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 March 31, 1997
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 MARCH 31, 1997
<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.............. 7-12
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 13-34
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)
<CAPTION>
Three months ended
March 31,
---------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans........................................ $136,038 $131,233
Interest on investment securities available-for-sale:
Taxable....................................................... 38,589 44,103
Tax-exempt.................................................... 1,453 1,664
Dividends..................................................... 694 350
Interest on loans held-for-sale................................... 1,918 2,032
Interest on money market investments.............................. 5,923 3,584
-------- --------
Total interest and dividend income.......................... 184,615 182,966
-------- --------
INTEREST EXPENSE
Interest on deposits.............................................. 50,476 51,564
Interest on Federal funds purchased and
other short-term borrowings..................................... 20,991 22,596
Interest on long-term debt........................................ 4,638 8,932
Interest on guaranteed preferred beneficial interests in
Company's junior subordinated debentures........................ 4,107 -
-------- --------
Total interest expense...................................... 80,212 83,092
-------- --------
NET INTEREST INCOME............................................... 104,403 99,874
Provision for credit losses (note 4).............................. 9,900 4,000
-------- --------
NET INTEREST INCOME AFTER PROVISION FOR CREDIT LOSSES............. 94,503 95,874
-------- --------
NONINTEREST INCOME
Service charges on deposit accounts............................... 21,803 18,807
Trust and investment advisory fees................................ 8,433 6,860
Servicing income.................................................. 6,477 5,477
Mortgage banking income........................................... 6,018 5,198
Credit card income................................................ 1,993 4,099
Securities gains (losses), net.................................... 453 (604)
Other income...................................................... 16,081 9,776
-------- --------
Total noninterest income.................................... 61,258 49,613
-------- --------
NONINTEREST EXPENSES
Salaries and wages................................................ 46,058 43,180
Other personnel costs............................................. 12,403 13,496
Equipment costs................................................... 9,244 8,656
Occupancy costs................................................... 8,125 8,195
Other operating expenses.......................................... 26,635 25,785
-------- --------
Total noninterest expenses.................................. 102,465 99,312
-------- --------
INCOME BEFORE INCOME TAXES........................................ 53,296 46,175
Income tax expense................................................ 19,193 16,106
-------- --------
NET INCOME........................................................ $34,103 $30,069
======== ========
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
PAGE 4
<TABLE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CONDITION
(Unaudited)
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
------------ ------------ ------------
(in thousands)
<S> <C> <C> <C>
ASSETS
Cash and due from banks .......................................... $848,615 $842,032 $657,427
Money market investments (note 2)................................. 580,915 75,260 195,381
Investment securities available-for-sale (note 3)................. 2,497,045 2,552,620 2,782,738
Loans held-for-sale (at cost which approximates fair value)....... 102,512 150,742 128,611
Loans, net of unearned income of $128,223, $130,026
and $112,133:
Commercial.................................................... 1,779,671 1,731,031 1,867,298
Real estate,construction...................................... 293,988 299,925 282,737
Real estate,mortgage:
Residential................................................ 828,703 833,045 622,599
Commercial................................................. 1,144,579 1,153,319 981,603
Retail........................................................ 1,400,160 1,380,767 1,120,105
Bankcard...................................................... 539,416 596,474 654,665
Leases receivable............................................. 440,206 438,060 340,586
Foreign....................................................... 355,407 365,824 359,289
--------- --------- ---------
Total loans, net of unearned income...................... 6,782,130 6,798,445 6,228,882
Allowance for credit losses (note 4).......................... (154,806) (154,802) (170,853)
--------- --------- ---------
Loans, net .............................................. 6,627,324 6,643,643 6,058,029
--------- --------- ---------
Premises and equipment............................................ 106,636 106,701 102,546
Due from customers on acceptances................................. 8,876 8,725 11,292
Other assets...................................................... 445,857 411,301 530,007
--------- --------- ---------
Total assets........................................ $11,217,780 $10,791,024 $10,466,031
=========== =========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Domestic deposits:
Noninterest bearing deposits ................................. $2,364,148 $2,248,252 $1,958,412
Interest bearing deposits..................................... 5,188,402 5,135,616 4,867,434
Interest bearing deposits in foreign banking office............... 92,152 113,830 144,897
--------- --------- ---------
Total deposits........................................... 7,644,702 7,497,698 6,970,743
Federal funds purchased and securities sold under
repurchase agreements........................................... 615,590 533,547 653,227
Other borrowed funds, short-term (note 8)......................... 844,942 821,477 759,182
Bank acceptances outstanding...................................... 8,876 8,725 11,292
Accrued taxes and other liabilities............................... 331,090 297,525 369,295
Long-term debt (note 9)........................................... 209,756 229,742 514,701
Guaranteed preferred beneficial interests in Company's junior
subordinated debentures (note 10).............................. 296,344 147,113 -
--------- --------- ---------
Total liabilities................................... 9,951,300 9,535,827 9,278,440
--------- --------- ---------
4.50% Cumulative, Redeemable Preferred Stock, $5 par value per
share, $100 liquidation preference per share; authorized and
issued 90,000 shares (note 11)................................. 7,748 7,700 -
--------- --------- ---------
Stockholders' equity:
7.875% Noncumulative Preferred Stock, Series A, $5 par
value per share; $25 liquidation preference per share;
authorized 8,910,000 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............................................ 957,317 926,063 872,956
Net unrealized gains (losses) on investment securities
available-for-sale......................................... (11,687) 8,332 1,533
--------- --------- ---------
Total stockholders' equity.......................... 1,258,732 1,247,497 1,187,591
--------- --------- ---------
Total liabilities and stockholders' equity.......... $11,217,780 $10,791,024 $10,466,031
=========== =========== ==========
<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>
Three months ended March 31, 1996
---------------------------------
Balance at beginning of year........... $30,000 $84,926 $198,176 $846,058 $24,414 $1,183,574
Net income............................. 30,069 30,069
Dividends declared on preferred
stock.................................. (2,955) (2,955)
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................... (22,881) (22,881)
--------- --------- --------- --------- --------- ---------
Balance at March 31, 1996.............. $30,000 $84,926 $198,176 $872,956 $1,533 $1,187,591
========== ========== ========== ========== ========== ==========
Three months ended March 31, 1997
---------------------------------
Balance at beginning of year........... $30,000 $84,926 $198,176 $926,063 $8,332 $1,247,497
Net income............................. 34,103 34,103
Dividends declared on preferred
stock.................................. (2,955) (2,955)
Dividends declared on redeemable
preferred stock........................ (101) (101)
Change in net cost not yet recognized
as periodic pension expense............ 255 255
Accretion of redeemable preferred
stock.................................. (48) (48)
Change in net unrealized gains
(losses) on investment securities
available-for-sale................... (20,019) (20,019)
--------- --------- --------- --------- --------- ---------
Balance at March 31, 1997.............. $30,000 $84,926 $198,176 $957,317 ($11,687) $1,258,732
========== ========== ========== ========== ========== ==========
<FN>
See accompanying notes to consolidated financial statements
</TABLE>
<PAGE>
PAGE 6
<TABLE>
FIRST MARYLAND BANCORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Three months ended March 31,
--------------------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................................ $34,103 $30,069
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses............................................................. 9,900 4,000
Depreciation and amortization........................................................... 9,383 9,366
Deferred income tax credit.............................................................. (8,889) (7,935)
Net (gain) loss on the sale of assets................................................... (677) 640
Net decrease (increase) in loans originated for sale.................................... 48,230 (12,609)
Net increase in trading account securities.............................................. (1,011) (4,712)
Net decrease (increase) in accrued interest receivable.................................. 2,660 (7,266)
Net increase (decrease) in accrued interest payable..................................... 3,408 (2,818)
Other, net.............................................................................. 24,842 (62,868)
--------- ---------
Net cash provided by (used for) operating activities................................. 121,949 (54,133)
--------- ---------
INVESTING ACTIVITIES
Proceeds from sales of investment securities available-for-sale........................... 177,465 350,196
Proceeds from paydowns and maturities of investment securities available-for-sale......... 104,107 8,903,110
Purchases of investment securities available-for-sale..................................... (258,950) (9,281,374)
Net (increase) decrease in short-term investments......................................... (504,644) 153,992
Net receipts (disbursements) from lending activities of bank subsidiaries................. 8,695 (95,190)
Principal collected on loans of nonbank subsidiaries...................................... 10,702 6,484
Loans originated by nonbank subsidiaries.................................................. (13,353) (12,177)
Principal payments received under leases.................................................. 931 1,042
Purchases of assets to be leased.......................................................... (844) (1,410)
Proceeds from other real estate owned transactions........................................ 2,175 121
Proceeds from the sale of premises and equipment.......................................... 57 341
Purchases of premises and equipment....................................................... (5,871) (4,392)
Other, net................................................................................ (12,109) (19,305)
--------- ---------
Net cash (used for) provided by investing activities................................. (491,639) 1,438
--------- ---------
FINANCING ACTIVITIES
Net increase (decrease) in deposits ...................................................... 147,004 (72,439)
Net increase (decrease) in short-term borrowings.......................................... 105,508 (11,760)
Payments on long-term debt................................................................ (20,000) -
Proceeds from the issuance of guaranteed preferred beneficial interests in Company's
junior subordinated debentures.......................................................... 146,817 -
Cash dividends paid....................................................................... (3,056) (2,955)
--------- ---------
Net cash provided by (used for) financing activities................................. 376,273 (87,154)
--------- ---------
Increase (decrease) in cash and cash equivalents ........................................... 6,583 (139,849)
Cash and cash equivalents at beginning of year.............................................. 842,266 797,460
--------- ---------
Cash and cash equivalents at March 31,...................................................... $848,849 $657,611
========= =========
SUPPLEMENTAL DISCLOSURES
Interest payments......................................................................... $77,915 $85,910
Income tax payments....................................................................... 1,654 8,808
NONCASH INVESTING AND FINANCING ACTIVITIES
Loan charge-offs.......................................................................... 11,353 12,874
Transfers to other real estate owned...................................................... 288 425
<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 1996 Annual Report on Form 10-K. Certain
amounts in the 1996 consolidated financial statements have been
reclassified to conform with the 1997 presentation.
