SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
_____________________________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to _________
Commission file number 1-7273
_____________________________________
FIRST MARYLAND BANCORP
(Exact name of registrant as specified in its charter)
Maryland 52-0981378
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
25 South Charles Street, Baltimore, Maryland 21201
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: 410-244-4000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past
90 days
Yes__X__ No_____
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date:
All voting stock (594,480,215 shares of Common Stock, $1/7 par
value) is owned by Allied Irish Banks, p.l.c., an Irish
Banking Corporation.
<PAGE>
PAGE 2
<TABLE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
FORM 10-Q
FOR THE QUARTER ENDED JUNE 30, 1996
<CAPTION>
Part I. Financial Information
Page
<S> <C>
Item 1. Financial Statements:
Consolidated Statements of Income....................... 3
Consolidated Statements of Condition.................... 4
Consolidated Statements of Changes in Stockholders'
Equity.................................................. 5
Consolidated Statements of Cash Flows................... 6
Notes to Consolidated Financial Statements.............. 7-18
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 19-34
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K........................ 35
</TABLE>
<PAGE>
PAGE 3
Part I - Financial Information
Item 1. Financial Statements
<TABLE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three months ended Six months ended
June 30, June 30,
--------------------- --------------------
1996 1995 1996 1995
-------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans........................................ $123,036 $126,934 $254,269 $248,395
Interest and dividends on investment securities held-to-maturity:
Taxable....................................................... - 21,401 - 41,571
Interest on investment securities available-for-sale:
Taxable....................................................... 40,564 12,708 84,667 25,372
Tax-exempt.................................................... 1,606 3,615 3,270 7,331
Dividends..................................................... 230 345 580 635
Interest on loans held-for-sale................................... 2,072 1,721 4,104 2,742
Interest on money market investments.............................. 4,696 9,165 8,280 17,009
-------- -------- -------- --------
Total interest and dividend income.......................... 172,204 175,889 355,170 343,055
-------- -------- -------- --------
INTEREST EXPENSE
Interest on deposits.............................................. 49,406 51,389 100,970 98,395
Interest on Federal funds purchased and
other short-term borrowings..................................... 16,784 22,361 39,380 40,212
Interest on long-term debt........................................ 9,393 4,680 18,325 9,368
-------- -------- -------- --------
Total interest expense...................................... 75,583 78,430 158,675 147,975
-------- -------- -------- --------
NET INTEREST INCOME............................................... 96,621 97,459 196,495 195,080
Provision for credit losses (note 4).............................. - 3,961 4,000 7,961
-------- -------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES............. 96,621 93,498 192,495 187,119
-------- -------- -------- --------
NONINTEREST INCOME
Service charges on deposit accounts............................... 19,608 18,005 38,415 35,451
Mortgage banking income........................................... 6,708 2,952 11,906 6,962
Trust fees........................................................ 6,590 5,156 13,450 10,255
Servicing income from securitized assets, net..................... 6,358 4,631 11,835 8,777
Bankcard charges and fees......................................... 2,107 4,549 6,206 8,795
Securities gains, net............................................. 905 1,531 301 1,845
Other income...................................................... 10,786 10,845 20,562 22,200
-------- -------- -------- --------
Total noninterest income.................................... 53,062 47,669 102,675 94,285
-------- -------- -------- --------
NONINTEREST EXPENSES
Salaries and wages................................................ 43,953 43,474 87,133 84,450
Other personnel costs............................................. 11,477 10,077 24,973 20,580
Equipment costs................................................... 7,715 7,007 16,371 15,121
Net occupancy costs............................................... 6,977 7,620 15,172 15,307
Other operating expenses.......................................... 29,046 28,142 54,831 57,304
-------- -------- -------- --------
Total noninterest expenses.................................. 99,168 96,320 198,480 192,762
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES........................................ 50,515 44,847 96,690 88,642
Income tax expense................................................ 17,981 15,716 34,087 30,975
-------- -------- -------- --------
NET INCOME........................................................ $32,534 $29,131 $62,603 $57,667
======== ======== ======== ========
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
PAGE 4
<TABLE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
------------ ------------ ------------
(in thousands)
<S>
ASSETS <C> <C> <C>
Cash and due from banks .......................................... $656,242 $775,582 $573,434
Money market investments (note 2)................................. 283,111 366,355 474,969
Investment securities available-for-sale (note 3)................. 2,411,844 2,794,023 1,090,572
Investment securities held-to-maturity (note 3)................... - - 1,354,013
Loans held-for-sale (at cost which approximates fair value)....... 97,162 116,002 112,142
Loans, net of unearned income of $115,741, $114,813
and $108,279:
Commercial.................................................... 1,782,654 1,798,248 1,758,718
Real estate,construction...................................... 274,384 290,262 283,846
Real estate,mortgage:
Residential................................................ 626,805 650,588 651,646
Commercial................................................. 972,124 975,474 972,673
Retail........................................................ 1,267,940 1,098,955 1,020,587
Bankcard...................................................... 404,738 654,653 534,930
Leases receivable............................................. 366,558 334,504 309,331
Foreign....................................................... 339,841 336,140 319,156
--------- --------- ---------
Total loans, net of unearned income...................... 6,035,044 6,138,824 5,850,887
Allowance for credit losses (note 4).......................... (164,241) (177,621) (185,436)
--------- --------- ---------
Loans, net .............................................. 5,870,803 5,961,203 5,665,451
--------- --------- ---------
Premises and equipment............................................ 102,926 104,379 105,028
Due from customers on acceptances................................. 8,700 14,144 13,699
Other assets...................................................... 368,096 334,484 353,683
--------- --------- ---------
Total assets........................................ $9,798,884 $10,466,172 $9,742,991
=========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Domestic deposits:
Noninterest bearing deposits ................................. $2,001,091 $2,055,129 $1,780,102
Interest bearing deposits..................................... 4,816,104 4,859,031 4,885,123
Interest bearing deposits in foreign banking office............... 104,878 129,022 202,204
--------- --------- ---------
Total deposits........................................... 6,922,073 7,043,182 6,867,429
Federal funds purchased and securities sold under
repurchase agreements........................................... 459,376 515,525 564,661
Other borrowed funds, short-term (note 8)......................... 418,221 908,644 709,183
Bank acceptances outstanding...................................... 8,700 14,144 13,699
Accrued taxes and other liabilities............................... 267,895 286,416 266,313
Long-term debt (note 9)........................................... 554,715 514,687 214,660
--------- --------- ---------
Total liabilities................................... 8,630,980 9,282,598 8,635,945
--------- --------- ---------
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 30,000
Common stock, $1/7 par value per share; authorized
600,000,000 shares; issued 594,480,215 shares.............. 84,926 84,926 84,926
Capital surplus.............................................. 198,176 198,176 198,176
Retained earnings............................................ 862,535 846,058 789,454
Net unrealized gains (losses) on investment securities
available-for-sale......................................... (7,733) 24,414 4,490
--------- --------- ---------
Total stockholders' equity.......................... 1,167,904 1,183,574 1,107,046
--------- --------- ---------
Total liabilities and stockholders' equity.......... $9,798,884 $10,466,172 $9,742,991
=========== =========== ==========
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
PAGE 5
<TABLE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
<CAPTION>
Net
unrealized
gains
(losses) on
investment
securities
Preferred Common Capital Retained available-
Stock Stock Surplus Earnings for-sale Total
------------ ----------- ----------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Six months ended June 30, 1995
------------------------------
Balance at beginning of year........... $30,000 $84,926 $198,176 $737,891 ($26,969) $1,024,024
Net income............................. 57,667 57,667
Dividends declared on preferred
stock.................................. (5,910) (5,910)
Change in net cost not yet recognized
as periodic pension expense.......... (194) (194)
Change in net unrealized gains
(losses) on investment securities
available-for-sale................... 31,459 31,459
--------- --------- --------- --------- --------- ---------
Balance at June 30, 1995............... $30,000 $84,926 $198,176 $789,454 $4,490 $1,107,046
========== ========== ========== ========== ========== ==========
Six months ended June 30, 1996
------------------------------
Balance at beginning of year........... $30,000 $84,926 $198,176 $846,058 $24,414 $1,183,574
Net income............................. 62,603 62,603
Dividends declared on common stock..... (40,000) (40,000)
Dividends declared on preferred
stock.................................. (5,910) (5,910)
Change in net cost not yet recognized
as periodic pension expense............ (216) (216)
Change in net unrealized gains
(losses) on investment securities
available-for-sale................... (32,147) (32,147)
--------- --------- --------- --------- --------- ---------
Balance at June 30, 1996............... $30,000 $84,926 $198,176 $862,535 ($7,733) $1,167,904
========== ========== ========== ========== ========== ==========
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
PAGE 6
<TABLE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six months ended June 30,
-------------------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................................ $62,603 $57,667
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses............................................................. 4,000 7,961
Provision for other real estate losses.................................................. - 237
Depreciation and amortization........................................................... 18,074 15,611
Deferred income tax expense............................................................. 15,769 7,942
Net gain on the sale of assets.......................................................... (46) (3,102)
Net decrease (increase) in loans originated for sale.................................... 18,840 (36,776)
(Increase) decrease in trading account securities....................................... (920) 24,332
Decrease in accrued interest receivable................................................. 5,102 7,412
(Decrease) increase in accrued interest payable......................................... (12,651) 8,054
Other, net.............................................................................. (61,106) 67,562
--------- ---------
Net cash provided by operating activities............................................ 49,665 156,900
--------- ---------
INVESTING ACTIVITIES
Proceeds from sales of investment securities available-for-sale........................... 773,623 534,425
Proceeds from paydowns and maturities of investment securities available-for-sale......... 10,155,832 81,066
Proceeds from paydowns and maturities of investment securities held-to-maturity........... - 188,394
Purchases of investment securities available-for-sale.....................................(10,602,119) (599,406)
Purchases of investment securities held-to-maturity....................................... - (205,432)
Net decrease (increase) in short-term investments......................................... 62,681 (234,431)
Purchase of loans......................................................................... - (19)
Net disbursements from lending activities of bank subsidiaries............................ (232,793) (411,262)
Principal collected on loans of nonbank subsidiaries...................................... 12,629 17,220
Loans originated by nonbank subsidiaries.................................................. (22,104) (14,977)
Principal payments received under leases.................................................. 1,790 2,842
Purchases of assets to be leased.......................................................... (8,674) (4,841)
Proceeds from other real estate transactions.............................................. 1,544 9,137
Proceeds from the sale of premises and equipment.......................................... 634 393
Purchases of premises and equipment....................................................... (10,834) (13,882)
Purchase of deposits...................................................................... - 6,694
Securitization and sale of bankcard receivables........................................... 337,716 -
Other, net................................................................................ (26,822) (6,111)
--------- ---------
Net cash provided by (used for) investing activities................................. 443,103 (650,190)
--------- ---------
FINANCING ACTIVITIES
Net decrease (increase) in deposits ...................................................... (121,109) 227,052
Net (decrease) increase in short-term borrowings.......................................... (546,572) 212,565
Payments on long-term debt................................................................ (10,000) -
Proceeds from issuance of medium-term bank notes.......................................... 50,000 -
Cash dividends paid....................................................................... (5,910) (5,910)
--------- ---------
Net cash (used for) provided by financing activities................................. (633,591) 433,707
--------- ---------
Decrease in cash and cash equivalents ...................................................... (140,823) (59,583)
Cash and cash equivalents at beginning of year.............................................. 797,460 692,123
--------- ---------
Cash and cash equivalents at June 30,....................................................... $656,637 $632,540
========= =========
SUPPLEMENTAL DISCLOSURES
Interest payments......................................................................... $171,326 $139,921
Income tax payments....................................................................... 18,922 10,642
NONCASH INVESTING AND FINANCING ACTIVITIES
Loan charge-offs.......................................................................... 21,622 18,479
Transfers to other real estate............................................................ 552 5,492
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
PAGE 7
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. Basis of Presentation
The accounting and reporting policies of First Maryland Bancorp
and subsidiaries (the "Corporation") conform to generally accepted
accounting principles. The accompanying unaudited interim
consolidated financial statements reflect all adjustments which
are, in the opinion of management, necessary for a fair
presentation of the financial position and results of operations
for the interim periods presented. These unaudited financial
statements should be read in conjunction with the audited
consolidated financial statements and related notes included in
the Corporation's 1995 Annual Report on Form 10-K. Certain
amounts in the 1995 consolidated financial statements have been
reclassified to conform with the 1996 presentation.
