the life of that Participant and all earnings thereon shall be paid to the
Company within 60 days, and all remaining insurance policies on the life of that
Participant shall be changed by the Trustee to designate the Company as
beneficiary. Thereafter the beneficiary and owner of such policies shall be
changed by the Trustee as the Company shall direct. Written notice by the
Company delivered to the Trustee shall be sufficient proof to the Trustee of
payment of benefits by the Company unless the Trustee has previously received or
within ten (10) days thereafter receives notice from a Participant or
Beneficiary that he has not received a payment that he believes he has become
entitled to under the Plan on account of deferrals for accounts created on or
after January 1, 1990. If such a notice is received from a Participant or
Beneficiary, the Trustee shall proceed under Section 7.1. Certain insurance
policies delivered to the Trustee may not insure the lives of any Participants.
Such policies shall name and maintain the Company as beneficiary, and the
Trustee shall deliver such policies to the Company upon written demand by the
Company and shall change the owner of such policies as directed by the Company.
The Company may, however, designate in writing one or more of such policies to
be treated by the Trustee as though the policy did insure the life of one or
more specified Participants. Upon receipt of such written designation the
Trustee shall change the beneficiary of the policy in question to be the
Trustee, and thereafter shall treat the policy for the purpose of this Third
Trust as though the policy insured the life of the specified Participant. If
the specified Participant dies, the policy shall be used to pay benefits due the
Participant or the Participant's beneficiaries unless such benefits are paid by
the Company as provided in Section 7.1.
- 8 -
<PAGE>
7.5 The Company may provide to the Trustee as an asset of the Trust Fund
one or more irrevocable letters of credit. The Trustee shall accept a letter of
credit as part of the Third Trust Fund only if it is irrevocable and grants the
Trustee the unconditional right to draw upon it in whole or in part at any time,
and only if it is issued by a bank having total assets at the time the letter of
credit is issued of at least $1 billion. The Trustee agrees that it shall draw
upon a letter of credit only upon the following circumstances: (i) the letter
of credit will expire within fifteen (15) days and either the letter of credit
has not been renewed or the Trustee has not received from the Company assets
having a market value equal to the face amount of the letter of credit, or (ii)
the Trustee is obligated to make payments to a Participant or Beneficiary or to
commence an action or proceeding in court in the nature of interpleader as
provided in Section 7.1 or to pay expenses and the Trustee, in its sole and
absolute discretion, determines that it does not have sufficient liquid assets
to make the payments or to pay expenses which it is obligated to make or pay or
which are under dispute pursuant to Section 7.1, or (iii) the Company does not
elect to make any contributions to the Trust as provided by Section 1.3 above.
ARTICLE VIII
TAXES, EXPENSES AND COMPENSATION
8.1 The Company shall from time to time pay taxes of any and all kinds
which are lawfully levied or assessed upon or become payable in respect of the
Third Trust fund, the income or any property forming a part thereof, or any
security transaction pertaining thereto. To the extent that any taxes lawfully
levied or assessed upon the Third Trust Fund are not paid by the Company, the
Trustee shall pay such taxes out of the Third Trust Fund. The Trustee shall at
Company expense contest the validity of such taxes in any manner deemed
appropriate by the Company or its counsel or the Company may itself contest the
validity of any such taxes.
8.2 The Company agrees to indemnify and hold harmless the Trustee and
the Third Trust Fund from and against all amounts, including without limitation,
taxes, expenses (including reasonable counsel fees), liabilities, claims,
damages, actions, suits or other charges incurred by or assessed against the
Trustee or the Third Trust Fund as a direct or indirect result of anything done
in good faith or alleged to have been done, by or on behalf of the Trustee in
reliance upon the directions of the Company or any person authorized to act on
behalf of the Company under the Plan, or as a direct or indirect result of
anything omitted to be done in good faith or alleged to have been omitted, in
the absence of such directions, or as a direct or indirect result of the failure
of the Company or any person authorized to act on behalf of the Company directly
or through its agents, to adequately, carefully and diligently discharge its
responsibilities with respect to this Third Trust or the Plan. Anything
hereinabove to the contrary notwithstanding, the Company shall have no
responsibility to the Trustee or the Third Trust Fund under the foregoing if the
Trustee fails to perform any of the duties specifically undertaken by it under
the provisions of this Third Trust. The Company further agrees that the
undertakings made in this Section 8.2 shall be binding on its successors or
assigns and shall survive termination, amendment or restatement of the Third
Trust or the Plan, or the resignation or removal of the Trustee.
- 9 -
<PAGE>
8.3 Any other reasonable expenses incurred by the Trustee in the
performance of its duties under the Trust Agreement, including brokerage
commission, shall be charged against and paid from the Third Trust Fund to the
extent that the Company does not pay such expenses.
8.4 The Company will pay the Trustee such reasonable compensation for
its services as may be agreed upon in writing from time to time by the Company
and the Trustee. Such compensation shall be charged against and paid from the
Third Trust Fund to the extent the Company does not pay such compensation.
ARTICLE IX
ADMINISTRATION AND RECORDS
9.1 The Trustee shall keep or cause to be kept accurate and detailed
accounts of any investments, receipts, disbursements and other transactions
hereunder, and all accounts, books and records relating thereto shall be open to
inspection and audit at all reasonable times by any person designated by the
Company. All such accounts, books and records shall be preserved (in original
form, or on microfile, magnetic tape or any other similar process) for such
period as the Trustee may determine, but the Trustee may only destroy such
accounts, books and records after first notifying the Company in writing of its
intention to do so transferring to the Company any of such accounts, books and
records requested.
9.2 The Trustee shall file with the Company at least quarterly a
statement showing transactions and market values of the Third Trust Fund in the
normal form provided to the Trustee's customers. Upon the expiration of 180 days
from the date of filing any such statement, the Trustee shall be released and
discharged from all liability and accountability with respect to the propriety
of its acts and transactions shown in such statement, except with respect to any
such acts or transactions as to which the Company shall within such 190 day
period file with the Trustee written objections and except for matters which the
Company would not reasonably have been expected to have discovered by a proper
review of such statement.
9.3 The Trustee shall from time to time permit the Company's employees
and agents to have reasonable access during ordinary business hours to such
records as may be necessary to audit the Trustee's accounts.
9.4 Nothing contained in this Trust Agreement shall be construed as
depriving the Trustee or the Company of the right to have a judicial settlement
of the Trustee's accounts, and upon any proceeding for a judicial settlement of
the Trustee's accounts or for instructions, the only necessary party thereto in
addition to the Trustee shall be the Company.
- 10 -
<PAGE>
9.5 In the event of the removal or resignation of the Trustee, the
Trustee shall deliver to the successor trustee all records which shall be
required by the successor trustee to enable it to carry out the provisions of
this Trust Agreement.
9.6 The Trustee will execute and file appropriate tax returns and
reports relating to withholding taxes or other charges or taxes as directed by
the Company or the Administrator referred to in Section 1.4. In addition to any
returns required of the Trustee by law, the Trustee shall prepare and file such
tax reports and other returns as the Company and the Trustee may from time to
time agree.
ARTICLE X
REMOVAL OR RESIGNATION OF THE TRUSTEE
AND DESIGNATION OF SUCCESSOR TRUSTEE
10.1 The Company may remove the Trustee with or without cause, upon at
least 60 days' notice in writing to the Trustee.
10.2 The Trustee may resign at any time upon at least 60 days' notice in
writing to the Company.
10.3 In the event of such removal or resignation, the Trustee shall duly
file with the Company a statement as provided in Section 9.2 for the period
since the last statement setting forth the transactions and market values and
other information in the normal form provided to the Trustee's trust customers
respecting the Third Trust not included in any previous statement and if written
objections to such statement are not filed as provided in Section 9.2, the
Trustee shall to the maximum extent permitted by applicable law be forever
released and discharged from all liability and accountability with respect to
the propriety of its acts and transactions shown in such statement except for
matters which the Company could not reasonably have been expected to have
discovered by a proper review of such statement.
10.4 Within 60 days after any such notice of removal or resignation of
the Trustee, the Company shall designate a successor trustee qualified to act
hereunder. A successor trustee must be a financial institution having trust
assets under management of at least $1 billion as of the date of the appointment
as successor trustee. Each successor trustee, during such period as it shall act
as such, shall have the powers and duties herein conferred upon the Trustee, and
the word "Trustee" wherever used herein, except where the context otherwise
requires, shall be deemed to include any successor trustee. Upon designation of
a successor trustee and delivery to the resigned or removed Trustee of written
acceptance by successor trustee, in conformity with the requirements of
applicable law, the funds and properties in its control or possession then
constituting the Third Trust Fund.
ARTICLE XI
- 11 -
<PAGE>
ENFORCEMENT OF TRUST AGREEMENT
11.1 The Company shall have the right to enforce any provisions of this
Trust Agreement. Each Participant shall have the right to enforce the payment
of his Plan benefits under the Trust Agreement. In any action or proceedings
affecting the Third Trust, the only necessary parties shall be the Company and
the Trustee and, except as otherwise required by applicable law, no other person
shall be entitled to any notice or service of process, provided, however, that
in any action or proceeding pertaining to the payment or amount of benefits
payable from the Trust Fund, the Participants (and the Beneficiaries of deceased
Participants) whose benefits are or will be affected by such action or
proceeding shall be entitled to written notice of such action or proceeding.
Any judgment entered in an action or proceeding described in this Section 11.1
shall be binding and conclusive on all persons having or claiming to have any
interest in the Third Trust except for Participants and Beneficiaries of
deceased Participants who have not received written notice as provided in this
Article XI.
ARTICLE XII
AMENDMENTS
12.1 The Company may from time to time amend or modify, in whole or in
part, any or all of the provisions of this Third Trust Agreement, except to make
it revocable, with the written consent of the Trustee and two-thirds of the
Participants under the Third Trust then living. The Company and the Trustee
shall execute such supplements to, or amendments of, this Third Trust Agreement
as shall be necessary to give effect to any such amendment or modification.