The Corporation adopted Statement of Financial Accounting Standards
No. 125, "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" ("SFAS 125") on January 1, 1997.
SFAS 125 requires an entity to recognize the financial and servicing
assets it controls and the liabilities it has incurred and to derecognize
the financial assets when control has been surrendered in accordance
with criteria provided in the Statement. The adoption of SFAS 125 did
not have a material impact on the financial statements of the Corporation.
2. Money Market Investments
<TABLE>
Money market investments at March 31, 1997, December 31, 1996
and March 31, 1996 included the following:
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
------------ ------------- ------------
(in thousands)
<S> <C> <C> <C>
Interest bearing deposits in other banks............. $234 $234 $184
Trading account securities........................... 1,011 - 5,038
Federal funds sold................................... 396,650 32,975 35,200
Securities purchased under agreements
to resell.......................................... 183,020 42,051 154,959
-------- -------- --------
Total money market investments................. $580,915 $75,260 $195,381
======== ======== ==========
</TABLE>
3. Investment Securities
<TABLE>
The following is a comparison of the amortized cost and fair values of the
available-for-sale securities:
<CAPTION>
March 31, 1997 December 31, 1996 March 31, 1996
--------------------- --------------------- ----------------------
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........... $623,904 $612,095 $614,843 $611,061 $932,111 $926,270
Mortgage-backed obligations.......................... 1,118,119 1,101,485 1,161,369 1,159,649 1,234,154 1,224,853
Collateralized mortgage obligations:
Issued by Federal Agencies........................ 317,981 319,280 345,357 348,433 357,054 360,172
Privately issued.................................. 17,433 17,031 20,627 20,223 29,094 28,310
Asset-backed securities............................. 226,985 225,389 204,657 206,422 9,754 9,795
Obligations of states and political
subdivisions...................................... 88,393 92,091 93,987 98,889 93,519 98,719
Other investment securities.......................... 123,388 129,674 97,757 107,943 124,395 134,619
---------- ---------- ---------- ---------- ---------- ----------
Total.......................................... $2,516,203 $2,497,045 $2,538,597 $2,552,620 $2,780,081 $2,782,738
========== ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
PAGE 8
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
4. Impaired Loans and Allowance for Credit Losses
<TABLE>
The following table presents impaired loans by type and any related
valuation allowance at March 31, 1997.
<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 ........................................ $17,781 $10,851 $6,930 $1,875
Real estate, construction.......................... 2,912 2,912 - -
Real estate mortgage, commercial................... 16,437 15,901 536 185
-------- -------- -------- --------
Total........................................ $37,130 $29,664 $7,466 $2,060
======== ======== ======== ========
</TABLE>
<TABLE>
The following table presents impaired loans by type and any related
valuation allowance at December 31, 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 ........................................ $13,988 $10,358 $3,630 $632
Real estate, construction.......................... 4,014 4,014 - -
Real estate mortgage, commercial................... 16,333 11,076 5,257 182
-------- -------- -------- --------
Total........................................ $34,335 $25,448 $8,887 $814
======== ======== ======== ========
</TABLE>
<TABLE>
The following table presents impaired loans by type and any related
valuation allowance at March 31, 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 ........................................ $16,604 $15,133 $1,471 $532
Real estate, construction.......................... 1,072 988 84 35
Real estate mortgage, commercial................... 5,019 4,687 332 85
-------- -------- -------- --------
Total........................................ $22,695 $20,808 $1,887 $652
======== ======== ======== ========
</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>
<CAPTION>
Three months ended March 31,
------------------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Year-to-date average recorded investment in impaired loans..................... $35,733 $22,857
Year-to-date interest income recognized during impairment...................... 168 41
Year-to-date interest income recorded on a cash basis during impairment........ 168 41
</TABLE>
At March 31, 1997, the majority of the total impaired loans
were measured using the fair value of the loan's collateral. The
$2.1 million and $652 thousand valuation allowances for impaired loans
at March 31, 1997 and 1996, respectively, and the activity related to
impaired loans for the three months ended March 31, 1997 and 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 March 31, 1997, the difference between
total nonaccrual loans and total impaired loans was $17.2 million
which included the following: nonaccrual residential loans of $13.4
million which were considered smaller balance homogeneous loans and
a $3.8 million nonaccrual foreign loan which is classified as a
nonaccrual loan due to regulatory requirements but does not meet the
definition of an impaired loan.
The 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 March 31, 1997. A summary of the
activity in the allowance for credit losses for the three months ended
March 31, 1997 and 1996 follows:
<TABLE>
<CAPTION>
Three months ended March 31,
--------------------------------
1997 1996
-------- --------
(in thousands)
<S> <C> <C>
Balance at beginning of year...................................... $154,802 $177,621
Provision for credit losses....................................... 9,900 4,000
Less: charge-offs, net of recoveries of $1,457 and $2,106......... (9,896) (10,768)
-------- --------
Balance at March 31............................................... $154,806 $170,853
======== ========
</TABLE>
<PAGE>
PAGE 10
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
5. Intangible Assets
<TABLE>
Intangible assets at March 31, 1997, December 31, 1996 and
March 31, 1996 included the following:
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
------------ ------------- ------------
(in thousands)
<S> <C> <C> <C>
Goodwill............................................. $77,114 $79,454 $28,038
Premium on bankcard receivables...................... 7,342 7,986 10,762
Premium on deposits.................................. 6,497 6,729 7,498
Employment contracts................................. 3,714 3,891 -
Other................................................ 452 787 885
------- ------- -------
Total intangible assets........................ $95,119 $98,847 $47,183
======= ======= =======
</TABLE>
6. Mortgage Servicing Rights
<TABLE>
Mortgage servicing rights activity for the three months ended
March 31, 1997 and March 31, 1996 follows:
<CAPTION>
Three months ended March 31,
-------------------------------------------------
1997 1996
----------------------- ----------------------
Originated Purchased Originated Purchased
---------- --------- ---------- ---------
(in thousands)
<S> <C> <C> <C> <C>
Balance at beginning of year......................... $648 $2,598 $5,033 $1,067
Capitalized mortgage servicing rights................ 162 - 300 -
Amortization......................................... (34) (86) (501) (96)
-------- -------- -------- --------
Balance at March 31.................................. $776 $2,512 $4,832 $971
======== ======== ======== ========
</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 risk characteristics of loan
type and term. A valuation allowance is recorded if the unamortized
mortgage servicing rights exceed their fair value. At March 31, 1997,
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
There was no activity in the valuation allowances for other real
estate owned for the first three months ended March 31, 1997 and 1996.
The valuation allowances for other real estate owned had balances of
$324 thousand and $295 thousand at March 31, 1997 and 1996, respectively.