2. Money Market Investments
<TABLE>
Money market investments at June 30, 1996, December 31, 1995
and June 30, 1995 included the following:
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
------------ ------------- ------------
(in thousands)
<S> <C> <C> <C>
Interest bearing deposits in other banks............. $395 $21,878 $59,106
Trading account securities........................... 1,246 326 488
Federal funds sold................................... 88,200 322,275 330,000
Securities purchased under agreements
to resell.......................................... 193,270 21,876 85,375
-------- -------- --------
Total money market investments................. $283,111 $366,355 $474,969
======== ======== ==========
</TABLE>
3. Investment Securities
<TABLE>
The following is a comparison of the amortized cost and fair values of the
available-for-sale securities:
<CAPTION>
June 30, 1996 December 31, 1995 June 30, 1995
--------------------- --------------------- ----------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
----------- ---------- ----------- ---------- --------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Government Agencies........... $739,617 $727,662 $891,263 $900,347 $140,326 $142,159
Mortgage-backed obligations.......................... 1,089,390 1,070,261 1,232,652 1,245,339 664,536 658,883
Collateralized mortgage obligations:
Issued by Federal Agencies........................ 320,070 322,949 377,858 382,627 12,924 12,840
Privately issued.................................. 70,058 69,324 43,252 42,530 19,876 19,936
Obligations of states and political
subdivisions...................................... 90,724 95,304 98,009 104,886 179,764 187,266
Other investment securities.......................... 114,199 126,344 111,360 118,294 65,676 69,488
---------- ---------- ---------- ---------- ---------- ----------
Total.......................................... $2,424,058 $2,411,844 $2,754,394 $2,794,023 $1,083,102 $1,090,572
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
PAGE 8
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
3. Investment Securities (cont'd)
On December 8, 1995, consistent with the implementation guidance
provided in the Financial Accounting Standards Board 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 from the held-to-maturity portfolio to the
available-for-sale portfolio.
<TABLE>
The following is a comparison of the amortized cost and fair values
of the held-to-maturity securities:
<CAPTION>
June 30, 1996 December 31, 1995 June 30, 1995
------------------------ --------------------- ---------------------
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
---------- ---------- ---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury and U.S. Government Agencies........... $ - $ - $ - $ - $642,489 $637,349
Mortgage-backed obligations.......................... - - - - 152,538 151,415
Collateralized mortgage obligations:
Issued by Federal Agencies........................ - - - - 504,269 503,468
Privately issued.................................. - - - - 53,717 51,867
Other investment securities.......................... - - - - 1,000 1,000
---------- ---------- ---------- ---------- ---------- ----------
Total.......................................... $ - $ - $ - $ - $1,354,013 $1,345,099
========== ========== ========== ========== ========== ==========
</TABLE>
4. Impaired Loans and Allowance for Credit Losses
<TABLE>
The following table presents impaired loans by type and any related
valuation allowance at June 30, 1996.
<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 ........................................ $16,223 $14,766 $1,457 $521
Real estate, construction.......................... 1,501 1,421 80 35
Real estate mortgage, commercial................... 4,086 3,803 283 160
-------- -------- -------- --------
Total........................................ $21,810 $19,990 $1,820 $716
======== ======== ======== ========
</TABLE>
<TABLE>
The following table presents impaired loans by type and any related
valuation allowance at December 31, 1995.
<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, commercial................... 4,785 4,020 765 130
Foreign............................................ 521 521 - -
-------- -------- -------- --------
Total........................................ $23,019 $20,944 $2,075 $735
======== ======== ======== ========
</TABLE>
<PAGE>
PAGE 9
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
4. Impaired Loans and Allowance for Credit Losses (continued)
<TABLE>
The following table presents impaired loans by type and any related
valuation allowance at June 30, 1995.
<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 ........................................ $9,782 $8,075 $1,707 $676
Real estate, construction.......................... 1,898 1,024 873 285
Real estate mortgage, commercial................... 17,882 6,061 11,822 5,198
Foreign............................................ 1,500 1,500 - -
-------- -------- -------- --------
Total........................................ $31,062 $16,660 $14,402 $6,159
======== ======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
Six months ended June 30,
----------------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Year-to-date average recorded investment in impaired loans..................... $22,508 $38,115
Year-to-date interest income recognized during impairment...................... 171 182
Year-to-date interest income recorded on a cash basis during impairment........ 171 182
</TABLE>
At June 30, 1996, $15.3 million of the total impaired loans were
measured using the fair value of the loan's collateral. The remaining
impaired loans of $6.5 million represented loans with recorded investments
of less than $500 thousand which were measured at the outstanding loan
balance less any specific reserves. The $716 thousand valuation allowance
for impaired loans at June 30, 1996 and the activity related to
impaired loans for the six months ended June 30, 1996 is included
in the allowance for credit losses discussed below.
In certain circumstances, a nonaccrual loan may not meet the
definition of an impaired loan under Statement of Financial
Accounting Standards No. 114 and 118, "Accounting by Creditors
for Impairment of a Loan". At June 30, 1996, the difference
between total nonaccrual loans and total impaired loans was $10.5
million which included the following: nonaccrual residential loans
of $6.7 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 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 June 30, 1996. A summary of the activity
in the allowance for credit losses for the six months ended June 30,
1996 and 1995 follows:
<PAGE>
PAGE 10
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
4. Impaired Loans and Allowance for Credit Losses (cont'd)
<TABLE>
<CAPTION>
Six months ended June 30,
--------------------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Balance at beginning of year...................................... $177,621 $191,024
Provision for credit losses....................................... 4,000 7,961
Less: charge-offs, net of recoveries of $4,242 and $4,930......... (17,380) (13,549)
-------- --------
Balance at June 30................................................ $164,241 $185,436
======== ========
</TABLE>
5. Intangible Assets
<TABLE>
Intangible assets at June 30, 1996, December 31, 1995 and
June 30, 1995 included the following:
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
------------ ------------- ------------
(in thousands)
<S> <C> <C> <C>
Goodwill............................................. $27,382 $28,693 $30,007
Premium on bankcard receivables...................... 10,049 11,476 13,051
Premium on deposits.................................. 7,210 7,787 8,364
Other................................................ 873 698 722
------- ------- -------
Total intangible assets........................ $45,514 $48,654 $52,144
======= ======= =======
</TABLE>
6. Mortgage Servicing Rights
<TABLE>
Mortgage servicing rights activity for the six months ended
June 30, 1996 and June 30, 1995 follows:
<CAPTION>
Six months ended June 30,
-------------------------------------------------
1996 1995
----------------------- ----------------------
Originated Purchased Originated Purchased
---------- --------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Balance beginning of year............................ $5,033 $1,067 $ - $1,270
Capitalized mortgage servicing rights................ 300 30 1,151 310
Amortization......................................... (714) (155) (53) (338)
Sale of servicing.................................... (4,334) (914) - -
-------- -------- -------- --------
Balance at June 30................................... $285 $28 $1,098 $1,242
======== ======== ======== ========
</TABLE>
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
is recorded if the unamortized mortgage servicing rights exceed their
fair value. At June 30, 1996, there was no valuation allowance.