ARTICLE XIII
TERMINATION OF TRUST
13.1 Except as provided in Sections 1.2, 4.2, 7.4 and 13.2, no part of
the corpus or income of the Third Trust shall be paid to the Company or be used
for any purpose other than for the exclusive purpose of providing benefits to
the Participants prior to the satisfaction of all liabilities under the Plan for
accounts created on or after January 1, 1990; provided, however, that nothing in
this Article shall be deemed to limit or otherwise prevent the payment from the
Third Trust of expenses, taxes, and other charges as provided in Article VIII or
the return of surplus as provided in Article VII. The Third Trust may be
terminated by the Company at such time as all amounts due the Participants and
Beneficiaries under the terms of the Plan for accounts created on or after
January 1, 1990 shall have been paid.
- 12 -
<PAGE>
13.2 Upon the receipt by the Trustee of a written agreement executed by
at least two-thirds of the Participants then living directing the Trustee to
terminate the Third Trust, the Third Trust shall be terminated.
13.3 Upon the termination of the Third Trust, any and all funds remaining
in the Third Trust shall be paid to the Company, and the Trustee shall promptly
take such action as shall be necessary to transfer such assets to the Company.
ARTICLE XIV
NON-ALIENATION
14.1 Except to the extent otherwise required by law, (i) no amount
payable to or in respect of any Participant at any time under the Third Trust
shall be subject in any manner to alienation by anticipation, sale, transfer,
assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind,
and any attempt to so alienate, sell, transfer, assign, pledge, attach, charge
or otherwise encumber any such amount, whether presently or thereafter payable,
shall be void; and (ii) the Third Trust Fund shall in no manner be liable for or
subject to the debts or liabilities of any Participant.
14.2 No provision of this Trust Agreement shall be interpreted as
conferring upon any Participant or Beneficiary any rights other than those of a
general creditor of the Company.
ARTICLE XV
COMMUNICATIONS
15.1 Communications to the Company shall be addressed to the Company at
its office at 25 South Charles Street, Baltimore, Maryland 21201, attention
Senior Vice President, Human Resources Division; provided, however, that upon
the Company's written request, such communications shall be sent to such other
address and or addressee as the Company may specify.
15.2 Communications to the Trustee shall be addressed to it at Provident
National Bank, 17th and Chestnut Streets, Philadelphia, Pennsylvania 19103,
attention Administrator, Trust Division; provided, however, that upon the
Trustee's written request, such communications shall be sent to such other
address as the Trustee may specify.
15.3 No communication shall be binding on the Trustee until it is
received by the Trustee, and no communication shall be binding on the Company
until it is received by the Company.
- 13 -
<PAGE>
15.4 Any action of the Company pursuant to this Trust Agreement,
including all orders, requests, directions, instructions, approvals and
objections of the Company to the Trustee, shall be in writing signed on behalf
of the Company by any duly authorized officer of the Company of the rank of
Senior Vice President or above. The Trustee may rely on, and will be fully
protected with respect to any such action taken or omitted in reliance on any
information, order, request, direction, instruction, approval, objection and
list delivered to the Trustee by the Company or failure to act due to lack of
receipt of direction.
15.5 The Company may designate individuals or committees to act on its
behalf for purposes of some or all of the provisions of this Trust Agreement.
Such individuals or committees and their respective authorities and powers under
this Agreement shall be designated by the Company in writing to the Trustee.
Their authority shall continue until revoked in writing by the Company and
received by the Trustee. The Trustee shall incur no liability for failure to
act on such individuals' or committees' instructions without written designation
from the Company.
ARTICLE XVI
MISCELLANEOUS PROVISIONS
16.1 This Trust Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania applicable to
contracts made and to be performed therein. It shall be binding upon and inure
to the benefit of the Company and the Trustee and their respective successors
and assigns. The Company shall not merge or consolidate into or with another
corporation, or reorganize, or sell substantially all of its assets to another
corporation, firm or person unless and until such succeeding or continuing
corporation, firm or person agrees to assume and discharge the obligations of
the Company under this Trust Agreement and to provide notice of such agreement
to the Trustee.
16.2 All titles and Article headings herein have been inserted for
convenience of reference only and shall in no way modify, restrict or affect the
meaning or interpretation of any of the terms or provisions of this Trust
Agreement.
16.3 This Trust Agreement is intended as a complete and exclusive
statement of the agreement of the parties hereto, and supersedes all previous
agreements or understandings among them.
16.4 The term "Trustee" shall include any successor trustee. If a Trustee
or custodian hereunder is a bank or trust company, any corporation resulting
from any merger, consolidation or conversion to which such bank or trust company
may be a party, or any corporation otherwise succeeding generally to all or
substantially all of the assets or business of such bank or trust company, shall
be the successor to it as Trustee hereunder without the execution of any
instrument or any further action on the part of any party hereto or any
Participant hereunder.
- 14 -
<PAGE>
16.5 If any provision of this Trust Agreement shall be invalid and
unenforceable, the remaining provisions hereof shall continue to be effective.
16.6 Any reference hereunder to a Participant shall expressly be deemed
to include where relevant a Beneficiary of such Participant or Beneficiary duly
designated under the terms of the Plan for accounts created on or after January
1, 1990. A Participant shall cease to have such status once any and all amounts
due him under the Plan for accounts created on or after January 1, 1990 have
been satisfied.
16.7 Whenever used herein, and to the extent appropriate, the masculine,
feminine or neuter gender shall include the other two genders, the singular
shall include the plural and the plural shall include the singular.
16.8 This Trust Agreement may be executed in any number of counterparts,
each of which shall be deemed to be the original, and said counterparts shall
constitute but one and the same instrument.
- 15 -
<PAGE>
IN WITNESS WHEREOF, this Trust Agreement has been duly executed by the parties
hereto as of the day and year first above written.
[SEAL]
ATTEST: FIRST MARYLAND BANCORP
/s/ Diane E. Murphy By: /s/ Jeremiah E. Casey
- -------------------------------- ----------------------------
[SEAL]
ATTEST: PROVIDENT NATIONAL BANK
(as Trustee)
________________________________ By: /s/ Sheila Akers
----------------------------
- 16 -
<PAGE>
Exhibit 10.11
FIRST MARYLAND BANCORP
1994 DEFERRED COMPENSATION PLAN
FOR DIRECTORS AND SENIOR OFFICERS
EFFECTIVE JANUARY 1, 1994
<PAGE>
FIRST MARYLAND BANCORP
1994 DEFERRED COMPENSATION PLAN
FOR DIRECTORS AND SENIOR OFFICERS
EFFECTIVE JANUARY 1, 1994
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I
---------
DEFINITIONS
-----------
<TABLE>
<C> <S> <C>
1.1 Account 1
1.2 Bancorp 1
1.3 Beneficiary 1
1.4 Board 1
1.5 Committee 1
1.6 Company 1
1.7 Compensation 1
1.8 Deferral Agreement 1
1.9 Deferral Election 2
1.10 Deferral Period 2
1.11 Determination Date 2
1.12 Director 2
1.13 Disabled 2
1.14 Investment Options 2
1.15 Participant 2
1.16 Plan 2
1.17 Plan Administrator 3
1.18 Plan Year 3
1.19 Recordkeeper 3
1.20 Retirement 3
1.21 Retirement Benefit 3
1.22 Retirement Date 3
1.23 Senior Officer 3
1.24 Termination 3
1.25 Termination Benefit 3
</TABLE>
- i -
<PAGE>
ARTICLE II
----------
PARTICIPATION
-------------
<TABLE>
<C> <S> <C>
2.1 Participation 3
(a) Eligibility 3
(b) Election to Participate 4
2.2 Deferral Agreements 4
2.3 Deferral Amount 4
(a) Directors 4
(b) Senior Officers 4
2.4 Modification of Deferral Election 4
ARTICLE III
-----------
ACCOUNTS
--------
3.1 Deferred Compensation 4
3.2 Retirement Account 4
3.3 Determination of Account 5
3.4 Determination of Earnings 5
3.5 Statement of Accounts 6
ARTICLE IV
----------
BENEFITS
--------
4.1 Retirement Benefit 6
(a) Commencement of Payments 6
(b) Amount of Benefit 7
(c) Adjustment for Pension Plan Benefits 7
(d) Payments After Death 8
(e) Alternative Payment Forms 8
4.2 Termination Benefit 8
(a) Commencement of Payments 8
(b) Amount of Benefit 8
(c) Payments After Death 8
4.3 Pre-Retirement Death Benefit 8
4.4 Hardship Distributions 8
</TABLE>
- ii -
<PAGE>
ARTICLE V
---------
BENEFICIARY DESIGNATION
-----------------------
<TABLE>
<C> <S> <C>
5.1 Beneficiary(ies) Designation 9
5.2 Amendments 9
5.3 No Beneficiary Designation 9
ARTICLE IV
----------
PLAN ADMINISTRATOR
------------------
6.1 Plan Administrator Duties 9
6.2 Agents 10
6.3 Binding Effect of Decisions 10
6.4 Indemnity 10
ARTICLE VII
-----------
CLAIMS PROCEDURE
----------------
7.1 Notice of Claim 10
7.2 Action on Claim 10
7.3 Review of Denial 11
7.4 Decision on Review 11
ARTICLE VIII
------------
AMENDMENT AND TERMINATION OF PLAN
---------------------------------
8.1 Amendment 11
8.2 Board's Right to Terminate 11
</TABLE>
- iii -
<PAGE>
ARTICLE IX
----------
MISCELLANEOUS
-------------
<TABLE>
<C> <S> <C>
9.1 Unfunded Plan 11
9.2 Unsecured General Creditor 12
9.3 Nonassignability 12
9.4 Not a Contract of Employment 12
9.5 Forfeiture of Benefits 12
9.6 Terms 12
9.7 Captions 12
9.8 Governing Law 12
9.9 Validity 13
9.10 Notice 13
9.11 Successors 13
9.12 Incompetent 13
9.13 Company Obligations 13
</TABLE>
- iv -
<PAGE>
FIRST MARYLAND BANCORP
1994 DEFERRED COMPENSATION PLAN
FOR DIRECTORS AND SENIOR OFFICERS
EFFECTIVE JANUARY 1, 1994
This Plan has been established by action of the Management and
Compensation Committee of the Board of Directors of First Maryland Bancorp on
December 14, 1993. It is intended to benefit the Directors of First Maryland
Bancorp and The First National Bank of Maryland and certain key Senior Officers
of First Maryland Bancorp and its subsidiaries, to secure their good will,
loyalty and achievement, and to help attract and retain high quality employees
and directors.