8. Other Borrowed Funds, Short-term
<TABLE>
Other borrowed funds, short-term at March 31, 1997, December
31, 1996 and March 31, 1996 included the following:
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
------------ ------------- ------------
(in thousands)
<S> <C> <C> <C>
Master demand note of the Corporation................ $327,113 $320,619 $358,927
Bank notes........................................... 350,000 400,000 350,000
Federal funds purchased-term......................... 85,000 60,000 10,000
Treasury tax and loan note account................... 6,485 10,965 5,985
Other................................................ 76,344 29,893 34,270
-------- -------- --------
Total other borrowed funds, short-term......... $844,942 $821,477 $759,182
======== ======== ========
</TABLE>
9. Long-term Debt
<TABLE>
Following is a summary of the long-term debt of the Corporation
at March 31, 1997, December 31, 1996 and March 31, 1996 which
is all unsecured:
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
------------ ------------- ------------
(in thousands)
<S> <C> <C> <C>
Floating Rate Medium term bank note due October 2,
1996............................................. $ - $ - $75,000
Floating Rate Medium term bank note due October 23,
1996............................................. - - 100,000
5.72% Medium term bank note due October 31, 1996..... - - 100,000
Floating Rate Medium term bank note due November 1,
1996............................................. - - 50,000
Floating Rate Medium term bank note due April 20,
1998............................................. 50,000 50,000 -
10.375% Subordinated Capital Notes due August 1,
1999............................................. 59,980 59,977 59,971
9.15% Notes due June 1, 1996......................... - - 10,000
8.68% Notes due January 31, 1997..................... - 10,000 9,999
8.67% Notes due March 20, 1997....................... - 10,000 9,998
8.375% Subordinated Notes due May 15, 2002........... 99,776 99,765 99,733
-------- -------- --------
Total long-term debt........................... $209,756 $229,742 $514,701
======== ======== ========
</TABLE>
<PAGE>
PAGE 12
FIRST MARYLAND BANCORP AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-(Continued)
(Unaudited)
10. Guaranteed Preferred Beneficial Interests in Company's Junior
Subordinated Debentures
In December 1996 and February 1997, the Corporation issued an
aggregate $300 million in Floating Rate Subordinated Capital Income
Securities ("Capital Securities") through two subsidiaries, First
Maryland Capital I and First Maryland Capital II. Both subsidiaries
are Delaware statutory business trusts ("the Trusts"). The Capital
Securities represent undivided preferred ownership interests in the
assets of the Trusts. The Corporation purchased 9,280 Common Securities
of the Trusts ($1,000 liquidation amount per security) for a purchase
price of $9.14 million. The Trusts used the aggregate proceeds of
$304.6 million from the issuance of the Capital Securities and the
Common Securities to purchase $309.3 million aggregate principal
amount of Floating Rate Junior Subordinated Debentures ("Junior
Subordinated Debentures") issued by the Corporation which represent
the sole assets of the Trusts.
Holders of the Capital Securities are entitled to receive cumulative
cash distributions at a variable annual rate equal to LIBOR plus 100
basis points for the $150 million issued in December 1996 and LIBOR plus
85 basis points for the $150 million issued in February 1997 on the
liquidation amount of $1,000 per Capital Security. Interest on the
Junior Subordinated Debentures is calculated at the same rate as the
Capital Securities.
The December 1996 Junior Subordinated Debentures mature on January
15, 2027 and are redeemable by the Corporation in whole or in part on or
after January 15, 2007. The February 1997 Junior Subordinated Debentures
mature on February 1, 2027 and are redeemable by the Corporation in whole
or in part on or after February 1, 2007. The Junior Subordinated
Debentures are redeemable by the Corporation in whole but not in part,
upon occurrence of certain special events. The Capital Securities
will remain outstanding until the Junior Subordinated Debentures are
repaid at maturity, are redeemed prior to maturity or are distributed
in liquidation of the Trusts.
11. Redeemable Preferred Stock
In 1996, the Corporation authorized and issued 90 thousand shares
of 4.50% Cumulative, Redeemable Preferred Stock with a $5 par value
and a $100 liquidation preference per share in connection with the
Zirkin-Cutler acquisition. The redeemable preferred stock was recorded
at fair value at the date of issue or $7.6 million. The carrying
amount will be increased to the mandatory redemption amount of $9.0
million by periodic accretions using the interest method with an offset
to retained earnings. At March 31, 1997, all 90 thousand shares were
outstanding and had a balance of $7.7 million. The cumulative dividends
are payable quarterly when and as declared by the Corporation's Board
of Directors out of funds legally available for such payments.
Upon liquidation, the holders are entitled to $100 per share
(an aggregate of $9 million based upon redeemable preferred shares
outstanding at March 31, 1997) plus accrued and unpaid cumulative
dividends through the distribution date before any distribution to
holders of the Corporation's common stock.
Redemption can occur at the Corporation's option or the holders'
option (on at least 30 days notice but no more than 60 days notice)
during a redemption period commencing July 1, 2002 and ending June 30,
2003 at $100 per share (liquidation value) plus accrued and unpaid
cumulative dividends through the redemption date.
<PAGE>
PAGE 13
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 three months ended March 31, 1997 was $34.1 million compared to
$30.1 million for the three months ended March 31, 1996. Return on
average assets and return on average total equity were 1.27% and
10.90%, respectively, for the three months ended March 31, 1997
compared to 1.15% and 10.00% for the three months ended March 31, 1996.
<TABLE>
Table 1 Selected Quarterly Financial Information
<CAPTION>
1st Quarter 4th Quarter 3rd Quarter 2nd Quarter 1st Quarter
1997 1996 1996 1996 1996
----------- ----------- ----------- ----------- -----------
(in thousands)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED SUMMARY OF OPERATIONS:
Net interest income (fully tax equivalent)........ $105,531 $106,407 $103,255 $97,898 $101,197
Tax equivalent adjustment......................... 1,128 1,212 1,289 1,277 1,323
-------- -------- -------- -------- --------
Net interest income............................... 104,403 105,195 101,966 96,621 99,874
Provision for credit losses....................... 9,900 500 2,000 - 4,000
-------- -------- -------- -------- --------
Net interest income after provision for credit
losses.......................................... 94,503 104,695 99,966 96,621 95,874
Noninterest income................................ 61,258 56,833 57,384 53,062 49,613
Noninterest expenses.............................. 102,465 105,358 103,023 99,168 99,312
-------- -------- -------- -------- --------
Income before income taxes........................ 53,296 56,170 54,327 50,515 46,175
Income tax expense................................ 19,193 20,138 20,625 17,981 16,106
-------- -------- -------- -------- --------
Net income........................................ $34,103 $36,032 $33,702 $32,534 $30,069
======== ======== ======== ======== ========
Dividends declared on preferred stock............. $2,955 $2,955 $2,955 $2,955 $2,955
Dividends declared on redeemable preferred stock.. 101 102 101 - -
CONSOLIDATED AVERAGE BALANCES:
Total assets...................................... 10,912,900 10,741,800 10,420,400 10,212,700 10,531,200
Loans, net of unearned income..................... 6,792,700 6,686,500 6,365,900 6,018,700 6,173,600
Deposits.......................................... 7,258,700 7,233,900 7,208,400 6,943,200 6,905,200
Long-term debt.................................... 221,700 303,900 554,700 551,700 514,700
Common stockholder's equity....................... 1,124,600 1,083,100 1,044,800 1,048,300 1,064,100
Stockholders' equity.............................. 1,269,400 1,227,900 1,189,600 1,193,100 1,208,900
CONSOLIDATED RATIOS:
Return on average assets.......................... 1.27% 1.33% 1.29% 1.28% 1.15%
Return on average common stockholder's equity..... 11.20 12.11 11.67 11.35 10.25
Return on average total stockholders' equity...... 10.90 11.67 11.27 10.97 10.00
Average stockholders' equity to average total
assets.......................................... 11.63 11.43 11.42 11.68 11.48
Capital to risk-adjusted assets:
Tier 1.......................................... 15.71 14.12 11.94 13.90 13.63
Total........................................... 18.75 17.20 15.01 17.11 16.78
Tier 1 leverage ratio............................. 13.68 12.18 10.71 11.19 10.99
Net interest margin............................... 4.33 4.35 4.36 4.25 4.26
Net charge-offs to average loans, net of average
unearned income (annualized).................... 0.59 0.87 0.40 0.44 0.70
Allowance for credit losses to period end loans,
net of unearned income.......................... 2.28 2.28 2.58 2.72 2.74
Nonperforming assets to period end loans, net of
unearned income plus other foreclosed assets
owned........................................... 0.97 0.87 0.92 0.72 0.73
</TABLE>
<PAGE>
PAGE 14
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 March 31, 1997 of $105.5 million increased $4.3 million
(4.3%) when compared to net interest income of $101.2 million for the
quarter ended March 31, 1996. The net interest margin for the first
quarter of 1997 was 4.33% compared to a net interest margin of 4.26%
for the first quarter of 1996. The following table summarizes the
items which had a significant impact on net interest income and net
interest margin in the first quarter of 1997.
