First Maryland Bancorp, the US subsidiary of Allied Irish Banks, has announced a strong profits performance for 1997 with a 14 per cent rise in pre-tax profits to $235.5 million (£172.5 million).
Underlying profits growth was stronger, at 22 per cent, when the effects of once-off costs and gains and a $26 million goodwill write-off associated with the Dauphin acquisition are stripped out. Profits were boosted by the inclusion of Dauphin Deposit Corporation, acquired in 1997 for $840 million, as well as good increases in fees from funds management and investment advisory services at First Maryland.
The only blot on the performance was the sharp rise in provisions for losses on credit card loans, up from $500,000 to $5.4 million for the fourth quarter and from $6.5 million to $32 million for the year. First Maryland (FMB) took steps to resolve its problems in the difficult credit card market in the third quarter of 1997 with the sale of the card business which was co-branded with Bell Atlantic. That deal resulted in a once-off gain of $28.2 million.
FMB is now selling its consumer credit card portfolio to Bank of America. That deal is expected to result in a pre-tax gain of $60 million in the current quarter. When the deal is completed, FMB will have a credit card portfolio of about $15 million - Dauphin customers. FMB customers will continue to be offered credit cards with the First Maryland brand name. But the business will be managed by the Bank of America, which will carry the risks.
FMB is also selling its mortgage origination business - mortgages were advanced and blocks of loans were then sold off to investors. While not loss-making, the business was making no contribution to profits. The merged FMB/Dauphin operation is concentrating on retail and commercial banking, and developing and building on relationships with customers, according to AIB chief financial officer, Mr Declan McSweeney.
Dauphin started to make a contribution to profits after funding costs and the goodwill write-off in the fourth quarter, he said. The integration of the businesses, which started in July, is understood to be ahead of target.
Results for the final quarter of 1997 show 26.5 per cent drop in pre-tax profits to $41.3 million. But when costs of $20 million associated with the merger of Dauphin with FMB are stripped out, underlying profits increased by just over 9 per cent. Losses on credit cards business held back profits growth in the quarter. In addition to the provisions, income from servicing securitised credit card loans was down from $6.9 million to $6 million, with losses on securitised cards offset against income received.
Dauphin added deposits of just under $4.5 billion to bring total deposits at the bank to almost $12.5 billion and giving an underlying 6.5 per cent increase in deposits at FMB. Total loans increased from $6.798 billion to $10.084 billion. Dauphin added $3.3 billion and, when the Bell Atlantic loans are stripped out of the 1996 figures, underlying lending at FMB rose by 6 per cent last year.
Because the FMB and Dauphin operations are now merged, separate income and costs figures are not provided. The profit and loss account shows a 31 per cent rise in interest income at the merged operation for 1997 to $941.5 million.