ARTICLE I
---------
DEFINITIONS
The following definitions apply to this Plan:
1.1 Account. "Account" means the Account maintained by the Company
-------
pursuant to Article III, with respect to each Deferral Agreement.
1.2 Bancorp. "Bancorp" means First Maryland Bancorp and any successor
-------
to its business.
1.3 Beneficiary. "Beneficiary" means the person, persons, or entity
-----------
entitled under Article V to receive any Plan benefits payable after a
Participant's death.
1.4 Board. "Board" or "Board of Directors" means the Board of
-----
Directors of First Maryland Bancorp.
1.5 Committee. "Committee" means the Management and Compensation
---------
Committee of the Board.
1.6 Company. "Company" means Bancorp, The First National Bank of
-------
Maryland and any direct or indirect subsidiary of either of them.
1.7 Compensation. A Senior Officer's "Compensation" means base salary,
------------
and any cash bonuses and incentive awards as the Committee, in its discretion,
may determine from time to time, will be included in Compensation. Compensation
also includes a former Senior Officer's periodic severance payments. A
Director's Compensation means fees and retainers for service as a Director.
1.8 Deferral Agreement. "Deferral Agreement" means a Participant's
------------------
agreement to defer Compensation under this Plan, as more fully described in
Article II.
<PAGE>
1.9 Deferral Election. "Deferral Election" means a Participant's
-----------------
election to defer Compensation pursuant to a Deferral Agreement.
1.10 Deferral Period. "Deferral Period" means the Plan Year with
---------------
respect to which Com pensation is deferred pursuant to a Deferral Agreement.
1.11 Determination Date. "Determination Date" means the last day of
------------------
each calendar quarter, (i.e., March 31, June 30, September 30 and December 31).
1.12 Director. "Director" means a member of the Board of Directors of
--------
First Maryland Bancorp and/or The First National Bank of Maryland.
1.13 Disabled. "Disabled" means the classification of a participant as
--------
"disabled" pursuant to a Company's Long Term Disability Plan or any amendment or
successor provision to such plan.
1.14 Investment Options. "Investment Options" means the following
------------------
investment options which are to be used as earnings indices as described in
Section 3.4:
1. ARK Money Market Fund
2. ARK Income Fund
3. ARK Growth and Income Fund
4. Fidelity Contrafund
5. Harbor International Fund
6. Founders Discovery Fund
7. Fidelity Emerging Markets Fund
8. AIB Stock Fund
9. Fidelity Developing Communications Fund
10. Fidelity Advisor Global Natural Resources Fund
The Investment Options are chosen by the Recordkeeper and are subject to
change from time to time as the Recordkeeper, in its discretion, deems necessary
or appropriate.
No provision of this Plan shall be construed as giving any Participant an
interest in any of these Investment Options nor shall any provision require that
the Company make any investment in any such funds.
1.15 Participant. "Participant" means a Senior Officer or Director who
-----------
is eligible to participate in this Plan and who elects to participate by filing
a Deferral Agreement as provided in Article II.
1.16 Plan. "Plan" means this First Maryland Bancorp 1994 Deferred
----
Compensation Plan for Directors and Senior Officers, effective January 1, 1994.
- 2 -
<PAGE>
1.17 Plan Administrator. "Plan Administrator" means the Senior Vice
------------------
President, Human Resources of The First National Bank of Maryland. The Plan
Administrator will administer the Plan pursuant to Article VI.
1.18 Plan Year. "Plan Year" means the calendar year.
---------
1.19 Recordkeeper. "Recordkeeper" means PNC Bank, N.A., or such other
------------
entity or individual as may be named as Recordkeeper by the Plan Administrator.
1.20 Retirement. A Senior Officer's "Retirement" means termination of
----------
employment with the Company after becoming eligible for normal retirement under
the First Maryland Bancorp Pension Plan. "Retirement" also means the date on
which a Participant becomes Disabled. A Director's "Retirement" means
termination of service as a Director.
1.21 Retirement Benefit. "Retirement Benefit" means the benefit payable
------------------
to a Participant pursuant to Section 4.1.
1.22 Retirement Date. "Retirement Date" means the first day of the month
---------------
after a Participant's Retirement.
1.23 Senior Officer. "Senior Officer" means officers of Bancorp and
--------------
other Companies in positions of grade level 45 and above. The Committee may, in
its discretion, and from time to time, change the category of senior officers
who are eligible to participate in this Plan as long as the eligible group
remains limited to a "select group of management or highly compensated
employees" within the meaning of the Employee Retirement Income Security Act of
1974.
1.24 Termination. "Termination" means termination of employment with the
-----------
Company for any reason other than Retirement, death or Disability. However, if
a former Senior Officer is receiving periodic severance payments, Termination
does not occur until the severance payments cease.
1.25 Termination Benefit. "Termination Benefit" means the benefit
-------------------
payable to a Participant pursuant to Section 4.2.
ARTICLE II
----------
PARTICIPATION
2.1 Participation.
-------------
(a) Eligibility. Directors and Senior Officers may participate in
-----------
this Plan.
- 3 -
<PAGE>
(b) Election to Participate. A person must file a Deferral
-----------------------
Agreement with the Plan Administrator in order to participate. Participation
shall be effective when the Plan Administrator or its designee accepts the
Deferral Agreement. A Deferral Agreement, and the Deferral Election contained
therein, must become effective before the beginning of the Deferral Period.
Compensation which has already been earned cannot be deferred.
2.2 Deferral Agreements. Each Deferral Agreement shall state the amount
-------------------
of Compensation to be deferred in the Plan Year which it covers. A
Participant's obligation to defer Compensation pursuant to a Deferral Agreement
will terminate upon the Participant's death, Termination or Disability.
2.3 Deferral Amount.
---------------
(a) Directors. A Director may defer up to 100% of his or her
---------
Compensation, with a maximum deferral of $35,000 in a Plan Year.
(b) Senior Officers. A Senior Officer's annual deferral may be
---------------
from 5% to 40% of the Senior Officer's salary and/or 20% to 40% of the Senior
Officer's bonus, with a maximum deferral of $100,000 in a Plan Year.
2.4 Modification of Deferral Election. A Participant's Deferral
---------------------------------
Election shall be irrevocable, except that the Plan Administrator may permit a
Participant to reduce the designated amount to be deferred upon a finding, based
upon uniform standards established by the Plan Administrator, that the
Participant has suffered a financial hardship or overriding financial need. The
amount of Compensation to be deferred shall not be reduced by more than the
amount which is necessary to meet the Participant's immediate financial need and
which is not reasonably available from the Participant's other resources.
ARTICLE III
-----------
ACCOUNTS
3.1 Deferred Compensation. The amount of Compensation that a
---------------------
Participant elects to defer shall be withheld as indicated in the Participant's
Deferral Agreement and credited to the Participant's Account when it otherwise
would have become payable. Any withholding of taxes or other amounts with
respect to deferred Compensation that is required by any state, federal or local
law shall be withheld from the remainder of the Participant's Compensation which
is not deferred.
3.2 Account. The Company directly, or through the Recordkeeper, will
-------
maintain on its books, for record keeping purposes only, an Account for each
Participant with respect to amounts deferred under this Plan. The Participant's
deferred Compensation will be credited to the Participant's Account.
- 4 -
<PAGE>
3.3 Determination of Account. Each Participant's Account as of each
------------------------
Determination Date will consist of the balance of the Participant's Account as
of the immediately preceding Determination Date, increased by Deferred
Compensation credited and earnings, and decreased by distributions and losses,
since that Determination Date.
3.4 Determination of Earnings. Subject to such limitations as may from
-------------------------
time to time be required by law or imposed by the Recordkeeper, and subject to
such operating rules and procedures as may be imposed from time to time by the
Recordkeeper, each Participant may express to the Recordkeeper a preference as
to how the Participant's Account should be constructively invested among the
Investment Options. Such preference shall designate the percentage of the
Participant's Account which is requested to be constructively invested in each
Investment Option.
(a) Any initial or subsequent expression of investment preference
shall be in writing, on a form supplied by and filed with the Recordkeeper, and
shall be subject to such rules and procedures as the Recordkeeper may promulgate
from time to time.
(b) If the Recordkeeper chooses to honor a Participant's investment
preferences, (i) all contributions and credits and other amounts added to a
Participant's Account, shall be constructively invested in accordance with the
then effective designation of investment preference and (ii) as of the effective
date of any new investment preference, all or a portion of the Participant's
Account at that date shall be constructively reallocated among the designated
Investment Options according to the percentages specified in the investment
preference unless and until a subsequent investment preference shall be filed
and become effective.
(c) If the Recordkeeper receives an initial or revised investment
preference which it deems to be incomplete, unclear or improper, the
Participant's investment preference then in effect shall remain in effect (or,
in the case of a deficiency in an initial investment preference, the Participant
shall be deemed to have filed no investment preference) until the next
Determination Date, unless the Recordkeeper provides for, and permits the
application of, corrective action prior thereto. If a Participant fails to file
an effective investment preference, the Participant's Account will be
constructively invested in the Money Market Fund.
(d) All investment preferences shall be advisory only and shall not
bind the Company or the Recordkeeper. The Company shall not be obligated to
invest any funds in connection with this Plan. If, however, the Company chooses
to invest funds to provide for its liabilities under this Plan, the Recordkeeper
shall have complete discretion as to investments.
(e) Whether or not a Participant's investment preferences are
followed, the Participant's Account will be credited with earnings or losses as
follows. As of each Determination Date, the net earnings or losses (as defined
below) of each Investment Option since the preceding Determination Date shall be
allocated among all Accounts in accordance with the preferences indicated by
each Participant as though the Accounts had been invested in the Investment
Option in accordance with each Participant's indicated preference. For purposes
of this allocation, the Account of each Participant will consist of the balance
of the Account as of the preceding Determination Date, adjusted: (i) by adding
thereto the Participant deferrals made since the preceding Determination Date
and (ii) by subtracting therefrom all distributions made to the Participant or
to a Beneficiary or Beneficiaries.