<TABLE>
Table 2 Net Interest Income and Net Interest Margin Reconciliation
(Tax Equivalent Basis)
<CAPTION>
Net Net
Interest Interest
Income Margin
-------- --------
(dollars in millions)
<S> <C> <C>
Three months ended March 31, 1996...... $101.2 4.26%
Bankcard securitization (1)............ (8.5) (0.21)
Acquisition of 1st Washington Bancorp,
Inc. ("1st Washington") (2)......... 4.9 (0.06)
Increased bankcard loan volumes........ 3.5 0.05
Higher level of earning assets......... 3.2 0.18
Decline in bankcard loan product
margins............................. (3.1) (0.13)
Increase in net free funds............. 2.9 0.12
Change in asset yields and funding
costs............................... 2.2 0.10
Interest recovery on a nonaccrual
loan................................ 1.2 0.05
Other changes.......................... (2.0) (0.03)
------- ------
Three months ended March 31, 1997...... $105.5 4.33%
======== ======
<FN>
(1) The bankcard securitization represents the securitization and sale
of an additional $335 million in bankcard loans in April 1996. The
revenues associated with these loans were reported in noninterest
income as servicing income.
(2) The net interest margin of 1st Washington at the date of acquisition
was significantly lower than the Corporation's net interest margin, which
was consistent with most thrift institutions.
</TABLE>
<PAGE>
PAGE 15
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations-(Continued)
An analysis of fully tax equivalent net interest income,
interest rate spreads and net interest margins for the three months
ended March 31, 1997 and 1996 is presented in following table.
<TABLE>
Table 3 Net Interest Income, Interest Rate Spread and Net Interest Margin on Average Earning Assets
(Tax Equivalent Basis)
<CAPTION>
Three months ended March 31,
-----------------------------------------------------------------------
1997 1996
----------------------------------- -------------------------------
Average Yield/ Average Yield/
balance Interest rate balance Interest rate
-------- -------- -------- -------- -------- --------
(dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Investment securities (1).............. $2,532.4 $41.4 6.63% $2,988.6 $46.9 6.31%
Loans held-for-sale.................... 101.5 1.9 7.66 115.1 2.0 7.10
Loans, net of unearned income.......... 6,792.7 136.5 8.15 6,173.6 131.8 8.59
Other earning assets................... 451.9 5.9 5.32 272.0 3.6 5.30
------- ------ ------- ------
Earning assets......................... $9,878.5 185.7 7.62 $9,549.3 184.3 7.76
======== ------ ======== ------
Interest bearing liabilities........... $7,318.9 80.2 4.44 $7,214.9 83.1 4.63
Interest rate spread (2)............... 3.18 3.13
Interest free sources utilized
to fund earning assets............... 2,559.6 2,334.4
------- ------ ------- ------
Total sources of funds................. $9,878.5 80.2 3.29 $9,549.3 83.1 3.50
======== ------ ======== ------
Net interest income.................... $105.5 $101.2
====== ======
Net interest margin (3)................ 4.33% 4.26%
==== ====
<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 16
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations-(Continued)
<TABLE>
Table 4
First Maryland Bancorp and Subsidiaries
Average Balances, Interest Rates and Yields and Net Interest Margin
(Tax Equivalent Basis)
<CAPTION>
Three months ended March 31, 1997
-------------------------------------
Average
Average rate/
Balance Interest yield
------- ----------- -----------
(dollars in millions)
<S> <C> <C> <C>
ASSETS
Cash and due from banks.............................. $636.0 $ - - %
Money market investments:
Interest bearing deposits in other banks........... 0.3 - 4.11
Trading account securities......................... 5.7 - 5.76
Funds sold......................................... 445.9 5.9 5.31
Investment securities available-for-sale:
Taxable securities................................. 2,394.1 38.6 6.54
Tax-exempt securities (1).......................... 81.7 2.1 10.45
Equity investments................................. 56.6 0.7 4.97
--------- ---------
Total securities available-for-sale (2)......... 2,532.4 41.4 6.63
Loans held-for-sale.................................. 101.5 1.9 7.66
Loans, net of unearned income (1,3):
Commercial......................................... 1,764.1 34.6 7.96
Real estate, construction.......................... 296.6 6.2 8.46
Real estate mortgage, commercial................... 1,145.6 23.4 8.30
Real estate mortgage, residential.................. 837.6 14.9 7.22
Retail............................................. 1,386.3 28.7 8.39
Bankcard........................................... 563.5 16.1 11.58
Leases receivable.................................. 437.9 6.0 5.56
Foreign............................................ 361.1 6.6 7.39
--------- ---------
Total loans, net of unearned income........... 6,792.7 136.5 8.15
Allowance for credit losses....................... (152.9) - -
---------
Loans, net...................................... 6,639.8 - -
Other assets......................................... 551.3 - -
--------- ---------
Total assets/interest income.................... $10,912.9 $185.7
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits in domestic offices:
Noninterest bearing demand......................... $2,029.2 $ - - %
---------
Interest bearing demand............................ 119.7 0.7 2.34
Money market accounts.............................. 1,623.5 11.6 2.90
Savings........................................... 1,037.3 6.3 2.47
Other consumer time................................ 1,706.7 21.7 5.15
Large denomination time............................ 630.2 8.7 5.58
Deposits in foreign banking offices.................. 112.1 1.5 5.36
--------- ---------
Total interest bearing deposits................. 5,229.5 50.5 3.91
--------- ---------
Total deposits.................................. 7,258.7 - -
Funds purchased...................................... 710.7 9.0 5.15
Other borrowed funds, short-term..................... 917.5 12.0 5.29
Other liabilities.................................... 287.7 - -
Long-term debt....................................... 221.7 4.6 8.48
Guaranteed preferred beneficial interests in
Company's junior subordinated debentures.......... 239.5 4.1 6.95
Redeemable preferred stock........................... 7.7 - -
Stockholders' equity................................. 1,269.4 - -
--------- ---------
Total liabilities and stockholders'
equity/interest expense...................... $10,912.9 $80.2
======== ========
Earning assets/interest income....................... $9,878.5 $185.7 7.62%
Interest bearing liabilities/interest expense........ 7,318.9 80.2 4.44
Earning assets/interest expense...................... 9,878.5 80.2 3.29
Interest rate spread (4)............................. 3.18%
=====
Net interest margin (5).............................. 4.33%
=====
</TABLE>
<PAGE>
PAGE 17
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations-(Continued)
<TABLE>
Table 5
First Maryland Bancorp and Subsidiaries
Average Balances, Interest Rates and Yields and Net Interest Margin
(Tax Equivalent Basis)
<CAPTION>
Three months ended March 31, 1996
------------------------------------
Average
Average rate/
Balance Interest yield
------- ----------- -----------
(dollars in millions)
<S> <C> <C> <C>
ASSETS
Cash and due from banks.............................. $664.0 $ - - %
Money market investments:
Interest bearing deposits in other banks........... 13.4 0.2 5.80
Trading account securities......................... 0.9 - 5.49
Funds sold......................................... 257.7 3.4 5.27
Investment securities available-for-sale:
Taxable securities................................. 2,858.6 44.1 6.21
Tax-exempt securities (1).......................... 96.2 2.4 10.07
Equity investments................................. 33.8 0.4 4.16
--------- ---------
Total securities available-for-sale (2)......... 2,988.6 46.9 6.31
Loans held-for-sale.................................. 115.1 2.0 7.10
Loans, net of unearned income (1,3):
Commercial......................................... 1,830.5 35.0 7.69
Real estate, construction.......................... 283.9 6.3 8.89
Real estate mortgage, commercial................... 973.1 21.6 8.92
Real estate mortgage, residential.................. 637.8 11.8 7.45
Retail............................................. 1,105.2 23.3 8.49
Bankcard........................................... 657.8 22.6 13.80
Leases receivable.................................. 335.0 4.6 5.54
Foreign............................................ 350.3 6.6 7.65
--------- ---------
Total loans, net of unearned income........... 6,173.6 131.8 8.59
Allowance for credit losses....................... (174.0) - -
---------
Loans, net...................................... 5,999.6 - -
Other assets......................................... 491.9 - -
--------- ---------
Total assets/interest income.................... $10,531.2 $184.3
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits in domestic offices:
Noninterest bearing demand......................... $1,900.3 $ - - %
---------
Interest bearing demand............................ 115.8 0.7 2.55
Money market accounts.............................. 1,550.0 12.1 3.13
Savings........................................... 1,022.6 6.9 2.71
Other consumer time................................ 1,623.1 22.0 5.46
Large denomination time............................ 556.0 8.0 5.77
Deposits in foreign banking offices.................. 137.4 1.9 5.50
--------- ---------
Total interest bearing deposits................. 5,004.9 51.6 4.14
--------- ---------
Total deposits.................................. 6,905.2 - -
Funds purchased...................................... 849.5 11.1 5.23
Other borrowed funds, short-term..................... 845.8 11.5 5.49
Other liabilities.................................... 207.1 - -
Long-term debt....................................... 514.7 8.9 6.98
Stockholders' equity................................. 1,208.9 - -
--------- ---------
Total liabilities and stockholders'
equity/interest expense...................... $10,531.2 $83.1
======== ========
Earning assets/interest income....................... $9,549.3 $184.3 7.76%
Interest bearing liabilities/interest expense........ 7,214.9 83.1 4.63
Earning assets/interest expense...................... 9,549.3 83.1 3.50
Interest rate spread (4)............................. 3.13%
=====
Net interest margin (5).............................. 4.26%
=====
</TABLE>
<PAGE>
PAGE 18
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
----------------
(1) Interest on loans to and obligations of public entities is not
subject to Federal income tax. In order to make pre-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.
