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UNITED STATES
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 May 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 0-18107
MARYLAND FEDERAL BANCORP, INC.
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(Exact name of registrant as specified in its charter)
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Maryland 52-1640579)
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
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3505 Hamilton Street, Hyattsville, MD. 20782
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(Address of principal executive office) (Zip Code)
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Registrant's telephone number,
including area code: (301) 779-1200
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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
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Number of Shares of Common Stock Outstanding as of
July 9, 1997
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<CAPTION>
TITLE OF CLASS NUMBER OF SHARES OUTSTANDING
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Common Stock ($.01 3,216,913 Shares
par value per share)
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INDEX
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PAGE
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PART I--FINANCIAL INFORMATION:
Item 1. Financial Statements:
Consolidated Statements of Financial
Condition as of May 31, 1997 and
February 28, 1997 1
Consolidated Statements of Income
and Retained Earnings for the three
months ended May 31, 1997 and 1996 2
Consolidated Statements of Cash Flows
for the three months ended May 31, 1997
and 1996 3
Notes to Consolidated Financial Statements 4-5
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 6-12
PART II--OTHER INFORMATION:
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults upon Senior Securities 13
Item 4. Submission of Matters to a Vote of
Security Holders 13
Item 5. Other Information 13
Item 6. Exhibits and Reports on Form 8-K 13
SIGNATURES 14
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MARYLAND FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(Unaudited)
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<CAPTION>
MAY 31, FEBRUARY 28,
1997 1997
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(IN THOUSANDS)
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ASSETS
Cash and due from banks...................... $ 5,623 $ 2,558
Interest-bearing deposits with banks......... 17,190 8,381
Federal funds sold and securities purchased
under agreements to resell................. 18,589 17,665
Securities available for sale................ 69,496 69,360
Securities held to maturity (fair value,
$11,410,000 and $11,417,000, respectively). 11,450 11,448
Loans held for sale, at cost................. 5,277 2,679
Loans receivable, net........................ 1,001,889 989,273
Accrued interest receivable.................. 6,006 6,021
Federal Home Loan Bank stock, at cost........ 11,472 11,364
Foreclosed real estate, net.................. 1,716 1,299
Premises and equipment, net.................. 4,663 4,576
Other assets................................. 4,074 3,859
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Total assets.......................... $1,157,445 $1,128,483
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LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Deposits..................................... $807,362 $ 788,933
Advances from Federal Home Loan Bank
of Atlanta................................. 228,430 226,280
Advances from borrowers for taxes
and insurance.............................. 13,727 9,074
Income taxes................................. 3,406 1,898
Accrued expenses and other liabilities....... 7,514 7,037
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Total liabilities..................... 1,060,439 1,033,222
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STOCKHOLDERS' EQUITY
Preferred stock; 10,000,000 shares authorized;
none issued................................ -- --
Common stock; $.01 par value; 15,000,000
shares authorized; 4,115,443 and 4,093,576
shares issued, respectively................ 41 41
Additional paid-in capital................... 43,247 42,625
Retained earnings, substantially restricted.. 68,685 66,976
Unrealized holding gains, net................ 3,053 2,835
Treasury stock, at cost; 905,426 shares and
883,426 shares, respectively (18,020) (17,216)
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Total stockholders' equity................... 97,006 95,261
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Total liabilities and stockholders' equity... $1,157,445 $1,128,483
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</TABLE>
See Notes to Consolidated Financial Statements.
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MARYLAND FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
(Unaudited)
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THREE MONTHS ENDED MAY 31,
1997 1996
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(IN THOUSANDS, EXCEPT
PER SHARE DATA)
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Interest income:
Loans receivable:
First mortgage loans......................... $ 16,777 $ 17,010
Consumer and other loans..................... 2,180 1,563
Securities available for sale and held
to maturity................................ 1,283 1,352
Other interest-earning assets................ 634 732
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Total interest income...................... 20,874 20,657
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Interest expense:
Deposits..................................... 9,757 9,961
Advances from Federal Home Loan Bank
of Atlanta................................. 3,411 3,491
Advances from borrowers for taxes and
insurance.................................. 8 9
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Total interest expense..................... 13,176 13,461
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Net interest income............................ 7,698 7,196
Provision for loan losses...................... 70 85
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Net interest income after provision for
loan losses.................................. 7,628 7,111
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Noninterest income:
Banking service charges and fees............. 507 367
Loan fees and service charges................ 89 76
Gain on sales of first mortgage loans........ 60 246
Other........................................ 25 47
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Total noninterest income................... 681 736
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Noninterest expense:
Compensation and benefits.................... 2,403 2,483
Occupancy and equipment...................... 758 716
Federal deposit insurance premiums........... 129 449
Loss on foreclosed real estate, net.......... 40 5
Advertising.................................. 155 181
Other........................................ 996 937
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Total noninterest expense.................. 4,481 4,771
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Income before income taxes..................... 3,828 3,076
Income tax expense............................. 1,480 1,178
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NET INCOME..................................... 2,348 1,898
Retained earnings, substantially restricted:
Balance, beginning of period................. 66,976 67,492
Cash dividends............................... (639) (506)
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Balance, end of period....................... $ 68,685 $ 68,884
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Primary earnings per share.................... $.72 $.56
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See Notes to Consolidated Financial Statements.