- 5 -
<PAGE>
(f) If it is determined that the constructive value of an Account
as of any date on which distributions are to be made differs materially from the
constructive value of the Account on the prior Determination Date upon which the
distribution is to be based, the Recordkeeper, in its discretion, shall have the
right to designate any date in the interim as a Determination Date for the
purpose of constructively revaluing the Account so that the account from which
the distribution is being made will, prior to the distribution, reflect its
share of such material difference in value. Similarly, the Recordkeeper may
adopt a policy of providing for regular interim valuations without regard to the
materiality of changes in the value of the Accounts.
3.5 Statement of Accounts. Within a reasonable time after the end of each
---------------------
calendar quarter, the Recordkeeper shall submit to each Participant a statement
of his Account balance.
ARTICLE IV
----------
BENEFITS
4.1 Retirement Benefit. A Participant will receive the benefit
------------------
described in this section upon Retirement.
(a) Commencement of Payments.
------------------------
(1) Senior Officer. The Retirement Benefit of a Participant
--------------
who is a Senior Officer will begin on the first day of the month following
Retirement. However, a Participant may elect that the Retirement Benefit begin
at any age after the Senior Officer becomes eligible for early retirement under
the First Maryland Bancorp Pension Plan regardless of whether Retirement has
occurred on or before that date, provided that benefits may not begin later than
age 70. The alternative commencement date may be elected when the Participant
completes a Deferral Agreement. Once a Participant completes a Deferral
Agreement, however, the Participant will be allowed to make one further election
of an alternative commencement date, provided that if an alternative is elected
after the Participant completes his Deferral Agreement, the election of that
alternative will become effective only if (i) Retirement Benefits do not become
payable under that alternative within one (1) year after it is elected and (ii)
the alternative is elected more than one (1) year before Retirement Benefits
would have become payable under the Participant's Deferral Agreement as in
effect immediately before the alternative is elected. If an election of an
alternative does not become effective, Retirement Benefits will be paid on the
basis of the Deferral Agreement and elections in effect immediately before that
alternative was elected.
- 6 -
<PAGE>
(2) Directors. The Retirement Benefit of a Participant who
---------
is a Director will begin at the earlier of the first day of the month following
Retirement or the first day of the month following age 70. However, a Director
may elect that the Retirement Benefit begin (i) on a specified date (not later
than age 70), whether or not Retirement has occurred before that date, (ii) on
the later of a specified date (not later than age 70) or Retirement, or (iii) on
the earlier of a specified date (not later than age 70) or Retirement.
Alternatives (i), (ii) and (iii) may be elected when the Director completes the
Deferral Agreement. Once a Director completes the Deferral Agreement, the
Director will be allowed to make one further election of one of these
alternatives, provided that if an alternative is elected after the Director
completes his Deferral Agreement, the election of that alternative will become
effective only if (i) Retirement Benefits do not become payable under that
alternative within one (1) year after it is elected and (ii) the alternative is
elected more than one (1) year before Retirement Benefits would have become
payable under the Director's Deferral Agreement as in effect immediately before
the alternative is elected. If an election of an alternative does not become
effective, Retirement Benefits will be paid on the basis of the Deferral
Agreement and elections in effect immediately before that alternative was
elected.
(b) Amount of Benefit. The Retirement Benefit is the distribution
-----------------
of the Participant's Account in cash once a year over a period of from 2 to 15
years or in a lump sum as the Participant may elect in the Deferral Agreement.
If a Participant elects distribution over a period of years, the first year's
distribution will equal the Account balance multiplied by a fraction the
numerator of which is one and the denominator of which is the total number of
years over which payment is to be made. In subsequent years, the distribution
will be the product of the remaining Account balance multiplied by the same
fraction with the denominator reduced by one for each successive year. For
example, if the Participant selects a 15 year payment period, the payment in the
first year of distribution would be one fifteenth (1/15) of the Account as of
the Participant's Retirement. The second year's distribution would equal one-
fourteenth (1/14) of the Account as of one year after the Participant's
Retirement. The third year's distribution would equal one-thirteenth (1/13) of
the Account as of two years after the Participant's Retirement, and subsequent
annual distributions would be calculated in accordance with that progression.
While distributions are being made, the Participant's Account will continue to
be credited with constructive earnings and investment gains and losses, and the
Participant will continue to have the right to express investment preferences
pursuant to Section 3.4.
(c) Adjustment for Pension Plan Benefits. Participants who also
------------------------------------
participate in the First Maryland Bancorp Pension Plan for Executive Employees
(the "Executive Retirement Plan") or the First Maryland Bancorp Excess Benefit
Plan (the "Excess Benefit Plan") will receive an additional benefit under this
Plan equal to the amount of any reduction in their benefits under the Executive
Retirement Plan or the Excess Benefit Plan caused by the deferral of
Compensation under this Plan. Similarly, Participants who also participate in
the First Maryland Bancorp Pension Plan (the "Qualified Plan") and whose
benefits under the Qualified Plan are reduced because of deferrals under this
Plan, will receive an additional benefit under this Plan equal to the amount of
any reduction in their benefits under the Qualified Plan.
- 7 -
<PAGE>
(d) Payments After Death. If a Participant dies after the
--------------------
Retirement Benefit begins but before payment has been completed, the remaining
balance of the Account at the date of death will continue to be paid to the
Participant's Beneficiary(ies).
(e) Alternative Payment Forms. The Plan Administrator may, in its
-------------------------
discretion, permit a Participant's Retirement Benefit to be paid in a form
different from the form described in paragraph (b) above, but only if the
Participant requests an alternative form of distribution before his Retirement.
The Plan Administrator will have complete discretion in responding to a request
for an alternative form of payment, will be under no obligation to respond
favorably, and will not be bound by its past practice.
4.2 Termination Benefit. A Participant will receive the benefit
-------------------
described in this section upon his Termination.
(a) Commencement of Payments. Payment of the Termination Benefit
------------------------
will begin on the first day of the month following Termination.
(b) Amount of Benefit. The Termination Benefit is the amount of
-----------------
the Participant's Account as of the date of Termination, paid in cash in a lump
sum. The Plan Administrator may, at its complete discretion, and regardless of
its past practice, defer distribution until not later than the beginning of the
second calendar year following the Participant's Termination and/or may require
distribution of a Termination Benefit to be made in the form described in
Section 4.1(b).
(c) Payments After Death. If the Participant dies after his
--------------------
Termination Benefit begins but before payment of the Termination Benefit has
been completed, the remaining payments will be made to the Participant's
Beneficiary(ies).
4.3 Pre-Retirement Death Benefit. If a Participant dies before
----------------------------
beginning to receive benefits under this Plan, the Beneficiary(ies) will receive
the Participant's Account balance (valued as of the Determination Date which
coincides with or next follows the date of death) in a cash lump sum payable on
the first day of the month following the date of death.
4.4 Hardship Distributions. Upon a finding that a Participant has
----------------------
suffered a financial hardship or overriding financial need due to unforeseen
events beyond the control of the Participant, the Committee may, in its sole
discretion, allow distribution from the Participant's Account prior to the time
specified for payment of benefits under the Plan. The amount of such
distribution shall be limited to the amount which is necessary to meet the
Participant's immediate financial need and which is not reasonably available
from the other sources.
- 8 -
<PAGE>
ARTICLE V
---------
BENEFICIARY DESIGNATION
5.1 Beneficiary(ies) Designation. Each Participant shall have the
----------------------------
right, at any time, to designate a Beneficiary or Beneficiaries (both principal
as well as contingent) to whom payment under this Plan shall be made if the
Participant dies before all of the benefits have been distributed. Any
Beneficiary(ies) designation shall be made in writing filed with the Plan
Administrator and shall become effective only when received and accepted by the
Plan Administrator.
5.2 Amendments. A Participant may change his Beneficiary designation by
----------
filing a new designation on a form prescribed by the Plan Administrator. The
filing of a new Beneficiary designation will cancel all Beneficiary designations
previously filed.
5.3 No Beneficiary Designation. If a Participant fails to designate a
--------------------------
Beneficiary as provided above, or if all designated Beneficiaries predecease the
Participant or die prior to complete distribution of the Participant's benefits,
then the Participant's Beneficiary shall be deemed to be the person or persons
surviving in the first of the following classes in which there is a survivor,
share and share alike:
(a) The Participant's surviving spouse;
(b) The Participant's children, except that if any of the children
predecease the Participant but leave issue surviving, then such issue shall
take, by right or representation, the share their parent would have taken if
living; and
(c) The Participant's personal representative, executor, or
administrator.
ARTICLE VI
----------
PLAN ADMINISTRATOR
6.1 Plan Administrator Duties. This Plan shall be administered by the
-------------------------
Plan Administrator. The Plan Administrator may be a Participant in the Plan. A
Plan Administrator who is a participant in this Plan may not vote on matters
affecting his or her personal benefit under this Plan, but any such individual
shall otherwise be fully entitled to act in matters arising out of or affecting
this Plan notwithstanding his or her participation herein. The Plan
Administrator shall have the authority to make, amend, interpret, and enforce
all appropriate rules and regulations for the administration of this Plan and
decide or resolve any and all questions, including interpretations of this Plan,
as may arise in connection with the Plan.
- 9 -
<PAGE>
6.2 Agents. In the administration of this Plan, the Plan Administrator
------
may, from time to time, employ agents and delegate to them or to others
(including employees of the Company) such administrative duties as it sees fit.
The Plan Administrator may from time to time consult with counsel, who may be
counsel to the Company.
6.3 Binding Effect of Decisions. In carrying out its duties herein, the
---------------------------
Plan Administrator (or its designee) shall have full discretion to exercise all
powers and to make all determinations, consistent with the terms of the Plan, in
all matters entrusted to it, and its determinations shall be final and binding
on all parties.
6.4 Indemnity. The Company shall indemnify and hold harmless the Plan
---------
Administrator and any employees to whom administrative duties under this Plan
are delegated, against any and all claims, loss, damage, expense, or liability
arising from any action or failure to act with respect to this Plan, except in
the case of willful misconduct.