Provision for Credit Losses
The provision for credit losses for the three months ended March
31, 1997 totaled $9.9 million, a $5.9 million increase (147.5%) from the
$4.0 million provision recorded in the three months ended March 31,
1996. The 1997 provision for credit losses included a $13.7 million
provision for bankcard loans offset by provision recaptures of $4.2
million at a bank subsidiary and a leasing subsidiary. The 1996
provision for credit losses included a $7.7 million provision for
bankcard loans offset by $3.7 million in provision recaptures at
subsidiary banks.
<PAGE>
PAGE 19
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 ended March 31, 1997 and 1996.
Table 6 Noninterest Income
<CAPTION>
Three months ended March 31,
----------------------------------
Percent
Change
1997 1996 1997/1996
------- ------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Service charges on deposit accounts.... $21,803 $18,807 15.9%
Trust and investment advisory fees..... 8,433 6,860 22.9
Servicing income....................... 6,477 5,477 18.3
Mortgage banking income................ 6,018 5,198 15.8
Credit card income..................... 1,993 4,099 (51.4)
Securities gains (losses), net......... 453 (604) (175.0)
Other income:
Customer service fees................ 1,947 1,963 (0.8)
Trading income....................... 1,583 1,151 (37.5)
Security sales and fees.............. 1,191 1,180 0.9
Other................................ 11,360 5,482 107.2
------- ------- -----
Total other income..................... 16,081 9,776 64.5
------- ------- -----
Total noninterest income........ $61,258 $49,613 23.5%
======= ======= =======
</TABLE>
The Corporation's noninterest income for the first quarter of
1997 increased $11.6 million (23.5%) when compared to the first quarter
of 1996. Service charges on deposits increased $3.0 million (15.9%)
due to increases in retail deposit and business checking service
charges. Trust and investment advisory fees increased $1.6 million
(22.9%) as a result of increases in investment management and advisory
fees and custody fees. Zirkin-Cutler Investments, Inc. ("Zirkin-
Cutler"), acquired on July 1, 1996, generated $795 thousand in
investment advisory fees in the first quarter of 1997. Servicing
income increased $1.0 million (18.3%) primarily due to the bankcard
securitization. Mortgage banking income increased $820 thousand
(15.8%) as a result of an increase in gains on the sale of mortgages
which was partially offset by declines in gains on the sale of servicing
and commercial mortgage loan placement fees. Credit card income
declined $2.1 million (51.4%) due to the bankcard securitization which
shifted $2.2 million in credit card fee income to servicing income.
Securities gains of $453 thousand were recorded in the first quarter
of 1997 compared to securities losses of $604 thousand in the first
quarter of 1996. Securities sales are discussed in detail under
"Changes in Financial Position". Other income increased $5.9 million
(107.2%) due to a $5.5 million gain on the sale of the Corporation's
investment in an ATM and point-of-sale network system in the first
quarter of 1997.
<PAGE>
PAGE 20
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 ended March 31, 1997 and 1996.
Table 7 Noninterest Expenses
<CAPTION>
Three months ended March 31,
----------------------------------
Percent
Change
1997 1996 1997/1996
------- ------- -----------
(dollars in thousands)
<S> <C> <C> <C>
Salaries and wages..................... $46,058 $43,180 6.7%
Other personnel costs.................. 12,403 13,496 (8.1)
Equipment costs........................ 9,244 8,656 6.8
Occupancy costs....................... 8,125 8,195 (0.9)
Other operating expenses:
External services.................... 7,241 5,480 32.1
Postage and communications........... 4,620 4,099 12.7
Advertising.......................... 4,080 3,701 10.2
Professional service fees............ 2,288 1,860 23.0
Lending and collection............... 1,317 1,427 (7.7)
Regulatory insurance and fees........ 520 858 (39.4)
Other................................ 6,569 8,360 (21.4)
------ ------ -----
Total other operating expenses..... 26,635 25,785 3.3
------ ------ -----
Total noninterest expenses..... $102,465 $99,312 3.2%
======= ======= =======
</TABLE
The Corporation's noninterest expenses for the first quarter of
1997 increased $3.2 million (3.2%) when compared to the first quarter
of 1996. Salaries and wages increased $2.9 million (6.7%) as a result
of increased employee incentives and commissions and the 1st Washington
acquisition in July 1996. Other personnel costs decreased $1.1 million
(8.1%) as a result of a $1.8 million decline in pension costs primarily
due to an executive retirement in the first quarter of 1996. This
decline was partially offset by a $643 thousand increase in healthcare
costs. Equipment costs increased $588 thousand (6.8%) due to higher
equipment maintenance contract costs in 1997. External services increased
$1.8 million (32.1%) as a result of higher servicing costs associated
with the bankcard loan portfolio and processing costs associated with
a government automated tax payment program. Postage and communications
increased $521 thousand (12.7%) primarily due to growth in banking
relationships, including bankcard and 1st Washington.
<PAGE>
PAGE 21
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 $55.6 million
from December 31, 1996 to March 31, 1997. In the first quarter of 1997,
the Corporation sold $177.0 million in investment securities which
resulted in net gains of $453 thousand. These sales included $100.1
million in U.S. Treasury securities, resulting in $54 thousand in losses;
$66.6 million in collateralized mortgage obligations ("CMO's"),
resulting in gains of $50 thousand; $3.3 million in other debt
securities, resulting in $476 thousand in gains and $7.0 million in
equity securities, resulting in $19 thousand in losses. Paydowns,
maturities and calls in the available-for-sale portfolio totaled $104.1
million. These decreases in the portfolio were partially offset by
$259.0 million in purchases in the first quarter of 1997 which included
the following: $115.3 million in U.S. Treasury and U.S. Government
Agencies securities, $90.9 million in CMO's, $44.2 million in other debt
securities and $8.6 million in equity securities. The fair value of
the available-for-sale portfolio at March 31, 1997 was $19.2 million
below the amortized cost compared to a fair value at December 31, 1996
which was $14.0 million above the amortized cost. This change in the
fair value resulted in a $20.0 million adjustment (net of income taxes)
to the unrealized gains (losses) on available-for-sale securities which
is included as a component of stockholders' equity. Table 8 provides
a summary of the gross unrealized gains and losses of the available-
for-sale portfolio at March 31, 1997.