<PAGE>
PAGE 11
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
7. Valuation Allowance for Other Real Estate Owned
<TABLE>
A summary of the activity in the valuation allowance for other
real estate owned is provided below:
<CAPTION>
Six months ended June 30,
---------------------------
1996 1995
-------- --------
(in thousands)
<S> <C> <C>
Balance at beginning of year...................................... $295 $4,185
Provisions........................................................ - 237
Writedowns........................................................ - (4,077)
------ ------
Balance at June 30................................................ $295 $345
====== ======
</TABLE>
8. Other Borrowed Funds, Short-term
<TABLE>
Other borrowed funds, short-term at June 30, 1996, December
31, 1995 and June 30, 1995 included the following:
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
------------ ------------- ------------
(in thousands)
<S> <C> <C> <C>
Master demand note of the Corporation................ $347,332 $402,489 $368,020
Bank notes........................................... 50,000 400,000 180,000
Federal funds purchased-term......................... - 80,000 125,000
Treasury tax and loan note account................... 7,857 6,000 5,997
Other................................................ 13,032 20,155 30,166
-------- -------- --------
Total other borrowed funds, short-term......... $418,221 $908,644 $709,183
======== ======== ========
</TABLE>
9. Long-term Debt
<TABLE>
Following is a summary of the long-term debt of the Corporation
at June 30, 1996, December 31, 1995 and June 30, 1995 which
is all unsecured:
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
------------ ------------- ------------
(in thousands)
<S> <C> <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 75,000 -
Floating Rate Medium term bank note due October 23,
1996............................................. 100,000 100,000 -
5.72% Medium term bank note due October 31, 1996..... 100,000 100,000 -
Floating Rate Medium term bank note due November 1,
1996............................................. 50,000 50,000 -
Floating Rate Medium term bank note due April 20,
1998............................................. 50,000 - -
10.375% Subordinated Capital Notes due August 1,
1999............................................. 59,973 59,969 59,964
9.15% Notes due June 1, 1996......................... - 10,000 10,000
8.68% Notes due January 31, 1997..................... 9,999 9,998 9,998
8.67% Notes due March 20, 1997....................... 9,999 9,998 9,998
8.375% Subordinated Notes due May 15, 2002........... 99,744 99,722 99,700
-------- -------- --------
Total long-term debt........................... $554,715 $514,687 $214,660
======== ======== ========
</TABLE>
<PAGE>
PAGE 12
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
10. Off-Balance Sheet Derivative Financial Instruments
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 the 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.
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.
All trading activity is conducted within the risk limits approved
by the Corporation's Board of Directors. Trading systems are in place
which measure risks and profitability associated with derivative trading
positions as market movements occur. An independent risk control unit
monitors these risks. The results are reported daily and reviewed by the
Corporation's Asset/Liability Committee and the Executive Committee of the
Board of Directors on a monthly basis.
<TABLE>
The following table presents the notional amounts and fair values
of the classes of trading instruments at June 30, 1996 and 1995 as well
as the average fair values for the three months and six months ended
June 30, 1996 and 1995.
<CAPTION>
Fair Values
----------------------------------------------------------------------
End-of-period Average Three Months Average Six Months
Notional Amounts June 30, ended June 30, ended June 30,
---------------------- --------------------- -------------------- --------------------
1996 1995 1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Contracts
Interest Rate Swaps..... $1,015,186 $502,785
Receivable position... $10,791 $6,953 $10,776 $6,072 $11,302 $6,405
Payable position...... (7,784) (2,797) (7,385) (2,640) (6,719) (3,312)
Interest Rate Caps/Floors 301,415 341,739
Held.................. 240 1,201 304 1,452 247 1,869
Written............... (240) (1,201) (304) (1,456) (247) (1,881)
Futures................. 30,000 86,000
Favorable position.... - 233 - - - -
Unfavorable position.. (487) (122) - - - -
Foreign Exchange Contracts
Options................. 2,007,905 213,810
Held.................. 15,130 660 16,524 379 12,163 319
Written............... (9,129) (1,322) (11,151) (251) (8,899) (207)
Forwards................ 800,728 526,164
Favorable position.... 1,688 1,333 1,778 1,378 1,780 1,281
Unfavorable position.. (1,405) (866) (1,400) (866) (1,390) (859)
</TABLE>
<PAGE>
PAGE 13
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
10. Off-Balance Sheet Derivative Financial Instruments (cont'd)
Net Trading Income
<TABLE>
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.
<CAPTION>
Six months ended June 30,
----------------------------
1996 1995
--------- ---------
(in thousands)
<S> <C> <C>
Interest rate contracts:
Interest rate swaps..................... ($2,550) $1,424
Futures................................. 1,897 (1,647)
Interest rate caps and floors........... - 91
Options................................. (1) -
Securities.............................. 1,131 81
Miscellaneous........................... 249 (12)
------- -------
726 (63)
------- -------
Foreign exchange contracts:
Spot and forward contracts.............. (154) 3,225
Futures................................. (7) (102)
Options................................. 596 (3,134)
Miscellaneous........................... 1,071 1,388
------- -------
1,506 1,377
------- -------
Total net trading income.......... $2,232 $1,314
======= =======
</TABLE>
<PAGE>
PAGE 14
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
10. Off-Balance Sheet Derivative Financial Instruments (cont'd)
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 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.
<PAGE>
PAGE 15
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
10. Off-Balance Sheet Derivative Financial Instruments (cont'd)
<TABLE>
The following table presents the notional amounts and fair values for
the risk management instruments entered into by the Corporation at June
30, 1996 and 1995 as well as the weighted average maturity and weighted
average receive and pay rates for the instruments at June 30, 1996.
<CAPTION>
June 30, 1996
Notional Amount ---------------------------------- Estimated Fair Value
----------------------- Weighted ---------------------
June 30, Average Weighted Average Rate June 30,
--------------------- Maturity --------------------- ---------------------
1996 1995 in Years Receive Pay 1996 1995
-------- -------- ------------ ----------- ----------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Designated to Assets
--------------------
Interest rate swaps sold
------------------------
Convert floating rate to fixed
rate..................... $767,500 $175,000 4.10 6.20% 5.50% ($6,502) $508
-------- -------
Carrying amount (1)......... 6,379 9,444
Unrealized gross gains...... 27 503
Unrealized gross losses..... (12,908) (9,439)
Interest rate swaps purchased
-----------------------------
Convert fixed rate to floating
rate..................... 46,567 53,107 3.98 5.49 6.29 (55) (559)
-------- -------
Carrying amount (1)......... (79) (35)
Unrealized gross gains...... 502 514
Unrealized gross losses..... (478) (1,038)
Designated to Liabilities
-------------------------
Interest rate swaps sold
------------------------
Convert fixed rate to floating
rate..................... 284,000 159,000 1.49 6.15 5.50 1,499 3,929
-------- -------
Carrying amount (1)......... 361 269
Unrealized gross gains...... 1,816 3,735
Unrealized gross losses..... (678) (75)
Interest rate swaps purchased
-----------------------------
Convert floating rate to fixed
rate..................... - 435,500 - - - - 885
-------- -------
Carrying amount (1)......... (205) 213
Unrealized gross gains...... 205 689
Unrealized gross losses..... - (17)
Interest rate caps purchased
----------------------------
Cap floating rate at strike
level.................... 165,000 235,600 2.95 Cap - 13.50% (2) - -
-------- -------
Carrying amount (1)......... - 59
Unrealized gross gains...... - -
Unrealized gross losses..... - (59)
Call options purchased........ 12,536 12,536 1.21 - - 1,572 359
--------------------- -------- -------
Carrying amount (1)......... 2,038 1,232
Unrealized gross gains...... - -
Unrealized gross losses..... (466) (873)
</TABLE>
<PAGE>
PAGE 16
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
10. Off-Balance Sheet Derivative Financial Instruments (cont'd)
<TABLE>
<CAPTION>
June 30, 1996
Notional Amount ---------------------------------- Estimated Fair Value
----------------------- Weighted ---------------------
June 30, Average Weighted Average Rate June 30,
--------------------- Maturity --------------------- ---------------------
1996 1995 in Years Receive Pay 1996 1995
-------- -------- ------------ ----------- ----------- -------- --------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Basis swaps
-----------
Convert floating rate to
different index.......... $180,000 $30,000 1.12 5.43% 5.42% $2,313 ($521)
-------- -------
Carrying amount (1)......... 2,937 (18)
Unrealized gross gains...... 105 -
Unrealized gross losses..... (729) (503)
<FN>
(1) Carrying amounts for 1996 represent accrued interest receivable (payable) and the following deferred fees: deferred
losses on the early termination of interest rate swaps sold, $6.0 million; deferred gain on the early termination of
an interest rate swap purchased, ($205) thousand; and deferred premiums on call options purchased, $466 thousand.
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, $9.4 million; deferred fees on the
redesignation of an interest rate swap purchased, ($28) thousand; deferred premiums on interests rate caps purchased,
$59 thousand; and deferred premiums on call options purchased, $873 thousand.
(2) Pays interest if interest rates exceed 13.50%.
</TABLE>
<TABLE>
The following table summarizes the estimated maturities of the risk
management instruments entered into by the Corporation at June 30,
1996.
<CAPTION>
1 Year 1-5
or Less Years Total
------------ ------------ -----------
(dollars in thousands)
<S> <C> <C> <C>
Designated to Assets
--------------------
Notional amount..................... $150,000 $664,067 $814,067
Weighted average receive rate....... 5.86% 6.22% 6.16%
Estimated fair value................ 157 (6,714) (6,557)
Designated to Liabilities
-------------------------
Notional amount..................... $149,890 $311,646 $461,536
Weighted average receive rate....... 5.41% 6.89% 6.15%
Estimated fair value................ 825 2,246 3,071
Basis Swaps
-----------
Notional amount..................... $100,000 $80,000 $180,000
Weighted average receive rate....... 5.69% 5.09% 5.43%
Estimated fair value................ 3,039 (726) 2,313
</TABLE>
<PAGE>
PAGE 17
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
10. Off-Balance Sheet Derivative Financial Instruments (cont'd)
<TABLE>
The following table summarizes the estimated maturities of the risk
management instruments entered into by the Corporation at June 30,
1995.