ARTICLE VII
-----------
CLAIMS PROCEDURE
7.1 Notice of Claim. Any Participant or Beneficiary, or the duly
---------------
authorized representative of a Participant or Beneficiary, may file with the
Plan Administrator a claim for a Plan benefit. Such a claim must be in writing
on a form provided by the Plan Administrator and must be delivered to the Plan
Administrator, in person or by mail, postage prepaid. Within ninety (90) days
after the receipt of such a claim, the Plan Administrator shall send to the
claimant, by mail, postage prepaid, a notice granting or denying, such claim, in
whole or in part, unless special circumstances require an extension of time for
processing the claim. In no event may the extension exceed ninety (90) days
from the end of the initial period. If an extension is necessary, the claimant
will be given a written notice to this effect prior to the expiration of the
initial ninety (90) day period. The Plan Administrator shall have full
discretion to deny or grant a claim in whole or in part in accordance with the
terms of the Plan. If notice of the denial of a claim is not furnished in
accordance with this Section, the claim shall be deemed denied and the claimant
shall be permitted to exercise the right to review pursuant to Sections 7.3 and
7.4 of the Plan.
7.2 Action on Claim. The Plan Administrator shall provide to every
---------------
claimant who is denied a claim for benefits a written notice setting forth, in a
manner calculated to be understood by the claimant:
(a) The specific reason or reasons for the denial;
(b) A specific reference to the pertinent Plan provisions on
which the denial is based;
(c) A description of any additional material or information
necessary for the claimant to perfect the claim and an explanation of why
such material or information is necessary; and
(d) An explanation of the Plan's claim review procedure.
- 10 -
<PAGE>
7.3 Review of Denial. Within sixty (60) days after the receipt by a
----------------
claimant of written notification of the denial (in whole or in part) of a claim,
the claimant or the claimant's duly authorized representative, upon written
application to the Plan Administrator, delivered in person or by certified mail,
postage prepaid, may request a review of such denial. Such a person also may
review pertinent documents and may submit to the Plan Administrator, in writing,
issues and comments concerning the claim.
7.4 Decision on Review. Upon the Plan Administrator's receipt of a notice
------------------
of a request for review, the Plan Administrator shall make a prompt decision on
the review and shall communicate the decision on review in writing to the
claimant. The decision on review shall be written in a manner calculated to be
understood by the claimant and shall include specific reasons for the decision
and specific references to the pertinent Plan provisions on which the decision
is based. The decision on review shall be made not later than sixty (60) days
after the Plan Administrator's receipt of a request for a review, unless special
circumstances require an extension of time for processing, in which case a
decision shall be rendered not later than one hundred twenty (120) days after
receipt of the request for review. If an extension is necessary, the claimant
shall be given written notice of the extension by the Plan Administrator prior
to the expiration of the initial sixty (60) day period. If notice of the
decision on review is not furnished in accordance with this Section, the claim
shall be deemed denied on review.
ARTICLE VIII
------------
AMENDMENT AND TERMINATION OF PLAN
8.1 Amendment. The Committee may at any time amend the Plan in whole or
---------
in part. However, no amendment shall be effective to decrease or restrict any
then existing Account or to change the Company's obligations under any then
existing Deferral Agreement.
8.2 Board's Right to Terminate. The Board may at any time terminate the
--------------------------
Plan in its entirety or as it applies to any Company, in which event no new
Deferral Agreements shall be made for Directors or Senior Officers of the
Company or Companies affected by the termination, but the obligations of the
Company or Companies under existing Deferral Agreements shall continue.
ARTICLE IX
----------
MISCELLANEOUS
9.1 Unfunded Plan. This Plan is intended to be an "unfunded" plan
-------------
maintained primarily to provide deferred compensation for a "select group of
management or highly compensated employees" within the meaning of the Employee
Retirement Income Security Act of 1974, as amended, and shall be so construed.
- 11 -
<PAGE>
9.2 Unsecured General Creditor. This Plan is unfunded. Benefits shall
--------------------------
be paid from the Company's general assets. Participants and their beneficiaries,
heirs, successors, and assigns shall have no legal or equitable rights, interest
or claims in any property or assets owned or which may be acquired by the
Company. Such assets of the Company shall not be held under any trust for the
benefit of Participants, their Beneficiaries, heirs, successors or assigns, or
held in any way as collateral security against the obligations of the Company
under this Plan. The Company's obligation under the Plan shall be that of an
unfunded and unsecured promise of the Company to pay money in the future. The
Company in its sole discretion, may, however, elect to provide the Retirement
Benefits and/or Termination Benefits of this Plan through a trust or funding
vehicle, provided, however, that the terms of any such trust or funding vehicle
shall not alter the status of Participants and Beneficiaries as mere general
unsecured creditors of the Company or otherwise cause the Plan to be funded or
benefits taxable to Participants except upon actual receipt.
9.3 Nonassignability. Neither a Participant nor any other person shall
----------------
have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage,
or otherwise encumber, transfer, hypothecate, or convey in advance of actual
receipt the amounts, if any, payable hereunder, or any part thereof. The rights
to all such amounts are expressly declared to be unassignable and non-
transferable. No part of the amounts payable shall, prior to actual payment, be
subject to seizure or sequestration for the payment of any debts, judgments,
alimony, or separate maintenance owned by Participants or any other person, nor
be transferable by operation of law in the event of a Participant's or any other
person's bankruptcy or insolvency, except as required by law.
9.4 Not a Contract of Employment. The terms and conditions of this Plan
----------------------------
shall not be deemed to constitute a contract of employment between the Company
and a Participant, and a Participant shall have no rights against the Company
except as may otherwise be specifically provided herein. Moreover, nothing in
the Plan shall be deemed to give a Participant the right to be retained in the
service of the Company or to interfere with the right of the Company to
discipline or discharge an employee at any time.
9.5 Forfeiture of Benefits. If a Participant's employment is terminated
----------------------
because of willful misfeasance or gross negligence in the performance of his or
her duties, his or her right to benefits under this Plan shall, in the
discretion of the Board, be forfeited, and the Company shall have no further
obligation hereunder to such Participant or his or her Beneficiary(ies).
9.6 Terms. Use of the masculine pronoun in this Plan will include the
-----
feminine and use of the singular will include the plural, unless the context
clearly indicates otherwise.
9.7 Captions. The captions of the articles, sections and paragraphs of
--------
this Plan are for convenience only and shall not control or affect the meaning
or construction of any of its provisions.
9.8 Governing Law. This Plan shall be governed by the laws of the
-------------
United States and, to the extent not preempted thereby, the laws of Maryland.
- 12 -
<PAGE>
9.9 Validity. The illegality or invalidity of any provision of this
--------
Plan shall not affect its remaining parts, but this Plan shall be construed and
enforced without such illegal or invalid provisions.
9.10 Notice. Any notice or filing required or permitted to be given to
------
the Plan Administrator under the Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail, to:
The Senior Vice President - Human Resources
The First National Bank of Maryland
25 South Charles Street
Baltimore, Maryland 21201
Such notice shall be deemed given as of the date of delivery or, if delivery is
made by mail, as of the date shown on the postmark on the receipt for
registration or certification.
9.11 Successors. The provisions of this Plan shall bind and inure to
----------
the benefit of the Company and its successors and assigns. The term successors
as used herein shall include any corporation or other business entity which
shall, whether by merger, consolidation, purchase of assets, or otherwise,
acquire all or substantially all of the business or assets of the Company, and
successors of any such corporation or other business entity.
9.12 Incompetent. If the Plan Administrator finds that any Participant
-----------
or Beneficiary to whom a benefit is payable under this Plan is unable to care
for his affairs, any payment due (unless prior claim therefore shall have been
made by a duly authorized guardian or other legal representative) may be paid,
upon appropriate indemnification of the Plan Administrator, to any person who is
charged with the support of the Participant or Beneficiary. Any such payment
shall be payment for the account of the Participant and shall be complete
discharge of any liability of the Plan therefore.
9.13 Company Obligations. Bancorp and each of its subsidiaries shall be
-------------------
jointly and severally liable for the obligations to Participants under this
Plan.
IN WITNESS WHEREOF, Bancorp and The First National Bank of Maryland
have duly executed this Plan to evidence the assumption of the obligations of
this Plan by them.
ATTEST: FIRST MARYLAND BANCORP
/s/ Diane E. Murphy By /s/ Jeremiah E. Casey
- -------------------------------------- ---------------------------------
THE FIRST NATIONAL BANK
OF MARYLAND
/s/ Linda Green By /s/ Andrew Hiduke
- -------------------------------------- ------------------------------------
- 13 -
<PAGE>
Exhibit 10.12
FIRST MARYLAND BANCORP
1994 DEFERRED COMPENSATION PLAN
FOR DIRECTORS AND SENIOR OFFICERS
TRUST AGREEMENT
This Trust Agreement, effective January 1, 1994, by and between First
Maryland Bancorp, a corporation organized under the laws of Maryland (the
"Company") and PNC Bank, N.A., a national banking association organized under
the laws of the United States of America (the "Trustee");
W I T N E S S E T H:
- - - - - - - - - -
WHEREAS, Company has adopted a nonqualified deferred compensation plan
known as the First Maryland Bancorp 1994 Deferred Compensation Plan for
Directors and Senior Officers (hereinafter referred to as the "Plan");
WHEREAS, the Plan provides for the Company to pay all benefits from its
general revenues and assets;
WHEREAS, Company wishes to establish a trust (hereinafter called "Trust")
and to contribute to the Trust assets that shall be held and invested therein
(subject to the claims of Company's creditors in the event of Company's
Insolvency, as herein defined) until paid to Plan participants and their
beneficiaries in such manner and at such times as specified in the Plan;
WHEREAS, it is the intention of the parties that this Trust shall
constitute an unfunded arrangement and shall not affect the status of the Plan
as an unfunded plan maintained for the purpose of providing deferred
compensation for a select group of management or highly compensated employees
for purposes of the Employee Retirement Income Security Act of 1974;
WHEREAS, it is the intention of Company to make contributions to the Trust
to provide itself with a source of funds to assist it in the meeting of its
liabilities under the Plan;
NOW, THEREFORE, the parties do hereby establish the Trust and agree that
the Trust shall be comprised, held and disposed of as follows:
ARTICLE I
---------
ESTABLISHMENT
<PAGE>
1.1 Company will deposit with Trustee in trust such sums of money and
other property as from time to time it deems necessary. Such amounts shall
become the principal of the Trust to be held, administered and disposed of by
Trustee as provided in this Trust Agreement.
