ALLIED Irish Banks is expanding its US operations with the $83.5 million (£53.2 million) acquisition of a savings and loan bank in northern Virginia. AIB's US subsidiary First Maryland Bancorp (FMB) has agreed to buy First Washington Bancorp in a move which will increase FMB's presence in the lucrative markets of the greater Washington area.

FMB senior vice president Mr Jim Smith said the latest acquisition is the first of a number of acquisitions in the US.

"We plan to make more acquisitions. We now have a mergers and acquisition group at FMB focussed on finding suitable acquisitions in our regional market. Before we had an ad hoc approach. We would like to acquire $4 billion to $5 billion of assets over the net few years. We are focused on that."

FMB is paying a cash price of $83.5 million for the savings and loan bank which had assets of $801 million, net loans of $357 million, deposits of $449 million and equity of $45.6 million at September 30th, 1995.

The price is 1.8 times the historic end September books value and 16.4 times First Washington's after tax profits of $5.1 million for the year to end June, 1995. The acquisition will dilute AIB's earnings per share marginally in 1996 but is expected to make a contribution in 1997.

At 1.8 times historic book value, the price compares favourably with prices of 1.5 times to 2.5 times in savings and loans deals over the past 18 months. In cash deals, prices have been in a range of 1.7 times to two times.

At a multiple of 16.4 times historic earnings, the price looks less cheap. But Mr Smith explained that there are substantial opportunities for cost savings at the 17 branch bank.

"First Washington has a cost income ratio of 70 to 80 per cent ratio, so there are opportunities there," he said. Cost savings will come from transferring all the back office administration, processing and application systems to FMB centres in Baltimore and Millboro in Delaware.

There will be some cost savings from rationalisation of the branch network. One or two First Washington branches in Maryland may be closed, Mr Smith said, adding that there is very little overlap with FMB's existing network of 162 branches. FMB has 40 branches in the greater Washington area.

Based in Herndon, in northern Virginia, First Washington is a specialised bank concentrating on mortgage and personal lending and retail deposit taking. FMB plans to increase income by turning the branches into full service banks, cross selling FMB group products to First Washington customers.

The latest deal is small in terms of FMB's total assets - adding assets of $801 million to FMB's end 1995 assets of $10.5 billion. But the potential lies in the opportunity to sell existing FMB products through an established network with an existing customer base in a wealthy market area.

FMB chairman Mr Jerry Casey said the deal was important because it extends FMB's presence in the greater Washington area. "It is a natural extension in our defined marketplace which extends from southern Pennsylvania through northern Virginia. It represents a further installment in our continuum of investments in this area," he said.

AIB group chief executive Mr Tom Mulcahy said the acquisition "fits with the AIB group strategy of growing and enhancing the First Maryland Bancorp franchise".