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MARYLAND FEDERAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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THREE MONTHS ENDED MAY 31,
1997 1996
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(IN THOUSANDS)
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OPERATING ACTIVITIES:
Net income...................................................... $ 2,348 $ 1,898
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization:
Premises and equipment........................................ 187 213
Other......................................................... (256) (276)
Loans originated for sale....................................... (12,781) (22,890)
Sale of loans originated for sale............................... 10,183 34,025
Provision for losses on loans and foreclosed real estate........ 100 85
Gain on sales of foreclosed real estate......................... (20) (37)
Deferred income taxes........................................... (145) (124)
Tax benefits relating to stock options.......................... 96 37
Decrease (increase) in:
Accrued interest receivable................................... 15 248
Other assets.................................................. (287) 508
Increase in:
Current income taxes payable.................................. 1,517 1,141
Accrued expenses and other liabilities........................ 477 476
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Net cash provided by operatingactivities................... 1,434 15,304
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INVESTING ACTIVITIES:
Loans originated................................................ (36,016) (32,657)
Principal collected on loans.................................... 23,006 33,081
Purchases of securities:
Available for sale............................................ (3,018) (2,051)
Held to maturity.............................................. -- (7,879)
Principal collected on mortgage-backed and related securities... 3,247 3,256
Proceeds from maturities of securities:
Held to maturity.............................................. -- 1,000
Net increase in federal funds sold and
securities purchased under agreements to resell............... (924) (3,251)
Decrease (increase) in Federal Home Loan Bank stock............. (108) 625
Proceeds from sales of foreclosed real estate................... 212 376
Purchases of premises and equipment............................. (274) (81)
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Net cash used in investing activities...................... (13,875) (7,581)
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FINANCING ACTIVITIES:
Net increase (decrease) in deposits............................. 18,429 (7,403)
Proceeds from Federal Home Loan Bank advances................... 19,600 13,000
Principal payments on Federal Home Loan Bank advances........... (17,450) (26,500)
Net increase in advances from borrowers for taxes and insurance. 4,653 4,454
Proceeds from issuance of stock under stock plans............... 526 210
Purchase of treasury stock...................................... (804) --
Cash dividends paid............................................. (639) (504)
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Net cash provided by (used in) financing activities........ 24,315 (16,743)
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INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS.................. 11,874 (9,020)
CASH AND CASH EQUIVALENTS:
Beginning of period............................................. 10,939 22,905
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End of period................................................... $22,813 $13,885
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See Notes to Consolidated Financial Statements.
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MARYLAND FEDERAL BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
NOTE 1 - BASIS OF PRESENTATION:
In the opinion of the management of Maryland Federal Bancorp, Inc. (the
"Company"), the accompanying unaudited consolidated financial statements reflect
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the Company's financial condition as of May 31, 1997, and
the results of its operations for the three months ended May 31, 1997 and 1996,
and cash flows for the three months ended May 31, 1997 and 1996. These financial
statements should be read in conjunction with the consolidated financial
statements and notes included in Maryland Federal Bancorp, Inc. and Subsidiary's
annual report for the fiscal year ended February 28, 1997. The results of
operations for the period ended May 31, 1997 are not necessarily indicative of
the operating results which may be achieved for the full fiscal year.