</TABLE>
<TABLE>
Table 8 Available-for-Sale Portfolio
<CAPTION>
March 31, 1997
-------------------------------------------------
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........... $623,904 $1,159 ($12,968) $612,095
Mortgage-backed obligations.......................... 1,118,119 5,752 (22,386) 1,101,485
Collateralized mortgage obligations:
Issued by Federal Agencies........................ 317,981 3,798 (2,499) 319,280
Privately issued.................................. 17,433 1 (403) 17,031
Asset-backed securities.............................. 226,985 401 (1,997) 225,389
Obligations of states and political
subdivisions...................................... 88,393 4,144 (446) 92,091
Other debt securities................................ 71,169 - - 71,169
Equity securities.................................... 52,219 6,461 (175) 58,505
--------- --------- --------- ---------
Total.......................................... $2,516,203 $21,716 ($40,874) $2,497,045
========== ========== ========== ==========
</TABLE>
<PAGE>
PAGE 22
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
Loan Portfolio
Total loans, net of unearned income declined $16.3 million (0.2%)
from $6.798 billion at December 31, 1996 to $6.782 billion at March 31,
1997. Seasonally lower bankcard receivables were partially offset by
increases in commercial loans.
Commercial loans increased $48.6 million (2.8%) from December 31,
1996 to March 31, 1997. Month-end balances can show some fluctuations
due to the transactional nature of large corporate customers that borrow
for short periods of time under revolving facilities. Growth in
specialized lending sectors, primarily Communications lending,
contributed to the year to date increase.
Commercial real estate loans, which include both construction and
commercial mortgages, declined $14.7 million (1.0%) from December 31,
1996 to March 31, 1997. 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 10 and 11.
Residential mortgages decreased $4.3 million (0.5%) from December
31, 1996 to March 31, 1997. The Corporation originates residential
mortgages primarily for sale in the secondary market. New originations
retained for the Corporation's permanent residential mortgage portfolio
principally consist of low income housing and adjustable rate products.
Retail loans increased $19.4 million (1.4%) from December 31, 1996
to March 31, 1997. The continued retail loan growth resulted primarily
from a home equity credit product promotion which began in late February.
Bankcard outstandings decreased $57.1 million (9.6%) since
December 31, 1996. This reduction reflected seasonal paydowns following
the year end holiday shopping season.
Leases receivable increased $2.1 million (0.5%) since December
31, 1996. Retail leases, which represent 11% of outstandings, increased
$1.6 million (3.4%).
Foreign loans declined $10.4 million (2.8%) from December 31,
1996 to March 31, 1997. The decline occurred primarily in the Latin
American portfolio.
The Corporation monitors exposure based on industry classifications
and established limits that are reviewed by the Board of Directors.
Significant exposures by industry classification in the loan portfolio
are presented in Table 9.
<PAGE>
PAGE 23
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
<TABLE>
Table 9 Loan Portfolio Distribution by Industry Classification
<CAPTION>
March 31, 1997
----------------------------------------------------
Outstanding Unfunded Total Nonperforming
Balance Commitments Exposure Loans
----------- ----------- ---------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Transportation (1)................................ $533,819 $67,492 $601,311 $ -
Communications (2)................................ 405,973 130,689 536,662 2,309
Healthcare (3).................................... 367,550 120,799 488,349 1,146
<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 10 Loans Secured by Real Estate and Other Real Estate Owned by Property Type
<CAPTION>
March 31, 1997
-------------------------------------------------
Total loans
------------------------ Other
Real estate Real estate Nonperforming real estate
construction mortgage loans owned
------------- ----------- ------------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Office buildings..................................... $84,991 $334,549 $1,156 $ -
Industrial warehouse................................. 46,649 201,509 5,256 -
Retail............................................... 47,285 182,358 2,526 4,090
Hospitals/nursing home............................... 21,284 108,817 - -
Hotels/motels........................................ - 58,106 - -
Commercial land...................................... 22,882 407 416 4,972
Special purpose...................................... 5,982 89,453 1,347 -
Apartments........................................... 31,058 61,927 5,429 -
Mixed use............................................ 218 47,789 - -
Residential land..................................... 23,786 1,632 - -
Other land-farm/recreational......................... - 6,544 488 -
Residential properties for resale.................... 7,399 1,497 2,496 -
Miscellaneous........................................ 2,454 49,991 235 -
--------- --------- --------- ---------
Total.......................................... $293,988 $1,144,579 $19,349 $9,062
========== ========== ========== ==========
</TABLE>
<TABLE>
Table 11 Loans Secured by Real Estate and Other Real Estate Owned by Geographic Region
<CAPTION>
March 31, 1997
-------------------------------------------------
Total loans
----------------------- Other
Real estate Real estate Nonperforming real estate
construction mortgage loans owned
------------- ----------- ------------- -----------
(in thousands)
<S> <C> <C> <C> <C>
Maryland............................................. $239,069 $771,057 $6,685 $4,964
Pennsylvania......................................... 8,464 152,379 2,204 1,451
Virginia............................................. 23,345 78,154 9,908 2,147
Washington, D.C...................................... 6,784 47,524 552 -
Florida.............................................. 1,708 26,483 - 500
New Jersey........................................... 1,267 31,990 - -
Delaware............................................. 5,784 14,490 - -
All other............................................ 7,567 22,502 - -
--------- --------- --------- ---------
Total.......................................... $293,988 $1,144,579 $19,349 $9,062
========== ========== ========== ==========
</TABLE>
<PAGE>
PAGE 24
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
Asset Quality
Nonperforming Assets
Nonperforming assets totaled $66.1 million at March 31, 1997,
an increase of $7.2 million when compared to nonperforming assets of
$58.9 million at December 31, 1996. Nonperforming assets increased
$13.5 million primarily due to the transfer of loans to nonaccrual
status. These additions were partially offset by the following:
paydowns on nonaccrual loans of $3.8 million; other real estate owned
("OREO") sales of $2.0 million; loans reclassified to accrual status
of $389 thousand and charge-offs of $123 thousand. The nonaccrual
loan paydowns were cash payments on a variety of commercial and real
estate loans. The most significant OREO sale was a $1.2 million
commercial real estate property which resulted in a gain of $127
thousand. Loans returned to accrual status were residential loans
which met the regulatory tests for return to accrual status.
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 12 Nonperforming Assets
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
------------- ------------ -------------
(dollars in thousands)
<S> <C> <C> <C>
Nonaccrual loans
Domestic:
Commercial......................................... $17,781 $13,988 $16,605
Real estate, construction.......................... 2,912 4,014 1,072
Real estate mortgage, commercial................... 16,437 16,333 5,019
Real estate mortgage, residential.................. 13,422 7,545 6,964
Foreign.............................................. 3,800 3,800 3,800
-------- -------- --------
Total nonaccrual loans......................... 54,352 45,680 33,460
-------- -------- --------
Restructured loans................................... 121 126 139
Other assets owned:
Other real estate.................................. 11,073 12,765 11,832
Valuation reserves................................. (324) (324) (295)
Other assets....................................... 922 705 396
-------- -------- --------
Total other assets owned....................... 11,671 13,146 11,933
-------- -------- --------
Total nonperforming assets......................... $66,144 $58,952 $45,532
======== ======== ========
Nonperforming assets as a percentage of total
loans, net of unearned income plus other
foreclosed assets owned........................... 0.97% 0.87% 0.73%
==== ==== ====
Accruing loans contractually past due
90 days or more as to principal or interest:
Domestic.......................................... $18,266 $23,812 $20,580
======== ======== ========
</TABLE>
<PAGE>
PAGE 25
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 three months
ended March 31, 1997 and March 31, 1996, respectively.
Table 13 Analysis of the Allowance for Credit Losses
<CAPTION>
Three months ended March 31,
-------------------------------
1997 1996
---------- ----------
(dollars in thousands)
<S> <C> <C>
Allowance at beginning of year....................... $154,802 $177,621
Provision for credit losses.......................... 9,900 4,000
Losses charged off:
Commercial loans................................. (133) (459)
Real estate loans, mortgage:
Residential.................................... - (14)
Commercial..................................... (123) -
Retail loans..................................... (1,447) (1,174)
Bankcard loans................................... (9,518) (11,227)
Leases receivable................................ (132) -
-------- --------
Total losses charged off....................... (11,353) (12,874)
Recoveries of losses previously charged off:
Commercial loans................................. 221 352
Real estate loans, construction.................. 52 10
Real estate loans, mortgage:
Residential.................................... - 3
Commercial..................................... - 5
Retail loans..................................... 703 443
Bankcard loans................................... 454 1,267
Leases receivable................................ 27 26
-------- --------
Total recoveries............................... 1,457 2,106
Net losses charged off............................... (9,896) (10,768)
-------- --------
Total allowance at March 31.......................... $154,806 $170,853
======== ========
Average loans, net of average unearned income........ $6,792,709 $6,173,601
========== ==========
Period end loans, net of unearned income............. $6,782,130 $6,228,882
========== ==========
Net charge-offs to average loans, net of average
unearned income (annualized)...................... 0.59% 0.70%
Allowance as a percentage of period end loans, net
of unearned income................................ 2.28 2.74
Allowance as a percentage of nonperforming loans..... 284.19 508.51
</TABLE>
The Corporation's bankcard loan portfolio, like the portfolios of
most other credit card issuers, is experiencing higher charge-off rates
as a result of higher-than-anticipated levels of personal bankruptcies
and the general expansion of unsecured consumer credit. The
Corporation's ratio of bankcard loan net charge-offs to average loans,
net of average unearned income (annualized) for the first quarter of
1997 increased over the fourth quarter of 1996 and the first quarter
of 1996 ratios. The Corporation continues to monitor trends in the
bankcard loan portfolio and is managing credit line usage and
underwriting standards in a more aggressive manner.