<CAPTION>
1 Year 1-5 5-10
or Less Years Years Total
------------ ------------ ----------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C>
Designated to Assets
--------------------
Notional amount..................... $175,000 $21,329 $31,778 $228,107
Weighted average receive rate....... 6.11% 6.21% 6.25% 6.13%
Estimated fair value................ 508 501 (1,060) (51)
Designated to Liabilities
-------------------------
Notional amount..................... $443,544 $399,092 $ - $842,636
Weighted average receive rate....... 6.28% 6.97% - % 6.45%
Estimated fair value................ 807 4,366 - 5,173
Basis Swaps
-----------
Notional amount..................... $ - $30,000 $ - $30,000
Weighted average receive rate....... - % 5.83% - % 5.83%
Estimated fair value................ - (521) - (521)
</TABLE>
<TABLE>
The following table summarizes the activity of the risk management
instruments entered into by the Corporation, by notional amounts, for
the six months ended June 30, 1996.
<CAPTION>
Designated
Designated to Basis
to Assets Liabilities Swaps Total
---------- ------------ -------- -----
(in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of year........... $421,708 $541,736 $30,000 $993,444
Additions.............................. 517,500 105,000 50,000 672,500
Maturities/amortizations............... (125,141) (85,200) - (210,341)
Redesignations......................... - (100,000) 100,000 -
-------- -------- -------- ----------
Balance at June 30..................... $814,067 $461,536 $180,000 $1,455,603
======== ======== ======== ==========
</TABLE>
<TABLE>
The following table summarizes the activity of the risk management
instruments entered into by the Corporation, by notional amounts, for
the six months ended June 30, 1995.
<CAPTION>
Designated
Designated to Basis
to Assets Liabilities Swaps Total
---------- ------------ -------- -----
(in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of year........... $228,107 $857,761 $30,000 $1,115,868
Additions.............................. - 150,275 - 150,275
Maturities/amortizations............... - (165,400) - (165,400)
-------- -------- -------- ----------
Balance at June 30..................... $228,107 $842,636 $30,000 $1,100,743
======== ======== ======== ==========
</TABLE>
<PAGE>
PAGE 18
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
10. Off-Balance Sheet Derivative Financial Instruments (cont'd)
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 $6.0 million as of June 30, 1996. These
losses are scheduled to be amortized into income in the following periods:
$1.7 million for the remainder of 1996, $3.4 million in 1997 and $858
thousand in 1998.
The deferred gain on the early termination of an interest rate swap
with a notional balance of $100.0 million designated to the Corporation's
federal funds purchased was $205 thousand as of June 30, 1996. This
gain is scheduled to be amortized into income in the following periods:
$50 thousand for the remainder of 1996, $98,000 in 1997 and $57 thousand
in 1998.
For the six months ended June 30, 1996, the off-balance sheet
derivative financial instruments entered into for risk management
purposes by the Corporation had the following impact on the components
of net interest income: gross interest income decreased $1.3 million
and gross interest expense decreased $1.7 million which resulted in
a $399 thousand increase in net interest income.
<PAGE>
PAGE 19
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Earnings Summary
The net income of First Maryland Bancorp (the "Corporation") for
the six months and quarter ended June 30, 1996 was $62.6 million and
$32.5 million, respectively compared to $57.7 million and $29.1 million
for the six months and quarter ended June 30, 1995. Return on
average assets and return on average total equity were 1.21% and
10.48%, respectively, for the six months ended June 30, 1996
compared with 1.22% and 10.86% for the six months ended June 30,
1995.
<TABLE>
Table 1 Selected Quarterly Financial Information
<CAPTION>
2nd Quarter 1st Quarter 4th Quarter 3rd Quarter 2nd Quarter
1996 1996 1995 1995 1995
----------- ----------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF OPERATIONS:
Net interest income (fully tax equivalent)........ $97,898 $101,197 $100,872 $100,291 $99,651
Tax equivalent adjustment......................... 1,277 1,323 1,033 2,217 2,192
-------- -------- -------- -------- --------
Net interest income............................... 96,621 99,874 99,839 98,074 97,459
Provision for credit losses....................... - 4,000 5,666 2,373 3,961
-------- -------- -------- -------- --------
Net interest income after provision for credit
losses.......................................... 96,621 95,874 94,173 95,701 93,498
Noninterest income................................ 53,062 49,613 52,142 49,483 47,669
Noninterest expenses.............................. 99,168 99,312 98,373 97,589 96,320
-------- -------- -------- -------- --------
Income before income taxes........................ 50,515 46,175 47,942 47,595 44,847
Income tax expense................................ 17,981 16,106 16,454 16,563 15,716
-------- -------- -------- -------- --------
Net income........................................ $32,534 $30,069 $31,488 $31,032 $29,131
======== ======== ======== ======== ========
Dividends declared on preferred stock............. $2,955 $2,955 $2,955 $2,955 $2,955
CONSOLIDATED AVERAGE BALANCES:
Total assets...................................... 10,212,700 10,531,200 10,336,500 9,791,300 9,705,800
Loans, net of unearned income..................... 6,018,700 6,173,600 6,065,800 5,858,100 5,768,400
Deposits.......................................... 6,943,200 6,905,200 6,794,700 6,835,300 6,742,200
Long-term debt.................................... 551,700 514,700 440,500 206,500 214,700
Common stockholder's equity....................... 1,048,300 1,064,100 1,023,900 982,300 947,300
Stockholders' equity.............................. 1,193,100 1,208,900 1,168,700 1,127,100 1,092,100
CONSOLIDATED RATIOS:
Return on average assets.......................... 1.28% 1.15% 1.21% 1.26% 1.20%
Return on average total stockholders' equity...... 10.97 10.00 10.69 10.92 10.70
Return on average common stockholder's equity..... 11.35 10.25 11.06 11.34 11.08
Average stockholders' equity to average total
assets.......................................... 11.68 11.48 11.31 11.51 11.25
Capital to risk-adjusted assets:
Tier 1.......................................... 13.90 13.63 13.77 13.64 13.64
Total........................................... 17.11 16.78 17.05 16.94 17.00
Tier 1 leverage ratio............................. 11.19 10.99 10.91 11.21 11.00
Net interest margin............................... 4.25 4.26 4.24 4.45 4.50
Net charge-offs to average loans, net of average
unearned income (annualized).................... 0.44 0.70 0.66 0.40 0.55
Allowance for credit losses to period end loans,
net of unearned income.......................... 2.72 2.74 2.89 3.02 3.17
Nonperforming assets to period end loans, net of
unearned income plus other foreclosed assets
owned........................................... 0.72 0.73 0.73 0.84 0.88
</TABLE>
<PAGE>
PAGE 20
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations-(Continued)
Net Interest Income and Net Interest Margin
Net interest income on a fully tax equivalent basis for the
quarter ended June 30, 1996 of $97.9 million decreased $1.8 million
(1.8%) when compared to net interest income of $99.7 million for the
quarter ended June 30, 1995. The securitization and sale of an
additional $335 million in bankcard receivables in the second quarter
of 1996 resulted in a $5.9 million decrease in net interest income.
The revenues associated with these receivables were reported in
noninterest income as servicing income from securitized assets.
Absent the impact of the securitization, net interest income increased
$4.1 million relative to 1995. The increase in net interest income
is primarily due to an increase in net free funds. The net interest
margin for the second quarter of 1996 was 4.25% compared to 4.50% for
the second quarter of 1995. The decrease in the net interest margin
in the current period was due to narrower spreads on loans and
deposits. In addition, the $335 million bankcard receivable
securitization and sale in the second quarter of 1996 resulted in a
13 basis point decrease in the net interest margin.
Net interest income on a fully tax equivalent basis for the
six months ended June 30, 1996 of $199.1 million decreased $510 thousand
(0.3%) when compared to net interest income of $199.6 million for
the six months ended June 30, 1995. As noted above, the $335 million
bankcard receivable securitization and sale resulted in a $5.9 million
decrease in net interest income. Absent the impact of the
securitization, net interest income increased $5.4 million primarily
as a result of an increase in net free funds. The net interest margin
for the first six months of 1996 was 4.25% compared to 4.61% for the
first six months of 1995. The decrease in the net interest margin
in the first six months of 1996 was due to narrower spreads on loans
and deposits. In addition, the bankcard receivable securitization
and sale resulted in a 7 basis point decline in the net interest margin.
An analysis of fully tax equivalent net interest income,
interest rate spreads and net interest margins for the three months
and six months ended June 30, 1996 and 1995 is presented in Table 2
and 3.
<TABLE>
Table 2 Net Interest Income, Interest Rate Spread and Net Interest Margin on Average Earning Assets
(Tax Equivalent Basis)
<CAPTION>
Three months ended June 30,
-----------------------------------------------------------------------
1996 1995
----------------------------------- -------------------------------
Average Yield/ Average Yield/
balance Interest rate balance Interest rate
-------- -------- -------- -------- -------- --------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Investment securities (1).............. $2,786.7 $43.2 6.23% $2,438.7 $39.7 6.54%
Loans held-for-sale.................... 110.5 2.1 7.54 77.1 1.7 8.95
Loans, net of unearned income.......... 6,018.7 123.5 8.26 5,768.4 127.4 8.86
Other earning assets................... 357.6 4.7 5.28 604.6 9.3 6.08
------- ------ ------- ------
Earning assets......................... $9,273.5 173.5 7.52 $8,888.8 178.1 8.04
======== ------ ======== ------
Interest bearing liabilities........... $6,846.4 75.6 4.44 $6,732.6 78.4 4.67
Interest rate spread (2)............... 3.08 3.37
Interest free sources utilized
to fund earning assets............... 2,427.1 2,156.2
------- ------ ------- ------
Total sources of funds................. $9,273.5 75.6 3.27 $8,888.8 78.4 3.54
======== ------ ======== ------
Net interest income.................... $97.9 $99.7
====== ======
Net interest margin (3)................ 4.25% 4.50%
==== ====
<FN>
(1) Yields on investment securities are calculated based upon average amortized cost.