1.2 The Trust hereby established shall be irrevocable.
1.3 The Trust is intended to be a grantor trust, of which Company is
the grantor, within the meaning of subpart E, part I, subchapter J, chapter 1,
subtitle A of the Internal Revenue Code of 1986, as amended, and shall be
construed accordingly.
1.4 The principal of the Trust and any earnings thereon shall be held
separate and apart from other funds of Company and shall be used exclusively for
the uses and purposes of Plan participants and general creditors as herein set
forth. Plan participants and their beneficiaries shall have no preferred claim
on, or any beneficial ownership interest in, any assets of the Trust. Any
rights created under the Plan and this Trust Agreement shall be mere unsecured
contractual rights of Plan participants and their beneficiaries against Company.
Any assets held by the Trust will be subject to the claims of Company's general
creditors under federal and state law in the event of Insolvency, as defined in
Section 3.1.
1.5 Company, in its sole discretion, may at any time, or from time to
time, make additional deposits of cash or other property in trust with Trustee
to augment the principal to be held, administered and disposed of by Trustee as
provided in this Trust Agreement. Neither Trustee nor any Plan participant or
beneficiary shall have any right to compel such additional deposits.
ARTICLE II
----------
PAYMENTS TO PLAN PARTICIPANTS AND THEIR BENEFICIARIES
2.1 Company shall deliver to Trustee a schedule (the "Payment Schedule")
that indicates the amounts payable in respect of each Plan participant (and his
or her beneficiaries), that provides a formula or other instructions acceptable
to Trustee for determining the amounts so payable, the form in which such amount
is to be paid (as provided for or available under the Plan), and the time of
commencement for payment of such amounts. Except as otherwise provided herein,
Trustee shall make payments to the Plan participants and their beneficiaries in
accordance with such Payment Schedule. The Trustee shall make provision for the
reporting and withholding of any federal, state or local taxes that may be
required to be withheld with respect to the payment of benefits pursuant to the
terms of the Plan and shall pay amounts withheld to the appropriate taxing
authorities or determine that such amounts have been reported, withheld and paid
by Company.
- 2 -
<PAGE>
2.2 The entitlement of a Plan participant or his or her beneficiaries to
benefits under the Plan shall be determined by Company or such party as it shall
designate under the Plan, and any claim for such benefits shall be considered
and reviewed under the procedures set out in the Plan.
2.3 Company may make payment of benefits directly to Plan participants
or their beneficiaries as they become due under the terms of the Plan. Company
shall notify Trustee of its decision to make payment of benefits directly prior
to the time amounts are payable to participants or their beneficiaries. In
addition, if the principal of the Trust and any earnings thereon are not
sufficient to make payments of benefits in accordance with the terms of the
Plan, Company shall make the balance of each such payment as it falls due.
Trustee shall notify Company where principal and earnings are not sufficient.
ARTICLE III
-----------
TRUSTEE RESPONSIBILITY REGARDING PAYMENTS
TO TRUST BENEFICIARY WHEN COMPANY IS INSOLVENT
3.1 Trustee shall cease payment of benefits to Plan participants and
their beneficiaries if the Company is Insolvent. Company shall be considered
"Insolvent" for purposes of this Trust Agreement if (i) Company is unable to pay
its debts as they become due, or (ii) Company is subject to a pending proceeding
as a debtor under the United States Bankruptcy Code.
3.2 At all times during the continuance of this Trust, as provided in
Section 1.4 hereof, the principal and income of the Trust shall be subject to
claims of general creditors of Company under federal and state law as set forth
below.
3.3 The Board of Directors and the Chief Executive Officer of Company
shall have the duty to inform Trustee in writing of Company's Insolvency. If a
person claiming to be a creditor of Company alleges in writing to Trustee that
Company has become Insolvent, Trustee shall determine whether Company is
Insolvent and, pending such determination, Trustee shall discontinue payment of
benefits to Plan participants or their beneficiaries.
3.4 Unless Trustee has actual knowledge of Company's Insolvency, or has
received notice from Company or a person claiming to be a creditor alleging that
Company is Insolvent, Trustee shall have no duty to inquire whether Company is
Insolvent. Trustee may in all events rely on such evidence concerning Company's
solvency as may be furnished to Trustee and that provides Trustee with a
reasonable basis for making a determination concerning Company's solvency.
3.5 If at any time Trustee has determined that Company is Insolvent,
Trustee shall discontinue payments to Plan participants or their beneficiaries
and shall hold the assets of the
- 3 -
<PAGE>
Trust for the benefit of Company's general creditors. Nothing in this Trust
Agreement shall in any way diminish any rights of Plan participants or their
beneficiaries to pursue their rights as general creditors of Company with
respect to benefits due under the Plan or otherwise.
3.6 Trustee shall resume the payment of benefits to Plan participants or
their beneficiaries in accordance with Article II of this Trust Agreement only
after Trustee has determined that Company is not Insolvent (or is no longer
Insolvent).
3.7 Provided that there are sufficient assets, if Trustee discontinues
the payment of benefits from the Trust pursuant to Section 3.2 hereof and
subsequently resumes such payments, the first payment following such
discontinuance shall include the aggregate amount of all payments due to Plan
participants or their beneficiaries under the terms of the Plan for the period
of such discontinuance, less the aggregate amount of any payments made to Plan
participants or their beneficiaries by Company in lieu of the payments provided
for hereunder during any such period of discontinuance.
ARTICLE IV
----------
INVESTMENT AUTHORITY
4.1 Subject to the provisions of Section 4.2, the Trustee shall have the
following powers, the exercise of which shall be within the sole and absolute
discretion of the Trustee:
(i) The Trustee shall keep the Trust invested, without
distinction between principal and income, in any property, whether real,
personal or mixed, and wherever situated and whether or not productive of
income, without regard to the proportion any such property may bear to the
entire amount of the Trust. The Trust investments may include, without implied
limitation, American Depository Receipts relating to the common stock of Allied
Irish Bank.
(ii) The Trustee in its discretion may keep such portion of the
Trust in cash or cash balances or hold all or any portion of the Trust in
savings accounts, certificates of deposit, and other types of time or demand
deposits with any appropriate financial institution or quasi-financial
institution (including any such institution operated or maintained by the
Trustee in its corporate capacity) as the Trustee may from time to time
determine to be in the best interests of the Trust.
4.2 The Company shall have the right to request the Trustee invest and
reinvest the principal and income of the Trust as directed by the Company;
provided, however, that the Trustee shall not be required to comply with such a
request and, in any event, the Trustee shall only comply with the Company's
request if the Trustee determines in its own judgment that the Company's
directions are reasonable. In no event shall a Participant have the right to
request or require the Trustee to make any particular investment of the
principal or income of the Trust.
- 4 -
<PAGE>
4.3 Trustee may invest in securities (including stock or rights to
acquire stock) or obligations issued by Company. All rights associated with
assets of the Trust shall be exercised by Trustee or the person designated by
Trustee, and shall in no event be exercisable by or rest with Plan Participants.
4.4 Company shall have the right at any time, and from time to time in
its sole discretion, to substitute assets of equal fair market value for any
asset held by the Trust. This right is exercisable by Company in a nonfiduciary
capacity without the approval or consent of any person in a fiduciary capacity.
ARTICLE V
---------
DISPOSITION OF INCOME
5.1 During the term of this Trust, all income received by the Trust, net
of expenses and taxes, shall be accumulated and reinvested.
ARTICLE VI
----------
ACCOUNTING BY TRUSTEE
6.1 The Trustee shall keep or cause to be kept accurate and detailed
accounts of any investments, receipts, disbursements and other transactions
hereunder, and all accounts, books and records relating thereto shall be open to
inspection and audit at all reasonable times by any person designated by the
Company. All such accounts, books and records shall be preserved (in original
form, or on microfile, magnetic tape or any other similar process) for such
period as the Trustee may determine, but the Trustee may only destroy such
accounts, books and records after first notifying the Company in writing of its
intention to do so and transferring to the Company any of such accounts, books
and records requested.
6.2 The Trustee shall file with the Company at least quarterly a
statement showing transactions and market values of the Trust in the normal form
provided to the Trustee's customers. Upon the expiration of 180 days from the
date of filing any such statement, the Trustee shall be released and discharged
from all liability and accountability with respect to the propriety of its acts
and transactions shown in such statement, except with respect to any such acts
or transactions as to which the Company shall within such 180 day period file
with the Trustee written objections and except for matters which the Company
would not reasonably have been expected to have discovered by a proper review of
such statement.
- 5 -
<PAGE>
6.3 The Trustee shall from time to time permit the Company's employees
and agents to have reasonable access during ordinary business hours to such
records as may be necessary to audit the Trustee's accounts.
6.4 Nothing contained in this Trust Agreement shall be construed as
depriving the Trustee or the Company of the right to have a judicial settlement
of the Trustee's accounts, and upon any proceeding for a judicial settlement of
the Trustee's accounts or for instructions, the only necessary party thereto in
addition to the Trustee shall be the Company.
6.5 In the event of the removal or resignation of the Trustee, the
Trustee shall deliver to the successor trustee all records which shall be
required by the successor trustee to enable it to carry out the provisions of
this Trust Agreement.
6.6 The Trustee will execute and file appropriate tax returns and
reports relating to withholding taxes or other charges or taxes as directed by
the Company. In addition to any returns required of the Trustee by law, the
Trustee shall prepare and file such tax reports and other returns as the Company
and the Trustee may from time to time agree.
ARTICLE VII
-----------
RESPONSIBILITY OF TRUSTEE
7.1 Trustee shall act with the care, skill, prudence and diligence under
the circumstances then prevailing that a prudent person acting in like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims, provided, however, that Trustee shall incur
no liability to any person for any action taken pursuant to a direction, request
or approval given by Company which is contemplated by, and in conformity with,
the terms of the Plan or this Trust and is given in writing by Company. In the
event of a dispute between Company and a party, Trustee may apply to a court of
competent jurisdiction to resolve the dispute.