<PAGE>
PAGE 26
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
Deposits
Total deposits increased $147.0 million from December 31, 1996 to
March 31, 1997. Core deposits increased $94.4 million. Commercial
noninterest bearing demand deposits increased $110.7 million. Money
market deposits and other savings deposits increased $59.0 million
partially offset by a $56.2 million decline in other consumer time
deposits. Purchased deposits, which include large denomination time
deposits and foreign time deposits, increased $52.6 million primarily
due to an increase in large denomination time deposits.
Total deposits increased $674.0 million from March 31, 1996 to
March 31, 1997. Core deposits increased $569.0 million. The 1st
Washington acquisition resulted in an increase to the core deposit base
and the number of branch locations. A $384.2 million increase in
commercial noninterest bearing demand deposits represented more than
65% of the total core deposit increase and resulted from new business
initiatives. Purchased deposits increased $105.0 million primarily due
to an increase in large denomination time deposits.
<PAGE>
PAGE 27
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 March 31, 1997, December 31, 1996 and March 31, 1996,
based upon the capital requirements of the Federal Reserve Board.
Table 14 Capital Components
<CAPTION>
March 31, December 31, March 31,
1997 1996 1996
------------ ------------- -------------
(dollars in thousands)
<S> <C> <C> <C>
Preferred stockholders' equity.................................... $144,852 $144,852 $144,852
Common stockholder's equity....................................... 1,113,880 1,102,645 1,042,739
Guaranteed preferred beneficial interests in Company's junior
subordinated debentures........................................ 296,344 147,113 -
Disallowed intangibles............................................ (87,778) (90,861) (36,421)
Net unrealized (gains) losses on investment securities available-
for-sale (1)................................................... 11,687 (8,332) (1,533)
-------- -------- --------
Tier 1 capital.................................................... 1,478,985 1,295,417 1,149,637
-------- -------- --------
Qualifying long-term debt......................................... 99,776 99,765 99,733
Intermediate preferred stock...................................... 7,748 7,700 -
Allowance for credit losses (2)................................... 118,123 115,173 106,272
Mandatory convertible securities.................................. 59,980 59,977 59,971
-------- -------- --------
Tier 2 capital.................................................... 285,627 282,615 265,976
-------- -------- --------
Total capital..................................................... $1,764,612 $1,578,032 $1,415,613
========== ========== ==========
Risk-adjusted assets.............................................. $9,413,115 $9,174,168 $8,437,187
========== ========== ==========
Average quarterly assets (regulatory guidelines).................. $10,901,606 $10,725,996 $10,494,467
========== ========== ==========
Risk-based capital ratios:
Tier 1 to risk adjusted assets.................................. 15.71% 14.12% 13.63%
Regulatory minimum.............................................. 4.00 4.00 4.00
Total capital to risk-adjusted assets........................... 18.75 17.20 16.78
Regulatory minimum.............................................. 8.00 8.00 8.00
Leverage ratio.................................................... 13.68 12.18 10.99
<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 capital increased $183.6 million when March 31, 1997 is
compared to December 31, 1996 and total capital increased $186.6 million
during this same period. The Corporation issued an additional $148.3
million in guaranteed preferred beneficial interests in Company's junior
subordinated debentures in February 1997 which qualify as Tier 1 capital.
See Note 10 of the Notes to Consolidated Financial Statements for
additional information. In addition, net income of $34.1 million was
partially offset by $3.1 million in dividends declared on preferred stock
in the first three months of 1997.
Tier 1 and total capital increased $329.3 million and $349.0
million respectively, when March 31, 1997 is compared to March 31, 1996.
The Corporation issued $295.4 million in guaranteed preferred beneficial
interests in Company's junior subordinated debentures in December 1996
and February 1997. Net income of $136.4 million was partially offset by
$52.1 million in dividends declared on common stock and preferred stock
during this period. In addition, Tier 1 capital was negatively impacted
by additional disallowed goodwill resulting from the acquisitions of
1st Washington and Zirkin-Cutler in 1996. Tier 2 capital was positively
impacted by the issuance of intermediate preferred stock in 1996.
Additional information regarding the Corporation's capital is presented
in the Consolidated Statements of Changes in Stockholders' Equity.
<PAGE>
PAGE 28
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
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 March 31, 1997 as well as
the average fair values for the three months ended March 31, 1997.
Table 15 Trading Instruments
<CAPTION>
March 31, 1997
--------------------------------------
Fair Values
---------------------------
Notional Average
Amounts End-of-Period Three Months
---------- ------------- ------------
(in thousands)
<S> <C> <C> <C>
Interest Rate Contracts
Interest Rate Swaps..... $1,132,301
Receivable position... $10,459 $7,941
Payable position...... (8,694) (5,235)
Interest Rate Caps/Floors 1,279,403
Held.................. 1,351 2,789
Written............... (1,351) (2,789)
Futures................. 16,000
Favorable position.... 250 -
Unfavorable position.. - -
Options................. 5,000
Held.................. 23 -
Written............... - -
Foreign Exchange Contracts
Options................. 2,929,146
Held.................. 47,233 41,687
Written............... (26,878) (29,232)
Forwards................ 865,335
Favorable position.... 8,072 6,775
Unfavorable position.. (10,663) (5,716)
</TABLE>
<PAGE>
PAGE 29
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
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.
Table 16 Net Trading Income
<CAPTION>
Three months ended March 31,
-------------------------------
1997 1996
--------- ---------
(in thousands)
<S> <C> <C>
Interest rate contracts:
Interest rate swaps..................... ($744) ($1,929)
Futures................................. 630 1,554
Interest rate caps and floors........... - -
Options................................. 1 -
Miscellaneous........................... 31 192
------- -------
(82) (183)
------- -------
Foreign exchange contracts:
Spot and forward contracts.............. (25,222) (1,740)
Futures................................. - 2
Options................................. 25,541 1,947
Miscellaneous........................... 645 521
------- -------
964 730
------- -------
Other:
Securities.............................. 701 604
------- -------
Total net trading income.......... $1,583 $1,151
======= =======
</TABLE>
<PAGE>
PAGE 30
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
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 31
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
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
March 31, 1997 as well as the weighted average maturity and weighted
average receive and pay rates for the instruments at March 31, 1997.