(2) Interest rate 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.
</TABLE>
<PAGE>
PAGE 21
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
<TABLE>
Table 3 Net Interest Income, Interest Rate Spread and Net Interest Margin on Average Earning Assets
(Tax Equivalent Basis)
<CAPTION>
Six months ended June 30,
-----------------------------------------------------------------------
1996 1995
----------------------------------- -------------------------------
Average Yield/ Average Yield/
balance Interest rate balance Interest rate
-------- -------- -------- -------- -------- --------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Investment securities (1).............. $2,887.7 $90.0 6.27% $2,452.1 $78.4 6.44%
Loans held-for-sale.................... 112.8 4.1 7.32 62.9 2.7 8.80
Loans, net of unearned income.......... 6,096.1 255.4 8.42 5,644.7 249.5 8.91
Other earning assets................... 314.8 8.3 5.29 573.4 17.0 5.98
------- ------ ------- ------
Earning assets......................... $9,411.4 357.8 7.64 $8,733.1 347.6 8.03
======== ------ ======== ------
Interest bearing liabilities........... $7,030.7 158.7 4.53 $6,570.2 148.0 4.54
Interest rate spread (2)............... 3.11 3.49
Interest free sources utilized
to fund earning assets............... 2,380.7 2,162.9
------- ------ ------- ------
Total sources of funds................. $9,411.4 158.7 3.39 $8,733.1 148.0 3.42
======== ------ ======== ------
Net interest income.................... $199.1 $199.6
====== ======
Net interest margin (3)................ 4.25% 4.61%
==== ====
<FN>
(1) Yields on investment securities are calculated based upon average amortized cost.
(2) Interest rate 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.
</TABLE>
Provision for Credit Losses
No provision for credit losses was recorded in the second quarter
of 1996 compared to a $4.0 million provision for credit losses in the
second quarter of 1995. The second quarter of 1995 provision for credit
losses included a $5.9 million bankcard provision offset by a provision
recapture of $2.0 million at a subsidiary bank. The securitization and
sale of $335 million in bankcard receivables in the second quarter of
1996 resulted in a reduction in the level of bankcard receivables without
a corresponding reduction in the allowance for credit losses.
Approximately $17 million of the allowance for credit losses was
reallocated from the bankcard receivables sold to the remaining book
portfolio in light of increasing delinquency and charge-off trends.
The provision for credit losses for the six months ended June 30,
1996 totaled $4.0 million, a $4.0 million decrease (49.8%) from the
$8.0 million provision recorded in the six months ended June 30, 1995.
The 1995 provision for credit losses included a $10.0 million bankcard
provision offset by a provision recapture of $2.0 million at a
subsidiary bank. As noted above, no loan loss provisions for bankcard
receivables were recorded in the second quarter of 1996 due to the
securitization and sale of $335 million in bankcard receivables which
did not result in a corresponding reduction in the allowance for credit
losses.
<PAGE>
PAGE 22
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
Noninterest Income
<TABLE>
The following table presents the components of noninterest income
for the three months and six months ended June 30, 1996 and 1995.
Table 4 Noninterest Income
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------------- ----------------------------------
Percent Percent
Change Change
1996 1995 1996/1995 1996 1995 1996/1995
------- ------- ----------- ------- ------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Service charges on deposit accounts.... $19,608 $18,005 8.9% $38,415 $35,451 8.4%
Mortgage banking income................ 6,708 2,952 127.2 11,906 6,962 71.0
Trust fees............................. 6,590 5,156 27.8 13,450 10,255 31.2
Servicing income from securitized
assets, net.......................... 6,358 4,631 37.3 11,835 8,777 34.8
Bankcard charges and fees.............. 2,107 4,549 (53.7) 6,206 8,795 (29.4)
Securities gains, net.................. 905 1,531 (40.9) 301 1,845 (83.7)
Other income:
Customer service fees................ 2,009 1,914 5.0 3,971 3,667 8.3
Security sales and fees.............. 1,516 1,278 18.6 2,696 2,500 7.8
Trading income....................... 1,080 (88) 1,327.3 2,232 1,314 69.9
Other................................ 6,181 7,741 (20.2) 11,663 14,719 (20.8)
------- ------- ----- ------- ------- -----
Total other income..................... 10,786 10,845 (0.5) 20,562 22,200 (7.4)
------- ------- ----- ------- ------- -----
Total noninterest income........ $53,062 $47,669 11.3% $102,675 $94,285 8.9%
======= ======= ======= ======= ======= =======
</TABLE>
The Corporation's noninterest income for the second quarter of
1996 increased $5.4 million (11.3%) when compared to the second quarter
of 1995. Service charges on deposits increased $1.6 million (8.9%)
due to a $1.3 million increase in service charges on business checking.
Mortgage banking income increased $3.8 million (127.2%) as a result of
a $5.9 million increase in gains on the sale of servicing. This
increase was partially offset by $1.2 million in capitalized mortgage
servicing rights income recorded in the second quarter of 1995 resulting
from the adoption of Statement of Financial Accounting Standards No.
122, "Accounting for Mortgage Servicing Rights" ("SFAS 122") and a
$1.0 million decline in other mortgage banking income. Trust fees
increased $1.4 million (27.8%) due to increases in personal trust fees,
custody fees and ARK management fees. Servicing income from securitized
assets increased $1.7 million (37.3%) as a result of $1.9 million in
servicing income from the securitization and sale of an additional $335
million in bankcard receivables in April 1996. Bankcard charges and fees
decreased $2.4 million (53.7%) primarily due to the securitization and
sale of an additional $335 million in bankcard receivables which
shifted $1.5 million in fee income to servicing income from asset sales.
In addition, credit card income declined because the cost of promotional
incentives to new customers on cobranded credit cards exceeded the
fee income generated by these credit card relationships in 1996.
Securities gains of $905 thousand were recorded in the second quarter of
1996 compared to $1.5 million in securities gains in the second quarter
of 1995. Securities sales are discussed in detail under "Changes in
Financial Position." Trading income increased $1.2 million. Other
income decreased $1.6 million (20.2%) primarily due to the following
income recorded in the second quarter of 1995: $500 thousand from an
other real estate owned property and $493 thousand from the sale of
stock in partial satisfaction of a loan obligation. In addition, gains
on the disposal of other real estate owned decreased $900 thousand.
<PAGE>
PAGE 23
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
Noninterest Income (cont'd)
The Corporation's noninterest income for the first six months of
1996 increased $8.4 million (8.9%) when compared to the first six
months of 1995. Service charges on deposits increased $3.0 million
(8.4%) due to a $2.1 million increase in service charges on business
checking and a $1.0 million increase in retail deposit service charges.
Mortgage banking income increased $4.9 million (71.0%) as a result of
a $5.9 million increase in gains on the sale of servicing, a $965
thousand increase in mortgage placement fees and a $974 thousand
increase in origination fees and document review fees. These increases
were partially offset by $1.2 million in capitalized mortgage servicing
rights income recorded in the second quarter of 1995 resulting
from the adoption of SFAS 122 and a $1.8 million decline in other
mortgage banking income. Trust fees increased $3.2 million (31.2%) due
to increases in personal trust fees, custody fees and ARK management
fees. Servicing income from securitized assets increased $3.1 million
(34.8%) as a result of $1.9 million in servicing income from the
securitization and sale of an additional $335 million in bankcard
receivables in April 1996. In addition, servicing income from the
Corporation's securitized manufactured housing receivables increased
primarily due to a $2.3 million decrease in servicing income set aside
for credit losses. These increases were partially offset by a $1.1
million decline in securitized bankcard receivables net yields.
Bankcard charges and fees decreased $2.6 million (29.4%) primarily
due to the securitization and sale of an additional $335 million in
bankcard receivables which shifted $1.5 million in fee income to
servicing income from asset sales. In addition, credit card income
declined because the cost of promotional incentives to new customers
on cobranded credit cards exceeded the fee income generated by these
credit card relationships in 1996. Securities gains of $301 thousand
were recorded in the first six months of 1996 compared to $1.8 million
in securities gains in the first six months of 1995. Securities sales
are discussed in detail under "Changes in Financial Position." Other
income decreased $3.1 million (20.8%) primarily due to the following
income recorded in the first six months of 1995: $875 thousand in
nonaccrual fees and interest payments on two loans, $675 thousand from
an other real estate owned property and $493 thousand from the sale
of stock in partial satisfaction of a loan obligation. In addition,
gains on the disposal of other real estate owned declined $967 thousand.
<PAGE>
PAGE 24
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
Noninterest Expenses
<TABLE>
The following table presents the components of noninterest expenses
for the three months and six months ended June 30, 1996 and 1995.