NOTE 2 - EARNINGS PER SHARE:
Primary earnings per share for the three months ended May 31, 1997 and 1996
are computed based on the weighted-average number of shares actually
outstanding, as adjusted for applicable stock dividends, plus the shares that
would be outstanding assuming exercise of dilutive stock options, all of which
are considered to be common stock equivalents. The number of shares that would
be issued from the exercise of stock options has been reduced by the number of
shares that could have been purchased from the proceeds at the average market
price of the Company's stock during the period. The number of shares used in the
computations of primary earnings per share was 3,283,453 and 3,399,492 for the
three months ended May 31, 1997 and 1996, respectively.
The Company has not separately reported fully diluted earnings per share
since the amounts are not materially different from primary earnings per share.
NOTE 3 - COMMON STOCK ISSUED:
During the three months ended May 31, 1997, 1,395, 2,998, 9,712, 7,500 and
262 shares were issued at $21.07, $22.86, $23.92, $25.13 and $30.48 per share
($29,393, $68,534, $232,311, $188,475 and $7,986), respectively, as a result of
stock options being exercised. During the three months ended May 31, 1996,
2,580, 7,700 and 83 shares were issued at $14.43, $22.125 and $24.00 per share
($37,229, $170,363 and $1,992), respectively, as a result of stock options being
exercised.
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NOTE 4 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
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THREE MONTHS ENDED
MAY 31,
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1997 1996
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Cash paid for:
Interest...................... $12,840 $13,184
Income taxes.................. 16 111
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NOTE 5 - RECLASSIFICATIONS:
Certain amounts for the three months ended May 31, 1996 have been
reclassified for comparative purposes.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
Maryland Federal Bancorp, Inc. (the "Company") is the unitary savings and
loan holding company of Maryland Federal Savings and Loan Association (the
"Association") and its subsidiary. The Company and the Association are sometimes
collectively referred to as "Maryland Federal." The Company currently owns 100%
of the issued and outstanding common stock of the Association, which is the
principal asset of the Company. The Company does not presently own or operate
any subsidiaries other than the Association and its subsidiary.
Maryland Federal's earnings are primarily dependent upon its net interest
income, which is determined by the Association's interest rate spread (i.e., the
difference between the yields earned on its interest-earning assets and the
rates paid on its interest-bearing liabilities) and the relative amounts of its
interest-earning assets and interest-bearing liabilities. The Association's net
income is also affected by the level of its noninterest income, provision for
estimated losses on loans and noninterest expense.
Deposit flows and the cost of funds are influenced by interest rates on
competing investments and general market rates of interest. Lending activities
are affected by consumer demand, the interest rate environment, and the
availability of funds.
FINANCIAL CONDITION
ASSETS. Total assets as of May 31, 1997 increased $29.0 million or 2.6% to
$1.16 billion as compared to February 28, 1997. This increase was primarily due
to increases of $15.2 million or 1.5% in loans receivable, net (including loans
held for sale), $8.8 million or 105.1% in interest-bearing deposits with banks,
$3.1 million or 119.8% in cash and due from banks, and $924,000 or 5.2% in
Federal funds sold and securities purchased under agreements to resell. The
increases in cash and due from banks and interest-bearing deposits with banks
were due to management's decision to keep short-term liquidity in the form of
such assets.
LIABILITIES. Total liabilities as of May 31, 1997 increased $27.2 million
or 2.6% to $1.06 billion as compared to February 28, 1997. This increase was
primarily due to an $18.4 million or 2.3% increase in deposits, a $2.2 million
or 1.0% increase in advances from the Federal Home Loan Bank of Atlanta
("FHLB"), a $4.7 million or 51.3% increase in advances from borrowers for taxes
and insurance, and a $1.5 million or 79.5% increase in income taxes. The
increases in deposits and advances from the FHLB were necessitated by the
continued demand for new mortgage loans and home equity lines of credit. The
increase in advances from borrowers for taxes and insurance was the
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result of the increase in the loan portfolio and the accumulation of such
funds for the payment of taxes and insurance applicable to mortgage loans to
be paid during the third quarter of fiscal 1998.
Stockholders' Equity. Stockholders' equity increased $1.7 million or 1.8% to
$97.0 million at May 31, 1997, versus $95.3 million at February 28, 1997. During
the three months ended May 31, 1997, such increase primarily reflects net income
of $2.3 million, a $622,000 increase related to the issuance of shares under
stock plans during the period, and a $218,000 increase recorded to recognize the
net change in unrealized holding gains, net, which were offset by dividends to
shareholders of $639,000 and the repurchase of 22,000 shares of the Company's
common stock at a cost of $804,000.