7.2 The Trustee shall have the following additional powers and
authority, subject to Sections 4.1, 4.2 and 4.3, the exercise of which shall be
within the sole and absolute discretion of the Trustee unless otherwise stated
with respect to all property constituting part of the Trust:
(i) To sell, lease (irrespective of the possible termination of
the Trust), improve, partition, mortgage, exchange or otherwise dispose of any
and all property at any time forming a part of any Trust in such manner, for
such purposes and upon such terms as the Trustee may deem desirable.
(ii) To participate in any plan of reorganization, consolidation,
merger, combination, liquidation or other similar plan relating to any such
property, and to consent to or
- 6 -
<PAGE>
oppose any such plan or any action thereunder, or any contract, lease, mortgage,
purchase, sale or other action by any corporation or other entity.
(iii) To deposit any such property with any protective,
reorganization or similar committee; to delegate discretionary power to any such
committee; and to pay part of the expenses and compensation of any such
committee and any assessments levied with respect to any property so deposited.
(iv) To exercise any conversion privilege or subscription right
available in connection with any such property; to oppose or to consent to the
reorganization, consolidation, merger or readjustment of the finances of any
corporation, company or association, or to the sale, mortgage, pledge or lease
of the property of any corporation, company or association any of the securities
of which may at any time be held in the Trust and to do any act with reference
thereto, including the exercise of options, the making of agreements or
subscriptions and the payment of expenses, assessments or subscriptions, which
may be deemed necessary or advisable in connection therewith, and to hold and
retain any securities or other property which it may so acquire.
(v) To commence or defend suits or legal proceedings and to
represent the Trust in all suits or legal proceedings; to settle, compromise or
submit to arbitration any claims, debts or damages due or owing to or from the
Trust.
(vi) To exercise, personally or by general or limited power of
attorney, any right, including the right to vote, appurtenant to any securities
or other such property.
(vii) To borrow money from any lender in such amounts and upon
such terms and conditions as shall be deemed advisable or proper to carry out
the purposes of the Trust and to pledge any securities or other property for the
repayment of any such loan.
(viii) To engage any legal counsel, including counsel to the
Company or to the Trustee, or any other suitable agents, to consult with such
counsel or agents with respect to the construction of this Trust Agreement, the
duties of the Trustee hereunder, the transactions contemplated by this Trust
Agreement or any act which the Trustee proposes to take or omit, to rely upon
the advice of such counsel or agents, and to pay its reasonable fees, expenses
and compensation.
(ix) To register any securities held by it in its own name or in
the name of any custodian of such property or of its nominee including the
nominee of any system for the central handling of securities, with or without
the addition of words indicating that such securities are held in a fiduciary
capacity, to deposit or arrange for the deposit of any such securities with such
a system and to hold any securities in bearer form.
(x) To execute, acknowledge and deliver any and all instruments
in writing which the Trustee may deem advisable to carry out any of the
foregoing powers, including
- 7 -
<PAGE>
the power to indicate any division or distribution of any part of the Trust by
deeds or other writings or instruments recorded among the public records of any
jurisdiction where any such property may be located; and no party to any such
instrument in writing signed by the Trustee shall be bound to see to the
application by the Trustee of any money or other property paid or delivered to
them pursuant to the terms of such instrument.
(xi) To make distributions of all or any part of the assets of
the Trust, in money or in kind, or partly in money and partly in kind, including
real estate.
7.3 If Trustee undertakes or defends any litigation arising in
connection with this Trust, Company agrees to indemnify Trustee against
Trustee's costs, expenses and liabilities (including, without limitation,
attorneys' fees and expenses) relating thereto and to be primarily liable for
such payments. If Company does not pay such costs, expenses and liabilities in a
reasonably timely manner, Trustee may obtain payment from the Trust.
7.4 Trustee may hire agents, accountants, actuaries, investment
advisors, financial consultants or other professionals to assist it in
performing any of its duties or obligations hereunder.
7.5 Trustee shall have, without exclusion, all powers conferred on
trustees by applicable law, unless expressly provided otherwise herein,
provided, however, that if an insurance policy is held as an asset of the Trust,
Trustee shall have no power to name a beneficiary of the policy other than the
Trust, to assign the policy (as distinct from conversion of the policy to a
different form) other than to a successor Trustee, or to loan to any person the
proceeds of any borrowing against such policy.
7.6 Notwithstanding any powers granted to Trustee pursuant to this Trust
Agreement or to applicable law, Trustee shall not have any power that could give
this Trust the objective of carrying on a business and dividing the gains
therefrom, within the meaning of section 301.7701-2 of the Procedure and
Administrative Regulations promulgated pursuant to the Internal Revenue Code.
ARTICLE VIII
------------
COMPENSATION AND EXPENSES OF TRUSTEE
8.1 The Company shall from time to time pay taxes of any and all kinds
which are lawfully levied or assessed upon or become payable in respect of the
Trust, the income or any property forming a part thereof, or any security
transaction pertaining thereto. To the extent that any taxes lawfully levied or
assessed upon the Trust are not paid by the Company, the Trustee shall pay such
taxes out of the Trust. The Trustee shall at Company expense contest the
validity of such taxes in any manner deemed appropriate by the Company or its
counsel or the Company may itself contest the validity of any such taxes.
- 8 -
<PAGE>
8.2 The Company agrees to indemnify and hold harmless the Trustee and
the Trust from and against all amounts, including without limitation, taxes,
expenses (including reasonable counsel fees), liabilities, claims, damages,
actions, suits or other charges incurred by or assessed against the Trustee or
the Trust as a direct or indirect result of anything done in good faith or
alleged to have been done, by or on behalf of the Trustee in reliance upon the
directions of the Company or any person authorized to act on behalf of the
Company under the Plan, or as a direct or indirect result of anything omitted to
be done in good faith or alleged to have been omitted, in the absence of such
directions, or as a direct or indirect result of the failure of the Company or
any person authorized to act on behalf of the Company directly or through its
agents, to adequately, carefully and diligently discharge its responsibilities
with respect to this Trust or the Plan. Anything hereinabove to the contrary
notwithstanding, the Company shall have no responsibility to the Trustee or the
Trust under the foregoing if the Trustee fails to perform any of the duties
specifically undertaken by it under the provisions of this Trust. The Company
further agrees that the undertakings made in this Section 8.2 shall be binding
on its successors or assigns and shall survive termination, amendment or
restatement of the Trust or the Plan, or the resignation or removal of the
Trustee.
8.3 Any other reasonable expenses incurred by the Trustee in the
performance of its duties under this Trust Agreement, including brokerage
commissions, shall be charged against and paid from the Trust to the extent that
the Company does not pay such expenses.
8.4 The Company will pay the Trustee such reasonable compensation for
its services as may be agreed upon in writing from time to time by the Company
and the Trustee. Such compensation shall be charged against and paid from the
Trust to the extent the Company does not pay such compensation.
ARTICLE IX
----------
RESIGNATION AND REMOVAL OF TRUSTEE
9.1 Trustee may resign at any time by written notice to Company, which
shall be effective 60 days after receipt of such notice unless Company and
Trustee agree otherwise.
9.2 Trustee may be removed by Company on 60 days notice or upon shorter
notice accepted by Trustee.
9.3 Upon resignation or removal of Trustee and appointment of a
successor Trustee, all assets shall subsequently be transferred to the successor
Trustee. The transfer shall be completed within 60 days after receipt of notice
of resignation, removal or transfer, unless Company extends the time limit.
- 9 -
<PAGE>
9.4 If Trustee resigns or is removed, a successor shall be appointed, in
accordance with Article X hereof, by the effective date of resignation or
removal under sections 9.1 or 9.2. If no such appointment has been made,
Trustee may apply to a court of competent jurisdiction for appointment of a
successor or for instructions. All expenses of Trustee in connection with the
proceeding shall be allowed as administrative expenses of the Trust.
ARTICLE X
---------
APPOINTMENT OF SUCCESSOR
10.1 In the event of a removal or resignation of the Trustee, the Trustee
shall duly file with the Company a statement as provided in Section 6.2 for the
period since the last statement setting forth the transactions and market values
and other information in the normal form provided to the Trustee's trust
customers respecting the Trust not included in any previous statement and if
written objections to such statement are not filed as provided in Section 6.2,
the Trustee shall to the maximum extent permitted by applicable law be forever
released and discharged from all liability and accountability with respect to
the propriety of its acts and transactions shown in such statement except for
matters which the Company could not reasonably have been expected to have
discovered by a proper review of such statement.
10.2 Within 60 days after any such notice of removal or resignation of
the Trustee, the Company shall designate a successor trustee qualified to act
hereunder. A successor trustee must be a financial institution having trust
assets under management of at least $1 billion as of the date of appointment as
successor trustee. Each successor trustee, during such period as it shall act as
such, shall have the powers and duties herein conferred upon the Trustee, and
the word "Trustee" wherever used herein, except where the context otherwise
requires, shall be deemed to include any successor trustee. Upon designation of
a successor trustee and delivery to the resigned or removed Trustee of written
acceptance by the successor trustee of such designation, such resigned or
removed trustee shall promptly assign, transfer, deliver and pay over to such
successor trustee, in conformity with the requirements of applicable law, the
funds and properties in its control or possession then constituting the Trust.
10.3 The successor Trustee need not examine the records and acts of any
prior Trustee and may retain or dispose of existing Trust assets, subject to
Articles VI and VII hereof. The successor Trustee shall not be responsible for
and Company shall indemnify, and defend the successor Trustee from any claim or
liability resulting from any action or inaction of any prior Trustee or from any
other past event or any condition existing at the time it becomes successor
Trustee.
ARTICLE XI
----------
AMENDMENT OR TERMINATION
- 10 -
<PAGE>
11.1 This Trust Agreement may be amended by a written instrument executed
by Trustee and Company. Notwithstanding the foregoing, no such amendment shall
conflict with the terms of the Plan or shall make the Trust revocable after it
has become irrevocable in accordance with Section 1.2 hereof.
11.2 The Trust shall not terminate until the date on which Plan
participants and their beneficiaries are no longer entitled to benefits pursuant
to the terms of the Plan(s). Upon termination of the Trust any assets remaining
in the Trust shall be returned to Company.
11.3 Upon written approval of at least two-thirds of the Participants
then living (and the beneficiaries of deceased Participants) entitled to payment
of benefits pursuant to the terms of the Plan, Company may terminate this Trust
prior to the time all benefit payments under the Plan have been made. All assets
in the Trust at termination shall be returned to Company.