Table 5 Noninterest Expenses
<CAPTION>
Three months ended June 30, Six months ended June 30,
---------------------------------- ----------------------------------
Percent Percent
Change Change
1996 1995 1996/1995 1996 1995 1996/1995
------- ------- ----------- ------- ------- -----------
(dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
Salaries and wages..................... $43,953 $43,474 1.1% $87,133 $84,450 3.2%
Other personnel costs.................. 11,477 10,077 13.9 24,973 20,580 21.3
Equipment costs........................ 7,715 7,007 10.1 16,371 15,121 8.3
Net occupancy costs.................... 6,977 7,619 (8.4) 15,172 15,307 (0.9)
Other operating expenses:
External services.................... 6,551 5,054 29.6 12,032 9,890 21.7
Postage and communications........... 4,058 3,531 14.9 8,157 7,084 15.1
Advertising and public relations..... 3,690 3,870 (4.7) 7,391 8,664 (14.7)
Professional fees.................... 2,594 1,548 67.6 4,454 3,383 31.7
Lending and collection............... 2,142 1,418 51.1 3,568 2,748 29.8
Regulatory fees and insurance........ 892 3,909 (77.2) 1,749 7,845 (77.7)
Other................................ 9,119 8,813 3.5 17,480 17,690 (1.2)
------ ------ ----- ------ ------ -----
Total other operating expenses..... 29,046 28,143 3.2 54,831 57,304 (4.3)
------ ------ ----- ------ ------ -----
Total noninterest expenses..... $99,168 $96,320 3.0% $198,480 $192,762 3.0%
======= ======= ======= ======= ======= =======
</TABLE>
The Corporation's noninterest expenses for the second quarter of
1996 increased $2.8 million (3.0%) when compared to the second quarter
of 1995. Salaries and wages increased $479 thousand (1.1%). Other
personnel costs increased $1.4 million (13.9%) primarily due to a
$659 thousand increase in employee retirement expenses and a $452
thousand increase in healthcare costs. External services increased
$1.5 million (29.6%) primarily as a result of higher servicing costs
associated with growth in the bankcard receivables portfolio and
outsourced processing associated with a government automated tax
payment program. Professional fees increased $1.0 million (67.6%)
due to an increase in consulting fees. Regulatory fees and insurance
decreased $3.0 million (77.2%) as a result of a reduction in the
Federal Deposit Insurance Corporation ("FDIC") assessment rate.
The Corporation's noninterest expenses for the first six months
of 1996 increased $5.7 million (3.0%) when compared to the first six
months of 1995. Salaries and wages increased $2.7 million (3.2%)
primarily due to a $2.1 million increase in regular salary expense
and a $640 thousand increase in severance expenses. Other personnel
costs increased $4.4 million (21.3%) primarily as a result of a $2.8
million increase in employee retirement expenses which included $1.0
million in pension settlements in 1996, a $643 thousand increase in
healthcare costs and a $568 thousand increase in payroll taxes.
Equipment costs increased $1.3 million (8.3%) primarily due to higher
maintenance and depreciation expenses in 1996. External services
increased $2.1 million (21.7%) primarily as a result of higher servicing
costs associated with growth in the bankcard receivables portfolio and
outsourced processing associated with a government automated tax
payment program. Postage and communications increased $1.1 million
(15.1%) primarily due to an increase in communications expense in 1996.
Advertising and public relations decreased $1.3 million (14.7%).
Professional fees increased $1.1 million (31.7%) due to an increase
in consulting fees. Regulatory fees and insurance decreased $6.1
million (77.7%) as a result of a reduction in the FDIC assessment
rate.
<PAGE>
PAGE 25
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
Changes in Financial Position
Investment Securities
Available-for-Sale Portfolio
Investment securities available-for-sale decreased $382.2 million
from December 31, 1995 to June 30, 1996. In the first quarter of 1996,
$109.8 million in U.S. Treasury securities were sold, resulting in
losses of $555 thousand and $241.0 million in mortgage-backed obligations
("MBS's") were sold, resulting in losses of $48 thousand. In the second
quarter of 1996, $330.3 million in U.S. Treasury securities were
sold, resulting in losses of $34 thousand; $83.5 million in MBS's were
sold, resulting in gains of $982 thousand; $8.7 million in collateralized
mortgage obligations ("CMO's") were sold, resulting in losses of
$54 thousand and $52 thousand in equity securities were sold, resulting
in gains of $20 thousand. Paydowns, maturities and/or calls on the
available-for-sale securities totaled $10.2 billion in the first
six months of 1996. These decreases in the portfolio were
offset by $10.6 billion in purchases which included the following:
$10.1 billion in U.S. Treasury and U.S. Government Agencies
securities, $305.8 million in MBS's, $127.7 million in other debt
securities, $38.7 million in CMO's, $6.5 million in obligations of
state and political subdivisions and $2.9 million in equity securities.
The fair value of the available-for-sale portfolio at June 30, 1996
was $12.2 million below the amortized cost compared to a fair value at
December 31,1995 which was $39.6 million above the amortized cost.
This change in the fair value resulted in a $32.1 million net adjustment
to the unrealized gains (losses) on available-for-sale securities which
is included as a component of stockholders' equity. Table 6 provides
information on the gross unrealized gains and losses of the available-
for-sale portfolio at June 30, 1996.
<TABLE>
The amortized cost and fair values of the available-for-sale securities
at June 30, 1996 are shown in the following table.
Table 6 Available-for-Sale Portfolio
<CAPTION>
June 30, 1996
-------------------------------------------------
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........... $739,617 $369 ($12,324) $727,662
Mortgage-backed obligations.......................... 1,089,390 3,146 (22,275) 1,070,261
Collateralized mortgage obligations:
Issued by Federal Agencies........................ 320,070 4,585 (1,706) 322,949
Privately issued.................................. 70,058 58 (792) 69,324
Obligations of states and political
subdivisions...................................... 90,724 5,155 (575) 95,304
Other debt securities................................ 78,972 354 - 79,326
Equity securities.................................... 35,227 11,791 - 47,018
--------- --------- --------- ---------
Total.......................................... $2,424,058 $25,458 ($37,672) $2,411,844
========== ========== ========== ==========
</TABLE>
<PAGE>
PAGE 26
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
Loan Portfolio
Total loans, net of unearned income decreased from $6.1 billion
at December 31, 1995 to $6.0 billion at June 30, 1996. The $103.8
million (1.7%) decrease was primarily due to the securitization and
sale of an additional $335 million in bankcard receivables which
occurred on April 23, 1996.
Commercial loans decreased $15.6 million (0.9%) from December 31,
1995 to June 30, 1996, but increased $23.9 million (1.4%) over the
same period last year. Month-end balances can show large fluctuations
due to the transactional nature of large corporate customers that
borrow for short periods of time under revolving facilities. Large
corporate borrowers from the multi-national sector continue to provide
financing opportunities for the Corporation.
Commercial real estate loans, which include both construction and
commercial mortgages, declined $19.2 million (1.5%) from December 31,
1995 to June 30, 1996. The commercial real estate portfolio continues
to be well-balanced by property type and geographically centered in
the Corporation's regional marketplace as reflected in Tables 8 and 9.
Residential mortgages decreased $23.8 million (3.7%) since
December 31, 1995. Recent interest rates have slowed consumer interest
in refinancing. The Corporation originates residential mortgages
primarily for sale in the secondary market. Originations for the
Corporation's permanent portfolio are principally low income housing
and adjustable rate products.
Retail loans increased $169.0 million (15.4%) from December 31,
1995 to June 30, 1996. Most of the retail loan growth resulted from
a successful home equity product promotion.
Bankcard outstandings decreased $249.9 million (38.2%) since
December 31, 1995. If the impact of the April 23, 1996 securitization
is excluded, bankcard outstandings grew by $85.1 million (13.0%).
Leases receivable increased $32.1 million (9.6%) since December 31,
1995. Approximately 74% of the growth occurred in commercial leases
with the remainder in retail leases.
Foreign loans increased $3.7 million (1.1%) from December 31, 1995
to June 30, 1996. The growth occurred in loans to customers within
the shipping industry.
The Corporation monitors exposure based on industry classifications
and establishes exposure limits that are reviewed by the Board of
Directors. Significant exposures by industry classification in the
loan portfolio are presented in Table 7.
<PAGE>
PAGE 27
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
<TABLE>
Table 7 Loan Portfolio Distribution by Industry Classification
<CAPTION>
June 30, 1996
----------------------------------------------------
Outstanding Unfunded Total Nonperforming
Balance Commitments Exposure Loans
----------- ----------- ---------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Transportation (1)................................ $473,187 $39,161 $512,348 $ -
Communications (2)................................ 357,952 126,660 484,612 2,309
Healthcare (3).................................... 329,661 122,338 451,999 196
<FN>
----------------
(1) Includes loans and leases for vessel, commercial aircraft and railroad equipment financing.
(2) Includes exposure to cable, publishing/newspapers, wireless communications and broadcasting.
(3) Includes exposure to hospitals, nursing care and noninstitutional borrowers, comprised of
both commercial and real estate secured loans.