RESULTS OF OPERATIONS
Maryland Federal reported net income of $2.3 million and $1.9 million during
the three months ended May 31, 1997 and 1996, respectively. Net income increased
by $450,000 or 23.7% during the three months ended May 31, 1997, as compared to
the same period in 1996. The increase in net income was the result of a $502,000
increase in net interest income, a $290,000 decrease in noninterest expense, and
a $15,000 decrease in provision for loan losses, which more than offset a
decrease of $55,000 in noninterest income, and a $302,000 increase in income tax
expense, during the three months ended May 31, 1997, as compared to the same
period in 1996.
NET INTEREST INCOME
Net interest income increased by $502,000 or 7.0% for the three months ended
May 31, 1997, as compared to the same period in 1996. The increase for the three
months ended May 31, 1997 was primarily the result of a 22 basis point net
increase in the yield earned on interest-earning assets over the rate paid on
interest-bearing liabilities ("interest rate spread"), which more than offset a
decrease of $4.2 million or 4.1% in the average balance of interest-earning
assets over interest-bearing liabilities, as compared to same period in 1996.
INTEREST INCOME
LOANS RECEIVABLE. During the three months ended May 31, 1997, interest
earned on loans receivable increased by $384,000 or 2.1%, as compared to the
same period in 1996. This increase was primarily the result of a $14.3
million or 1.4% increase in the average balance of loans receivable coupled
with a 5 basis point increase in the average yield earned thereon to 7.54%.
The increase in the average balance of loans receivable reflects the high
demand in loan originations for first mortgage loans and consumer and other
loans.
Mortgage-backed and related securities. Interest earned on mortgage-backed
and related securities increased by $3,000 or 0.3%
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during the three months ended May 31, 1997, as compared to the same period in
1996. The increase during the three months ended May 31, 1997 was primarily
due to a two basis point increase in the average yield earned on
mortgage-backed and related securities to 6.80%, which more than offset a
$44,000 or 0.07% decrease in the average balance of such assets, as compared
to the same period in 1996.
Investment securities and other interest-earning assets. Interest earned on
investment securities and other interest-earning assets decreased by $170,000 or
17.2% during the three months ended May 31, 1997, as compared to the same period
in 1996. This decrease was primarily the result of a $15.3 million or 21.7%
decrease in the average balance of investment securities and other
interest-earning assets, which more than offset a 31 basis point increase in the
average yield earned on such assets during the three months ended May 31, 1997,
as compared to the same period in 1996.
INTEREST EXPENSE
DEPOSITS. Interest expense on deposits during the three months ended May
31, 1997, decreased by $204,000 or 2.0%, as compared to the same period in
the prior fiscal year. This decrease was primarily attributable to a 17 basis
point decrease in the average rate paid on deposits, which more than offset
an $11.4 million or 1.5% increase in the average balance of such deposits,
during the three months ended May 31, 1997 as compared to the same period in
1996. The increase in the average balance of deposits during the three months
ended May 31, 1997, as compared to the same period in 1996, was due primarily
to the competitive interest rates offered on deposits by the Association.
BORROWED FUNDS. Interest expense on borrowed funds (including advances
from borrowers for taxes and insurance) decreased by $81,000 or 2.3% during
the three months ended May 31, 1997, as compared to the same period in 1996.
This decrease was primarily due to a decrease of $8.3 million or 3.5% in the
average balance of such funds, which more than offset a 7 basis point
increase in the average rate paid on such funds during the three months ended
May 31, 1997, as compared to the same period in 1996.
PROVISION FOR LOAN LOSSES
Loan review procedures are utilized by the Association in order to ensure
that potential problem loans are identified early, thereby lessening any
potentially negative impact such problem loans may have on the Association's
earnings. Maryland Federal's provision for loan losses totaled $70,000 and
$85,000 during the three months ended May 31, 1997 and 1996, respectively.
The allowance for loan losses is maintained at a level believed adequate by
management to absorb losses in the loan portfolio. Management's determination of
the adequacy of the allowance is based on an evaluation of the loan portfolio,
past loan loss experience,
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current economic conditions, volume, growth and composition of the loan
portfolio, and other relevant factors. The allowance is increased by
provisions for loan losses which are charged against income. While management
uses the best information available to make such determinations, no assurance
can be given as to whether future adjustments may be necessary.