ARTICLE XII
-----------
MISCELLANEOUS
12.1 Any provision of this Trust Agreement prohibited by law shall be
ineffective to the extent of any such prohibition, without invalidating the
remaining provisions hereof.
12.2 Benefits payable to Plan participants and their beneficiaries under
this Trust Agreement may not be anticipated, assigned (either at law or in
equity), alienated, pledged, encumbered or subjected to attachment, garnishment
levy, execution or other legal or equitable process.
12.3 This Trust Agreement shall be governed by nd construed in accordance
with the laws of the Commonwealth of Pennsylvania.
12.4 This Trust Agreement shall be binding upon and inure to the benefit
of the Company and the Trustee and their respective successors and assigns.
12.5 All titles and Article headings herein have been inserted for
convenience of reference only and shall in no way modify, restrict or affect the
meaning or interpretation of any of the terms or provisions of this Trust
Agreement.
12.6 This Trust Agreement is intended as a complete and exclusive
statement of the agreement of the parties hereto, and supersedes all previous
agreements or understandings among them.
12.7 The term "Trustee" shall include any successor trustee. If a Trustee
or custodian hereunder is a bank or trust company, any corporation resulting
from any merger,
- 11 -
<PAGE>
consolidation or conversion to which such bank or trust company may be a party,
or any corporation otherwise succeeding generally to all or substantially all of
the assets or business of such bank or trust company, shall be the successor to
it as Trustee hereunder without the execution of any instrument or any further
action on the part of any party hereto or any Participant hereunder.
12.8 Any reference hereunder to a Participant shall expressly be deemed
to include where relevant a Beneficiary of such Participant or Beneficiary duly
designated under the terms of the Plan. A Participant shall cease to have such
status once any and all amounts due him under the Plan have been satisfied.
12.9 Whenever used herein, and to the extent appropriate, the masculine,
feminine or neuter gender shall include the other two genders, the singular
shall include the plural and the plural shall include the singular.
ARTICLE XIII
------------
EFFECTIVE DATE
The effective date of this Trust Agreement shall be January 1, 1994.
IN WITNESS WHEREOF, this Trust Agreement has been duly executed by the
parties hereto as of the day and year first above written.
[SEAL]
ATTEST: FIRST MARYLAND BANCORP
/s/ Andrew D. Hiduke By: /s/ Jeremiah E. Casey
- ------------------------------- ---------------------------
[SEAL]
- 12 -
<PAGE>
ATTEST: PNC BANK, N.A.
(as Trustee)
/s/ Maria Horner By: /s/ James J. Episcopo
- ------------------------------- -----------------------------
- 13 -
<PAGE>
Exhibit 21
FIRST MARYLAND BANCORP
Subsidiaries of Registrant
<TABLE>
<CAPTION>
Jurisdiction of
Name Incorporation
- ---- -------------
<S> <C>
Beechwood Investments Ltd. British West Indies
Beechwood Investments-Chile Ltda Chile
Forestal San Jose, S.A. (Indirect Ownership) Chile
Compania Caceres Y Virtudes, Grand Cayman British West Indies
Portuaria Coronel, S.A. (Indirect Ownership) Chile
Compania La Proa, Ltd. British West Indies
Bemberg Industrial (B.I.S.A.) (Indirect Ownership) Argentina
Fariza Ltd. British West Indies
Fariza-Chile Ltda Chile
Forestal San Jose, S.A. (Indirect Ownership) Chile
First Center Corporation Maryland
Pratt-Greene Associates Limited Partnership Maryland
First Greene Corporation Maryland
First Maryland Commercial Holdings Corporation Maryland
First Maryland Credit Corporation Maryland
First Maryland Foundation, Inc. Maryland
First Maryland Holding Corporation Maryland
Fist Manufactured Housing Credit Corporation New York
First Carolina Financial Corporation South Carolina
Markwood Agency, Incorporated New York
First Maryland Leasecorp Maryland
First Maryland Life Insurance Company Arizona
First Maryland Mortgage Corporation Maryland
</TABLE>
<PAGE>
<TABLE>
<S> <C>
The First National Bank of Maryland United States
ARK Insurance Group, Inc. Maryland
First Advisory Services International, Inc. Maryland
First Maryland Annuities Agency Corporation Maryland
First Maryland Brokerage Corporation Maryland
First Maryland International Banking Corporation United States
Sussex Capital Corporation Delaware
CH Allentown, L.L.C. Maryland
CH Bowie Park, Limited Maryland
CH Naples, L.L.C. Maryland
CH Wyemoor Limited L.L.C. Maryland
Chesapeake Holdings 198, L.L.C. Maryland
Chesapeake Holdings Riva Road, L.L.C. Maryland
Chesapeake Holdings Company Maryland
Chesapeake Holdings II, Limited Maryland
Chesapeake Holdings VI, Limited Maryland
Chesapeake Holdings (VA) III, Limited Maryland
Chesapeake Holdings BP Development, Limited Maryland
Chesapeake Holdings BP Property, Limited Maryland
Chesapeake Holdings-Central Maryland, Limited Maryland
Chesapeake Holdings-Clarks Crossing, Limited Maryland
Chesapeake Holdings Fort Myers, Limited Corporation Maryland
Chesapeake Holdings-Foxmoor, Limited Maryland
Chesapeake Holdings Nottoway, Limited Maryland
Chesapeake Holdings Radio, Limited Maryland
Chesapeake Holdings Riverside, Limited Maryland
Chesapeake Holdings Turnquist, Limited Maryland
Chesapeake Holdings Winchester, Limited Maryland
The First National Bank of Maryland, D.C. United States
First National Mortgage Corporation Maryland
First Omni Bank, National Association United States
Internet, Inc. (Indirect Ownership) Delaware
Juragua Limited British West Indies
Inversiones Industriales SA (Indirect Ownership) Chile
Melquiades Limited British West Indies
Jugos de Sur, S.A. (Indirect Ownership) Argentina
Jugos Alcon (Indirect Ownership) Argentina
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Santelices Limited British West Indies
Inversiones Industriales SA (Indirect Ownership) Chile
The York Bank and Trust Company Pennsylvania
York Outlet, Limited Maryland
York Painters Mill Land, Inc. Maryland
York Reading Land, Inc. Pennsylvania
York Realty Holding Company, Inc. Maryland
York Wyndham Land, Inc. Pennsylvania
</TABLE>
<PAGE>
Exhibit 24
FIRST MARYLAND BANCORP
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that the undersigned directors of First
Maryland Bancorp, a Maryland corporation, constitute and appoint Frank P.
Bramble, Jeremiah E. Casey, and Robert W. Schaefer, and any one of them, the
true and lawful agents and attorneys-in-fact of the undersigned with full power
and authority in said agents and attorneys-in-fact, and in any one or more of
them, to sign for the undersigned in their respective names as directors of
First Maryland Bancorp the Annual Report on Form 10-K of First Maryland Bancorp
for the year ended December 31, 1995 to be filed with the Securities and
Exchange Commission under the Securities and Exchange Act of 1934, and any
amendments or supplements to such Form 10-K. We hereby confirm all acts taken by
such agents and attorneys-in-fact, or any one or more of them, as herein
authorized. This Power of Attorney may be executed in one or more counterparts.
Frank P. Bramble Frank A. Gunther, Jr.
- ---------------- ---------------------
Frank P. Bramble Frank A. Gunther, Jr.
Benjamin L. Brown Curran W. Harvey, Jr.
- ----------------- ---------------------
Benjamin L. Brown Curran W. Harvey, Jr.
Jeremiah E. Casey Margaret M. Heckler
- ----------------- -------------------
Jeremiah E. Casey Margaret M. Heckler
J. Owen Cole Kevin J. Kelly
- ------------ --------------
J. Owen Cole Kevin J. Kelly
Edward A. Crooke Henry J. Knott, Jr.
- ---------------- -------------------
Edward A. Crooke Henry J. Knott, Jr.
John F. Dealy Thomas P. Mulcahy
- ------------- -----------------
John F. Dealy Thomas P. Mulcahy
Mathias J. DeVito William M. Passano, Jr.
- ----------------- -----------------------
Mathias J. DeVito William M. Passano, Jr.
Rhoda M. Dorsey Robert I. Schattner
- --------------- -------------------
Rhoda M. Dorsey Robert I. Schattner
Jerome W. Geckle
- ----------------
Jerome W. Geckle
Dated: January 23, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FIRST
MARYLAND BANCORP DECEMBER 31, 1995 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 775,582
<INT-BEARING-DEPOSITS> 21,878
<FED-FUNDS-SOLD> 344,151
<TRADING-ASSETS> 326
<INVESTMENTS-HELD-FOR-SALE> 2,794,023
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 6,138,824
<ALLOWANCE> 177,621
<TOTAL-ASSETS> 10,466,172
<DEPOSITS> 7,043,182
<SHORT-TERM> 1,424,169
<LIABILITIES-OTHER> 286,416
<LONG-TERM> 514,687
0
30,000
<COMMON> 84,926
<OTHER-SE> 1,068,648
<TOTAL-LIABILITIES-AND-EQUITY> 10,466,172
<INTEREST-LOAN> 510,874
<INTEREST-INVEST> 168,274
<INTEREST-OTHER> 28,393
<INTEREST-TOTAL> 707,541
<INTEREST-DEPOSIT> 205,566
<INTEREST-EXPENSE> 314,548
<INTEREST-INCOME-NET> 392,993
<LOAN-LOSSES> 16,000
<SECURITIES-GAINS> 2,136
<EXPENSE-OTHER> 388,724
<INCOME-PRETAX> 184,179
<INCOME-PRE-EXTRAORDINARY> 120,187
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 120,187
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.47
<LOANS-NON> 33,193
<LOANS-PAST> 18,808
<LOANS-TROUBLED> 143
<LOANS-PROBLEM> 38,339
<ALLOWANCE-OPEN> 191,024
<CHARGE-OFFS> 38,448
<RECOVERIES> 9,045
<ALLOWANCE-CLOSE> 177,621
<ALLOWANCE-DOMESTIC> 87,724
<ALLOWANCE-FOREIGN> 9,970
<ALLOWANCE-UNALLOCATED> 79,927
</TABLE>