</TABLE>
<TABLE>
Table 8 Loans Secured by Real Estate and Other Real Estate Owned by Property Type
<CAPTION>
June 30, 1996
-------------------------------------------------
Total loans
------------------------ Other
Real estate Real estate Nonperforming real estate
construction mortgage loans owned
------------- ----------- ------------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Office buildings..................................... $95,427 $260,755 $429 $274
Industrial warehouse................................. 44,228 169,388 437 -
Retail............................................... 53,830 132,386 1,833 3,229
Hospitals/nursing home............................... 8,666 92,138 - -
Hotels/motels........................................ - 59,932 - -
Commercial land...................................... 30,142 391 952 4,929
Special purpose...................................... 2,361 78,032 407 -
Apartments........................................... 26,601 50,898 314 -
Mixed use............................................ - 42,477 - -
Residential land..................................... 8,612 822 550 1,282
Other land-farm/recreational......................... - 7,028 517 -
Residential properties for resale.................... 3,553 795 - -
Miscellaneous........................................ 964 77,082 148 -
--------- --------- --------- ---------
Total.......................................... $274,384 $972,124 $5,587 $9,714
========== ========== ========== ==========
</TABLE>
<TABLE>
Table 9 Loans Secured by Real Estate and Other Real Estate Owned by Geographic Region
<CAPTION>
June 30, 1996
-------------------------------------------------
Total loans
----------------------- Other
Real estate Real estate Nonperforming real estate
construction mortgage loans owned
------------- ----------- ------------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Maryland............................................. $209,957 $641,491 $2,416 $5,920
Pennsylvania......................................... 11,430 160,746 3,171 924
Virginia............................................. 20,260 48,242 - 2,096
Washington, D.C...................................... 16,888 29,470 - 274
Florida.............................................. 7,001 26,157 - 500
New Jersey........................................... - 29,063 - -
Delaware............................................. 3,004 9,090 - -
All other............................................ 5,844 27,865 - -
--------- --------- --------- ---------
Total.......................................... $274,384 $972,124 $5,587 $9,714
========== ========== ========== ==========
</TABLE>
<PAGE>
PAGE 28
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
Asset Quality
Nonperforming Assets
Nonperforming assets totaled $43.4 million at June 30, 1996,
a decrease of $1.4 million when compared to nonperforming assets of
$44.8 million at December 31, 1995. The most significant changes in
nonperforming assets in the six months ended June 30, 1996 were
the following: paydowns of $8.3 million, loans reclassified to
accrual status of $1.4 million, other real estate owned sales of
$1.3 million and charge-offs of $1.4 million. These decreases were
partially offset by $11.0 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 returned to accrual status were residential loans which
met the regulatory tests for return to accrual status. The most
significant charge-off was $1.0 million on a nonaccrual construction
loan. Information on the Corporation's impaired loans is included in
Note 4 of the Notes to the Consolidated Financial Statements.
<TABLE>
The following table presents nonperforming assets and accruing
loans which are 90 days past due as to principal or interest on the
dates indicated.
Table 10 Nonperforming Assets
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
------------- ------------ -------------
(dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans
Domestic:
Commercial......................................... $16,223 $16,587 $9,782
Real estate, construction.......................... 1,501 1,125 1,898
Real estate mortgage, commercial................... 4,086 4,785 17,882
Real estate mortgage, residential.................. 6,713 6,375 4,223
Foreign.............................................. 3,800 4,321 5,300
-------- -------- --------
Total nonaccrual loans......................... 32,323 33,193 39,085
-------- -------- --------
Restructured loans................................... 135 143 440
Other assets owned:
Other real estate.................................. 10,627 11,546 12,238
Valuation reserves................................. (295) (295) (345)
Other assets....................................... 562 250 196
-------- -------- --------
Total other assets owned....................... 10,894 11,501 12,089
-------- -------- --------
Total nonperforming assets......................... $43,352 $44,837 $51,614
======== ======== ========
Nonperforming assets as a percentage of total
loans, net of unearned income plus other
foreclosed assets owned........................... 0.72% 0.73% 0.88%
==== ==== ====
Accruing loans contractually past due
90 days or more as to principal or interest:
Domestic.......................................... $10,104 $18,808 $13,188
======== ======== ========
</TABLE>
<PAGE>
PAGE 29
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
<TABLE>
The following table details certain information relating to the
allowance for credit losses of the Corporation for the six months
ended June 30, 1996 and June 30, 1995, respectively.
Table 11 Analysis of the Allowance for Credit Losses
<CAPTION>
Six months ended June 30,
--------------------------
1996 1995
---------- ----------
(dollars in thousands)
<S> <C> <C>
Allowance at beginning of year....................... $177,621 $191,024
Provision for credit losses.......................... 4,000 7,961
Losses charged off:
Commercial loans................................. (907) (234)
Real estate loans, construction.................. (1,016) (635)
Real estate loans, mortgage:
Residential.................................... (43) (110)
Commercial..................................... (107) (23)
Retail........................................... (2,474) (1,440)
Bankcard receivables............................. (17,063) (14,254)
Leases receivable................................ (12) (20)
Foreign.......................................... - (1,763)
-------- --------
Total losses charged off....................... (21,622) (18,479)
Recoveries of losses previously charged off:
Commercial loans................................. 1,271 557
Real estate loans, construction.................. 117 -
Real estate loans, mortgage:
Residential.................................... 6 24
Commercial..................................... 5 204
Retail........................................... 973 1,194
Bankcard receivables............................. 1,815 2,821
Leases receivable................................ 55 130
-------- --------
Total recoveries............................... 4,242 4,930
Net losses charged off............................... (17,380) (13,549)
-------- --------
Total allowance at June 30........................... $164,241 $185,436
======== ========
Average loans, net of average unearned income........ $6,096,132 $5,644,746
========== ==========
Period end loans, net of unearned income............. $6,035,044 $5,850,887
========== ==========
Net charge-offs to average loans, net of average
unearned income (annualized)...................... 0.57% 0.48%
Allowance as a percentage of period end loans, net
of unearned income................................ 2.72 3.17
Allowance as a percentage of nonperforming loans..... 506.01 469.16
</TABLE>
<PAGE>
PAGE 30
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
Deposits
Total deposits decreased $121.1 million from December 31, 1995 to
June 30, 1996. Core deposits totaled $6.3 billion at June 30, 1996
and at December 31, 1995. Interest bearing demand deposits decreased
$405.8 million offset by a $437.8 million increase in money market
deposits. During the first quarter of 1996, the Corporation
introduced a new sweep product which resulted in a decrease in
interest bearing demand deposits with an offsetting increase in
money market deposits. This shift in deposits resulted in a
reduction in the level of required reserves that the Corporation
must maintain in cash and noninterest earning balances with the
Federal Reserve Bank. Purchased deposits, which include large
denomination time and foreign time deposits, decreased $87.5
million.
Total deposits increased $54.6 million from June 30, 1995 to
June 30, 1996. Core deposits increased $267.4 million primarily due
to increases in money market deposits of $403.0 million and noninterest
bearing demand deposits of $172.4 million. As noted above, the
the increase in money market deposits was offset by a decline in
interest bearing demand deposits of $351.8 million which was primarily
due to the introduction of a new sweep product. Purchased deposits
decreased $212.7 million.
<PAGE>
PAGE 31
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
Capital Resources
<TABLE>
The following table details the Corporation's capital components
and ratios at June 30, 1996, December 31, 1995 and June 30, 1995,
based upon the capital requirements of the Federal Reserve Board.
Table 12 Capital Components
<CAPTION>
June 30, December 31, June 30,
1996 1995 1995
------------ ------------- -------------
(dollars in thousands)
<S> <C> <C> <C>
Preferred stockholders' equity.................................... $144,852 $144,852 $144,852
Common stockholder's equity....................................... 1,023,052 1,038,722 962,194
Disallowed intangibles............................................ (35,466) (37,178) (39,094)
Net unrealized (gains) losses on investment securities available-
for-sale (1)................................................... 7,733 (24,414) (4,490)
-------- -------- --------
Tier 1 capital.................................................... 1,140,171 1,121,982 1,063,462
-------- -------- --------
Qualifying long-term debt......................................... 99,744 103,721 103,699
Allowance for credit losses (2)................................... 103,299 102,754 98,551
Mandatory convertible securities.................................. 59,973 59,969 59,964
-------- -------- --------
Tier 2 capital.................................................... 263,016 266,444 262,214
-------- -------- --------
Total capital..................................................... $1,403,187 $1,388,426 $1,325,676
========== ========== ==========
Risk-adjusted assets.............................................. $8,202,979 $8,145,412 $7,797,181
========== ========== ==========
Average quarterly assets (regulatory guidelines).................. $10,223,308 $10,316,684 $9,708,522
========== ========== ==========
Risk-based capital ratios:
Tier 1 to risk adjusted assets.................................. 13.90% 13.77% 13.64%
Regulatory minimum.............................................. 4.00 4.00 4.00
Total capital to risk-adjusted assets........................... 17.11 17.05 17.00
Regulatory minimum.............................................. 8.00 8.00 8.00
Leverage ratio.................................................... 11.19 10.91 11.00
<FN>
(1) Not included as Tier 1 capital under current regulatory capital guidelines.
(2) The amount of the allowance for credit losses which is includable as Tier 2 capital is limited
to 1.25% of the risk-adjusted assets less disallowed intangibles.
</TABLE>
Tier 1 and total capital increased $18.2 million and $14.8 million,
respectively, when June 30, 1996 is compared to December 31, 1995
primarily due to $62.6 million in net income partially offset by $40.0
million in dividends declared on common stock in the second quarter of
1996 and $6.0 million on dividends declared on preferred stock in the
first six months of 1996. Tier 1 and total capital increased $76.7
million and $77.5 million, respectively, when June 30, 1996 is compared
to June 30, 1995 primarily as a result of $125.1 million in net income
during this period partially offset by $40.0 million in dividends
declared on common stock and $11.8 million in dividends declared on
preferred stock. Additional information regarding the Corporation's
capital is presented in the Consolidated Statements of Changes in
Stockholders' Equity.
<PAGE>
PAGE 32
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
Pending Transactions
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, whose principal subsidiary is Washington Federal
Savings Bank ("WFSB"). Under the terms of the agreement, the
shareholders of 1st Washington will receive $8.125 in cash per share,
for a total purchase price of $83.5 million. At June 30, 1996,
1st Washington had $817 million in total assets and $429 million
in total deposits and conducted its business from offices in
Washington, D.C., Northern Virginia and Maryland. On July 16, 1996,
the Corporation announced that it had completed its acquisition of
1st Washington. Thirteen of WFSB's offices will become offices of
The First National Bank of Maryland ("First National"), the principal
subsidiary of First Maryland Bancorp, effective August 5, 1996. Four
offices be closed because of proximity to existing First National
offices.
In the first quarter of 1996, the Corporation decided to exit
the mortgage servicing business. Of its $1.6 billion servicing
portfolio, the Corporation sold $669 million in the second quarter
of 1996 which resulted in net gains on the sale of servicing of $3.6
million. The Corporation has entered into an agreement to sell an
additional $469 million of its servicing portfolio. The anticipated
net gain on this sale of servicing is approximately $6.4 million.