As of May 31, 1997, non-performing loans (loans ninety days or more
delinquent but still accruing interest, and non-accrual loans) totaled $3.7
million ($3,694,000 of which consist of first mortgage loans, with the remaining
$40,000 consisting of consumer and other loans) and represented 0.37% of total
loans receivable. At February 28, 1997, non-performing loans totaled $4.6
million ($4,595,000 of which consist of first mortgage loans, with the remaining
$35,000 consisting of consumer and other loans) and represented 0.47% of total
loans receivable. As of May 31, 1997, the allowance for loan losses amounted to
$4.7 million and represented 124.6% of non-performing loans. At February 28,
1997, the allowance for loan losses amounted to $4.6 million and represented
99.3% of non-performing loans.
NONINTEREST INCOME
Total noninterest income decreased $55,000 or 7.5% during the three months
ended May 31, 1997, as compared to the same period in 1996. This decrease was
the result of decreases of $186,000 or 75.6% in gain on sales of first mortgage
loans and $22,000 or 46.8% in other noninterest income, which more than offset
increases of $140,000 or 38.1% in banking service charges and fees and $13,000
or 17.1% in loan fees and service charges, during the three months ended May 31,
1997, as compared to the same period in 1996.
NONINTEREST EXPENSE
Total noninterest expense decreased by $290,000 or 6.1% for the three months
ended May 31, 1997, as compared to the same period in 1996. The components of
noninterest expense are discussed below.
Compensation and benefits. During the three months ended May 31, 1997,
compensation and benefits decreased by $80,000 or 3.2%, as compared to the same
period in 1996, due primarily to a decrease in retirement benefit expense.
Occupancy and equipment. Occupancy and equipment expense increased $42,000
or 5.9% during the three months ended May 31, 1997, as compared to the same
period in 1996. The Association relocated two branch offices and opened one new
branch office during the three months ended May 31, 1997. No such offices were
relocated or opened during the same period in 1996.
Federal deposit insurance premiums. During the three months ended May 31,
1997, federal deposit insurance premiums paid to the FDIC decreased $320,000 or
71.3%, as compared to the same period in
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1996. This decrease was due primarily to legislation enacted to recapitalize
the Savings Association Insurance Fund during calendar year 1996, which also
reduced the insurance premium rates from 23 to 6.4 basis points on every $100
of assessable deposits effective January 1, 1997. Federal deposit insurance
premiums are a function of the size of the Association's deposit base.
Loss on foreclosed real estate, net. During the three months ended May 31,
1997, loss on foreclosed real estate, net, increased by $35,000 as compared to
the same period in 1996. This increase was primarily the result of a $30,000
provision made for possible losses on foreclosed real estate during the three
months ended May 31, 1997. There was no such provision made during the same
period in 1996.
ADVERTISING. During the three months ended May 31, 1997, advertising
expense decreased by $26,000 or 14.4%, as compared to the same period in 1996.
OTHER. During the three months ended May 31, 1997, other noninterest
expense increased by $59,000 or 6.3%, as compared to the same period in 1996.
This increase was primarily due to increases in legal fees, special services and
courier expense, and expenses such as telephone and postage.
INCOME TAXES
The Company made provisions for income taxes of $1.5 million and $1.2
million during the three months ended May 31, 1997 and 1996, respectively. The
$302,000 or 25.6% increase was due primarily to the increased profitability of
the Company.
CAPITAL ADEQUACY
The Association is required under certain federal regulations to maintain
minimum tangible capital equal to 1.5% of its adjusted total assets, minimum
core capital equal to 3.0% of its adjusted total assets and minimum total
capital (a combination of core and supplementary capital) equal to 8.0% of its
risk-weighted assets. At May 31, 1997, the Association had tangible capital
equal to 7.75% of adjusted total assets, core capital equal to 7.75% of adjusted
total assets and total capital equal to 15.28% of risk-weighted assets.
In August 1993, the OTS issued a final rule which adds an interest rate risk
component to the existing 8% risk-based capital requirement. Under the rule, a
savings institution would be required to hold capital as a safeguard against
interest rate exposure in an amount equal to 50% of the decline in the market
value of the institution's portfolio equity (i.e., the net present value of the
institution's assets, liabilities and certain off-balance-sheet items) that
would result from a 200 basis point change in market interest rates. The
requirement would apply to those institutions considered to be carrying "above
normal" risk. "Above normal" risk is defined as
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occurring when the decline in the market value of the portfolio equity, under
a 200 basis point rate change, exceeds 2% of the market value of the
institution's assets.