Table 17 Risk Management Instruments
<CAPTION>
March 31, 1997
-----------------------------------------------------------------
Weighted
Average Weighted Average Rate Estimated
Notional Maturity --------------------- Fair
Amount in Years Receive Pay Value
-------- ------------ ----------- ----------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Designated to Assets
--------------------
Interest rate swaps sold
------------------------
Convert floating rate to fixed
rate..................... $767,500 3.54 6.23% 5.48% ($11,463)
--------
Carrying amount (1)......... 3,674
Unrealized gross gains...... -
Unrealized gross losses..... (15,137)
Interest rate swaps purchased
-----------------------------
Convert fixed rate to floating
rate..................... 46,349 3.24 5.56 6.29 179
--------
Carrying amount (1)......... (68)
Unrealized gross gains...... 458
Unrealized gross losses..... (211)
Designated to Liabilities
-------------------------
Interest rate swaps sold
------------------------
Convert fixed rate to floating
rate..................... 262,000 1.03 6.37 5.56 1,117
--------
Carrying amount (1)......... 623
Unrealized gross gains...... 980
Unrealized gross losses..... (486)
Interest rate swaps purchased
-----------------------------
Convert floating rate to fixed
rate..................... - - - - -
--------
Carrying amount (1)......... (131)
Unrealized gross gains...... 131
Unrealized gross losses..... -
Interest rate caps purchased
----------------------------
Cap floating rate at strike
level.................... 159,100 2.21 Cap - 13.50% (2) -
--------
Carrying amount (1)......... -
Unrealized gross gains...... -
Unrealized gross losses..... -
Call options purchased........ 9,563 0.60 - - 2,947
---------------------- --------
Carrying amount (1)......... 3,113
Unrealized gross gains...... -
Unrealized gross losses..... (166)
</TABLE>
<PAGE>
PAGE 32
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
Off-Balance Sheet Derivative Financial Instruments (cont'd)
<TABLE>
Table 17 Risk Management Instruments
<CAPTION>
March 31, 1997
-----------------------------------------------------------------
Weighted
Average Weighted Average Rate Estimated
Notional Maturity --------------------- Fair
Amount in Years Receive Pay Value
-------- ------------ ----------- ----------- ---------
(dollars in thousands)
<S> <C> <C> <C> <C> <C>
Basis swaps
-----------
Convert floating rate to
different index.......... $80,000 1.39 5.67% 5.45% ($450)
--------
Carrying amount (1)......... 14
Unrealized gross gains...... 69
Unrealized gross losses..... (533)
<FN>
(1) Carrying amounts for 1997 represent accrued interest receivable (payable) and the following deferred fees: deferred
losses on the early termination of interest rate swaps sold, $3.4 million; deferred gain on the early termination of
an interest rate swap purchased, ($131) thousand; and deferred premiums on call options purchased, $166 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 March 31, 1997.
Table 18 Maturity Schedule of Risk Management Instruments
<CAPTION>
1 Year 1-5
or Less Years Total
------------ ------------ -----------
(dollars in thousands)
<S> <C> <C> <C>
Designated to Assets
--------------------
Notional amount..................... $ - $813,849 $813,849
Weighted average receive rate....... - % 6.19% 6.19%
Estimated fair value................ - (11,284) (11,284)
Designated to Liabilities
-------------------------
Notional amount..................... $144,953 $285,710 $430,663
Weighted average receive rate....... 6.14% 6.63% 6.37%
Estimated fair value................ 2,267 1,797 4,064
Basis Swaps
-----------
Notional amount..................... $ - $80,000 $80,000
Weighted average receive rate....... - % 5.67% 5.67%
Estimated fair value................ - (450) (450)
</TABLE>
<PAGE>
PAGE 33
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
Off-Balance Sheet Derivative Financial Instruments (cont'd)
<TABLE>
The following table summarizes the activity of the risk management
instruments entered into by the Corporation, by notional amounts, for
the three months ended March 31, 1997.
Table 19 Activity of Risk Management Instruments
<CAPTION>
Designated
Designated to Basis
to Assets Liabilities Swaps Total
---------- ------------ -------- -----
(in thousands)
<S> <C> <C> <C> <C>
Three months ended March 31, 1997
---------------------------------
Balance at beginning of year........... $763,923 $514,536 $80,000 $1,358,459
Additions.............................. 50,000 15,000 - 65,000
Maturities/amortizations............... (74) (98,873) - (98,947)
-------- -------- -------- ----------
Balance at March 31, 1997.............. $813,849 $430,663 $80,000 $1,324,512
======== ======== ======== ==========
</TABLE>
Deferred losses on the early termination of interest rate swaps with
notional balances of $200.0 million designated to the Corporation's prime
based commercial loans were $3.4 million as of March 31, 1997. In the
remainder of 1997 and 1998, $2.6 million and $858 thousand, respectively,
will be amortized into income.
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 $131 thousand as of March 31, 1997. In the
remainder of 1997 and 1998, $74 thousand and $57 thousand, respectively,
will be amortized into income.
For the three months ended March 31, 1997, 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 $793 thousand
and gross interest expense decreased $1.1 million which resulted in
a $334 thousand increase in net interest income.
<PAGE>
PAGE 34
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations-(Continued)
Pending Transactions
On January 21, 1997, the Corporation, AIB and Dauphin Deposit
Corporation ("Dauphin") entered into a definitive agreement and plan of
merger, pursuant to which Dauphin will merge into and with the
Corporation. Dauphin shareholders will receive cash and AIB American
Depository Shares ("AIB ADSs") with an aggregate value of approximately
$1.36 billion based upon the market price of AIB ADSs on January 21,
1997. Dauphin and its bank and nonbank subsidiaries provide corporate,
commercial, correspondent and retail banking services, personal and
corporate trust services and related financial products and services to
individuals, businesses, governmental units and financial institutions,
primarily in south-central Pennsylvania. At March 31, 1997, Dauphin
had consolidated total assets of $5.8 billion, total deposits of $4.1
billion, and total stockholders' equity of $573.4 million. The purchase
of Dauphin is subject to both Dauphin and AIB shareholder approval as
well as U.S. and Irish regulatory approvals.
The Corporation, on a parent company basis, held liquid assets in
excess of short-term liabilities totaling approximately $515 million
at March 31, 1997. It is the intention of management to use these assets
as a source of funding for the acquisition of Dauphin. As a result,
dividends from subsidiaries will be the primary source of funds for debt
service and preferred stock dividend requirements of the Corporation
subsequent to the acquisition. Management is confident that the earnings
and dividend capacity at its subsidiary banks will be adequate to service
interest obligations on existing and new long-term debt and any preferred
stock dividend requirements of the Corporation.
<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
A current report on Form 8-K was filed on January 29, 1997 to
report the January 21, 1997 announcement of a merger agreement
between First Maryland Bancorp, Allied Irish Banks, p.l.c. and
Dauphin Deposit Corporation.
A current report on Form 8-K was filed on February 3, 1997 to
file Dauphin Deposit Corporation consolidated financial statements
as of and for the year ended December 31, 1995; notes to
consolidated financial statements; and independent auditor's report
on the consolidated financial statements and Dauphin Deposit
Corporation unaudited consolidated financial statements as of and
for the three and nine months ended September 30, 1996.
A current report on Form 8-K was filed on March 5, 1997 to file
certain unaudited pro forma consolidated, condensed financial
statements to reflect the merger of Dauphin Deposit Corporation
into First Maryland Bancorp on a purchase accounting basis.
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
May 14, 1997 BY /s/ Jerome W. Evans
----------------------------
Jerome W. Evans
Executive Vice President and
Chief Financial Officer
May 14, 1997 BY /s/ Robert L. Carpenter, Jr.
-------------------------------
Robert L. Carpenter, Jr.
Senior Vice President and
Controller
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FIRST MARYLAND BANCORP MARCH 31, 1997 FINANCIAL STATEMENTS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 848,615
<INT-BEARING-DEPOSITS> 234
<FED-FUNDS-SOLD> 579,670
<TRADING-ASSETS> 1,011
<INVESTMENTS-HELD-FOR-SALE> 2,497,045
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 6,782,130
<ALLOWANCE> 154,806
<TOTAL-ASSETS> 11,217,780
<DEPOSITS> 7,644,702
<SHORT-TERM> 1,460,532
<LIABILITIES-OTHER> 331,090
<LONG-TERM> 209,756
7,748
30,000
<COMMON> 84,926
<OTHER-SE> 1,143,806
<TOTAL-LIABILITIES-AND-EQUITY> 11,217,780
<INTEREST-LOAN> 136,038
<INTEREST-INVEST> 40,736
<INTEREST-OTHER> 7,841
<INTEREST-TOTAL> 184,615
<INTEREST-DEPOSIT> 50,476
<INTEREST-EXPENSE> 80,212
<INTEREST-INCOME-NET> 104,403
<LOAN-LOSSES> 9,900
<SECURITIES-GAINS> 453
<EXPENSE-OTHER> 102,465
<INCOME-PRETAX> 53,296
<INCOME-PRE-EXTRAORDINARY> 34,103
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34,103
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.33
<LOANS-NON> 54,352
<LOANS-PAST> 18,266
<LOANS-TROUBLED> 121
<LOANS-PROBLEM> 22,751
<ALLOWANCE-OPEN> 154,802
<CHARGE-OFFS> 11,353
<RECOVERIES> 1,457
<ALLOWANCE-CLOSE> 154,806
<ALLOWANCE-DOMESTIC> 80,320
<ALLOWANCE-FOREIGN> 11,220
<ALLOWANCE-UNALLOCATED> 63,266
</TABLE>