This sale is subject to regulatory approval and is expected to settle
during the third quarter of 1996.
The Corporation has entered into a subservicing agreement to
service the remainder of its mortgage servicing portfolio and to
provide interim servicing for future loan originations until the
originated mortgage servicing is sold.
<PAGE>
PAGE 33
<TABLE>
Table 13
First Maryland Bancorp and Subsidiaries
Average Balances, Interest Rates and Yields and Net Interest Margin
(Tax Equivalent Basis)
<CAPTION>
Three months ended June 30, 1996
-------------------------------------
Average
Average rate/
Balance Interest yield
------- ----------- -----------
(dollars in millions)
<S> <C> <C> <C>
ASSETS
Cash and due from banks.............................. $652.2 $ - - %
Money market investments:
Interest bearing deposits in other banks........... 0.4 - 1.02
Trading account securities......................... 2.3 - 6.23
Funds sold......................................... 354.9 4.7 5.28
Investment securities available-for-sale:
Taxable securities................................. 2,657.4 40.6 6.14
Tax-exempt securities (1).......................... 94.3 2.4 10.11
Equity investments................................. 35.0 0.2 2.64
--------- ---------
Total securities available-for-sale (2)......... 2,786.7 43.2 6.23
Loans held-for-sale.................................. 110.5 2.1 7.54
Loans, net of unearned income (1,3):
Commercial......................................... 1,808.1 34.8 7.74
Real estate, construction.......................... 280.8 6.1 8.77
Real estate mortgage, commercial................... 964.9 21.1 8.80
Real estate mortgage, residential.................. 618.3 11.4 7.44
Retail............................................. 1,201.5 24.9 8.33
Bankcard........................................... 443.6 13.9 12.56
Leases receivable.................................. 349.0 4.8 5.58
Foreign............................................ 352.5 6.5 7.45
--------- ---------
Total loans, net of unearned income........... 6,018.7 123.5 8.26
Allowance for credit losses....................... (166.6) - -
---------
Loans, net...................................... 5,852.1 - -
Other assets......................................... 453.6 - -
--------- ---------
Total assets/interest income.................... $10,212.7 $173.5
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits in domestic offices:
Noninterest bearing demand......................... $1,955.2 $ - - %
---------
Interest bearing demand............................ 116.7 0.7 2.53
Money market accounts.............................. 1,587.1 11.9 3.02
Savings........................................... 1,055.0 7.1 2.71
Other consumer time................................ 1,582.4 20.8 5.29
Large denomination time............................ 520.0 7.2 5.54
Deposits in foreign banking offices.................. 126.8 1.7 5.29
--------- ---------
Total interest bearing deposits................. 4,988.0 49.4 3.98
--------- ---------
Total deposits.................................. 6,943.2 - -
Funds purchased...................................... 690.3 8.8 5.14
Other borrowed funds, short-term..................... 616.4 8.0 5.19
Other liabilities.................................... 217.9 - -
Long-term debt....................................... 551.7 9.4 6.85
Stockholders' equity................................. 1,193.2 - -
--------- ---------
Total liabilities and stockholders'
equity/interest expense...................... $10,212.7 $75.6
======== ========
Earning assets/interest income....................... $9,273.5 $173.5 7.52%
Interest bearing liabilities/interest expense........ 6,846.4 75.6 4.44
Earning assets/interest expense...................... 9,273.5 75.6 3.27
Interest rate spread (4)............................. 3.08%
=====
Net interest margin (5).............................. 4.25%
=====
<FN>
----------------
(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) Yields on investment securities available-for-sale are calculated based upon average amortized cost.
(3) Nonaccrual loans are included under the appropriate loan categories as earning assets.
(4) Interest rate spread is the difference between the yield on average earning assets and the rate paid
on average interest bearing liabilities.
(5) Net interest margin is the ratio of net interest income on a fully tax-equivalent basis to
average earning assets.
</TABLE>
<PAGE>
PAGE 34
<TABLE>
Table 14
First Maryland Bancorp and Subsidiaries
Average Balances, Interest Rates and Yields and Net Interest Margin
(Tax Equivalent Basis)
<CAPTION>
Six months ended June 30, 1996
------------------------------------
Average
Average rate/
Balance Interest yield
------- ----------- -----------
(dollars in millions)
<S> <C> <C> <C>
ASSETS
Cash and due from banks.............................. $658.1 $ - - %
Money market investments:
Interest bearing deposits in other banks........... 6.9 0.2 5.66
Trading account securities......................... 1.6 - 6.03
Funds sold......................................... 306.3 8.1 5.28
Investment securities available-for-sale:
Taxable securities................................. 2,757.9 84.6 6.17
Tax-exempt securities (1).......................... 95.3 4.8 10.09
Equity investments................................. 34.5 0.6 3.38
--------- ---------
Total securities available-for-sale (2)......... 2,887.7 90.0 6.27
Loans held-for-sale.................................. 112.8 4.1 7.32
Loans, net of unearned income (1,3):
Commercial......................................... 1,819.3 69.8 7.71
Real estate, construction.......................... 282.3 12.4 8.83
Real estate mortgage, commercial................... 969.0 42.7 8.86
Real estate mortgage, residential.................. 628.0 23.3 7.45
Retail............................................. 1,153.4 48.2 8.41
Bankcard........................................... 550.7 36.4 13.30
Leases receivable.................................. 342.0 9.4 5.56
Foreign............................................ 351.4 13.2 7.55
--------- ---------
Total loans, net of unearned income........... 6,096.1 255.4 8.42
Allowance for credit losses....................... (170.3) - -
---------
Loans, net...................................... 5,925.8 - -
Other assets......................................... 472.7 - -
--------- ---------
Total assets/interest income.................... $10,371.9 $357.8
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits in domestic offices:
Noninterest bearing demand......................... $1,927.7 $ - - %
---------
Interest bearing demand............................ 116.3 1.5 2.54
Money market accounts.............................. 1,568.6 24.0 3.07
Savings........................................... 1,038.8 14.0 2.71
Other consumer time................................ 1,602.8 42.8 5.38
Large denomination time............................ 538.0 15.1 5.66
Deposits in foreign banking offices.................. 132.1 3.6 5.40
--------- ---------
Total interest bearing deposits................. 4,996.6 101.0 4.06
--------- ---------
Total deposits.................................. 6,924.3 - -
Funds purchased...................................... 769.8 19.9 5.19
Other borrowed funds, short-term..................... 731.1 19.5 5.36
Other liabilities.................................... 212.5 - -
Long-term debt....................................... 533.2 18.3 6.91
Stockholders' equity................................. 1,201.0 - -
--------- ---------
Total liabilities and stockholders'
equity/interest expense...................... $10,371.9 $158.7
======== ========
Earning assets/interest income....................... $9,411.4 $357.8 7.64%
Interest bearing liabilities/interest expense........ 7,030.7 158.7 4.53
Earning assets/interest expense...................... 9,411.4 158.7 3.39
Interest rate spread (4)............................. 3.11%
=====
Net interest margin (5).............................. 4.25%
=====
<FN>
----------------
(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) Yields on investment securities available-for-sale are calculated based upon average amortized cost.
(3) Nonaccrual loans are included under the appropriate loan categories as earning assets.
(4) Interest rate spread is the difference between the yield on average earning assets and the rate paid
on average interest bearing liabilities.
(5) Net interest margin is the ratio of net interest income on a fully tax-equivalent basis to
average earning assets.
</TABLE>
<PAGE>
PAGE 35
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The following exhibit is furnished to this Form 10-Q:
(27) Financial Data Schedule
(b) Reports on Form 8-K
There were no Current Reports on Form 8-K filed during the
quarter ended June 30, 1996.
SIGNATURES
Pursuant to the requirements 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
August 14, 1996 BY /s/ Robert W. Schaefer
----------------------------
Robert W. Schaefer
Executive Vice President and
Chief Financial Officer
August 14, 1996 BY /s/ Robert L. Carpenter, Jr.
-------------------------------
Robert L. Carpenter, Jr.
Senior Vice President and
Chief Accounting Officer
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FIRST MARYLAND BANCORP JUNE 30, 1996 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 656,242
<INT-BEARING-DEPOSITS> 395
<FED-FUNDS-SOLD> 281,470
<TRADING-ASSETS> 1,246
<INVESTMENTS-HELD-FOR-SALE> 2,411,844
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 6,035,044
<ALLOWANCE> 164,241
<TOTAL-ASSETS> 9,798,884
<DEPOSITS> 6,922,073
<SHORT-TERM> 877,597
<LIABILITIES-OTHER> 267,895
<LONG-TERM> 554,715
0
30,000
<COMMON> 84,926
<OTHER-SE> 1,052,978
<TOTAL-LIABILITIES-AND-EQUITY> 9,798,884
<INTEREST-LOAN> 254,269
<INTEREST-INVEST> 88,517
<INTEREST-OTHER> 12,384
<INTEREST-TOTAL> 355,170
<INTEREST-DEPOSIT> 100,970
<INTEREST-EXPENSE> 158,675
<INTEREST-INCOME-NET> 196,495
<LOAN-LOSSES> 4,000
<SECURITIES-GAINS> 301
<EXPENSE-OTHER> 198,480
<INCOME-PRETAX> 96,690
<INCOME-PRE-EXTRAORDINARY> 62,603
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 62,603
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.25
<LOANS-NON> 32,323
<LOANS-PAST> 10,104
<LOANS-TROUBLED> 135
<LOANS-PROBLEM> 21,949
<ALLOWANCE-OPEN> 177,621
<CHARGE-OFFS> 21,622
<RECOVERIES> 4,242
<ALLOWANCE-CLOSE> 164,241
<ALLOWANCE-DOMESTIC> 73,845
<ALLOWANCE-FOREIGN> 14,343
<ALLOWANCE-UNALLOCATED> 76,053
</TABLE>