However, in October 1994, the Director of the OTS indicated that it would
waive the capital deductions for institutions with a greater than "normal"
risk until the OTS publishes an appeals process. In August 1995, the OTS
issued Thrift Bulletin No. 67 which allows eligible institutions to request
an adjustment to their interest rate risk component as calculated by the OTS
or to request use of their own models to calculate their interest rate
component. The OTS also indicated that it will delay invoking its interest
rate risk rule requiring institutions with "above normal" interest rate risk
exposure to adjust their regulatory capital requirement until new procedures
are implemented and evaluated. The OTS has not yet established an effective
date for the capital deduction. Because of the Association's strong
capitalization, management does not believe that compliance with the new rule
would adversely affect its operations.
Pursuant to the Federal Deposit Insurance Corporation Improvement Act of
1991, each federal banking agency is also required to establish capital levels
for insured depository institutions including "well capitalized", "adequately
capitalized", "undercapitalized" and "critically undercapitalized". A depository
institution's capital adequacy will be measured on the basis of its total
risk-based capital ratio, Tier 1 risk-based capital ratio and leverage ratio.
The degree of regulatory intervention is tied to the institution's capital
category, with increasing scrutiny and more stringent restrictions being imposed
as the institution's capital declines.
To be considered "well capitalized," an institution must generally have a
total risk-based capital ratio of at least 10%, a Tier 1 risk-based capital
ratio of at least 6% and a leverage capital ratio of at least 5%. At May 31,
1997, the Association was considered to be "well capitalized."
LIQUIDITY AND CAPITAL RESOURCES
The Association is required under certain federal regulations to maintain
specified levels of "liquid" investments including United States Government and
federal agency securities and other investments. Regulations currently in effect
require the Association to maintain liquid assets of not less than 5% of its net
withdrawable accounts plus short-term borrowings, of which short-term liquid
assets must consist of not less than 1%. The Association has consistently
maintained liquidity at or above the levels required by the regulations.
The Association's principal sources of funds are deposits, amortization and
prepayment of outstanding loans, borrowed funds and proceeds from the sale of
loans. During the past several years, the Association has used such funds
primarily to maintain its required
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liquidity levels, meet its ongoing commitments to fund maturing savings
certificates and savings withdrawals, and fund existing and continuing loan
commitments.
At May 31, 1997, the Association had $4.6 million of undisbursed loan funds
and $53.7 million in approved loan commitments. These commitments were partially
offset by $12.1 million in forward commitments to sell. In addition, as of May
31, 1997, the Association had $120.1 million of approved home equity lines of
credit, of which $60.8 million had been drawn by borrowers. The Association
anticipates that it will have the funds necessary to meet these obligations
through the sources of funds mentioned above. The amount of certificate accounts
which are scheduled to mature by May 31, 1998 is $442.7 million. Management
believes that, by evaluating competitive instruments and pricing in its market
area, it can, in most circumstances, manage and control maturing deposits so
that a substantial amount of such deposits are redeposited in the Association.
IMPACT OF INFLATION AND CHANGING PRICES
The consolidated financial statements and related data presented in this
report have been prepared in accordance with generally accepted accounting
principles, which typically require the measurement of financial position and
operating results in terms of historical dollars without considering changes in
the relative purchasing power of money over time due to inflation.
Virtually all of the assets and liabilities of Maryland Federal are monetary
in nature. As a result, interest rates have a more significant impact on
Maryland Federal's performance than the general level of inflation. Interest
rates do not necessarily move in the same direction or in the same magnitude as
the prices of goods and services.
-12-
<PAGE>
PART II - OTHER INFORMATION:
ITEM 1 - LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings other than
routine, nonmaterial legal proceedings occurring in the ordinary course
of business.
ITEM 2 - CHANGES IN SECURITIES
Not Applicable
ITEM 3 - DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not Applicable
ITEM 5 - OTHER INFORMATION
Not Applicable
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
Not Applicable
-13-
<PAGE>
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.
MARYLAND FEDERAL BANCORP, INC.
Date: July 15, 1997 By: /s/ Robert H. Halleck
------------- ---------------------------
Robert H. Halleck, President
and Chief Executive Officer
Date: July 15, 1997 By: /s/ Lynn B. Hounslow
------------- ---------------------------
Lynn B. Hounslow, Senior
Vice President, Treasurer,
Chief Financial Officer and
Principal Accounting Officer
-14-
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