First Maryland Bancorp is putting the finishing touches on its sixyear long "rebranding" project, announcing last week that it would change the names of its numerous affiliates to Allfirst. The change, which gives the previously-scattered entity a unified image and what the bank believes will be a stronger competitive brand going ahead, will be effective June 28.

First National Bank of Maryland, Dauphin Deposit Bank, The York Bank, Farmers Bank, Bank of Pennsylvania and Valleybank will all take on the new moniker. In addition, the $18.3-billion-asset parent company’s various businesses, involving brokerage, annuities and insurance, mortgages and trust services, will also take on the name Allfirst. Two subsidiaries, Allied Investment Advisors and Zirkin-Cutler Investments, will retain their names but begin using the Allfirst logo.

"Our new name reflects both our heritage of customer service and our continued commitment to relentlessly satisfying our customers’ needs," said CEO Frank Bramble. Also, the name reinforces the company’s goal to be the number one, two or three bank in terms of market share in each of the contiguous markets it serves: southern Pennsylvania, Maryland, Washington, D.C. and northern Virginia.

First Maryland Bancorp is a wholly-owned subsidiary of Allied Irish Banks

Disclosure requirements related to a new law affecting consumers’ options to cancel private mortgage insurance under Regulation Z, or Trust-In-Lending (TILA) laws, were tightened and clarified last week when the Federal Reserve Board staff issued new commentary.

The new staff commentary also increases the tolerance level for loans to qualify for the special rules dealing with high yield credits. Other issues touched on include treatment of combined credit/debit or credit/stored value cards, and required periodic disclosures for open-end credit.

The changes to Reg Z were prompted by the new homeowners protection law, which was passed by Congress last year. It allows borrowers to cancel private mortgage insurance (PMI) under some circumstances and requires lenders to terminate PMI automatically when other conditions are met.

The new staff commentary explains that the cost of PMI must be reflected in the payment schedule disclosure through the time of automatic termination under the new law, or other applicable law, and no further. The new commentary also makes clear that any assumptions required to be made in order to calculate the time of automatic termination for adjustable-rate mortgages should be made consistently with assumptions made for other TILA purposes, according to an industry lawyer.

In another provision dealing with mortgage practices, the commentary establishes new tolerances for the points-and-fees test for loans qualifying as "high-yield." The new figures reflect cost-of-living adjustments, and require that loans with associated points and fees which are the greater of $441, or 8% of the total loan amount, are subject to high-yield disclosure provisions.

The new commentary also notes that in making disclosures for open-end credit, prior-cycle finance charge adjustments can be calculated into the annual percentage rate (APR) for the subsequent period, or they can be disclosed as a separate item and not included in the calculation of the APR for the subsequent period.

Regarding combined credit/debit or credit/stored-value cards, the new commentary expands the definition of credit card to include cards with both credit and non-credit features. The lawyer said that issuance of a card with credit features at the time of issuance, even if such a card also has noncredit features, may not be unsolicited.

On the other hand, the lawyer said, issuance of a card with non-credit features that the consumer later activates as a credit card may be unsolicited.

A decision by the Office of the Comptroller of the Currency to allow Fleet Financial Group to provide services for its small-business customers over the Internet reopens an issue that was believed to limit the authority of national banks to offer data processing services to retailers.

The 11-page approval letter to Fleet by OCC Chief Counsel Julie Williams reopens an issue long thought to be closed by a court decision.

David W. Roderer, a Washington lawyer with Goodwin, Procter & Hoar, said that in approving the application, the agency noted the so-called "subordination requirements"–which generally limit non-banking data processing services–are not applicable. The agency said that the level of revenues from "associated traditional bank products" offered through the Web site are expected to greatly exceed those relating directly to the Web site services, and so the limits don’t apply inasmuch as "the Web site hosting activity is part, rather than incidental to the business of banking, and is thus not subject to scope limitations that apply to some incidental activities."

The data processing issue deals with a 1979 decision by a panel of the 9th U.S. Circuit Court of Appeals, based in San Francisco. Williams said in her interpretation that a 1995 Supreme Court ruling superseded the 1979 decision. The 9th Circuit decision limited the authority of national banks to offer data processing services to retailers.

The 1995 Supreme Court decision dealt specifically with annuities, but added that the OCC should be granted deference in determining whether a specific product was banking or closely related to banking. Williams argued that the 1995 ruling held that the "business of banking" is an evolving concept not limited to the powers enumerated under the National Bank Act.

The decision, which allows Fleet to help its small business customers to market their services through the Internet, is seen as allowing the majority of retail firms to do business on the Internet relatively inexpensively. It also opens an avenue for banks to expand their service offerings and increase their value to customers.

"The latest ruling acknowledges the ability of national banks to offer their small business customers a package of electronic services consisting of three components: retail Web site housing; retail payments processing; and business checking accounts," said Roderer. He also said that in holding that the business of banking encompasses a wide range of "informational services, the OCC "further opens the ever-expanding world of electronic commerce to banks.

"As full participants in developing and providing e-commerce capabilities to their retailer customers, banks might be expected to play a major role in affording efficient access to electronic markets for small businesses that might otherwise be beyond their reach," he said.

"Numerous concerns still need to be addressed, including tying, customer privacy, security and the full array of issues confronting electronic commerce," he said.

Under the approved product program, the bank will charge a one-time set-up fee and a monthly maintenance fee for a package of services that bundles traditional merchant credit card banking services with the software, hardware and technical support necessary for a small business to have its own Web site "able to accept credit card payments in a secure environment," Roderer noted, citing language in the letter.

"Significantly," Roderer said, "the Web site product, with related system support, will not be available as a separate product offering and cannot be purchased without the entire package of associated banking products and services, such as the checking account and merchant credit card relationship."

Despite intense competition in the Connecticut market, Webster Financial Corp. has more than quadrupled in size over the last five years– fueling that growth by closely observing customer needs.

The $9-billion-asset thrift’s expansion, up from $2.1 billion five years ago, has also stemmed from an aggressive acquisition strategy that has benefited, at times, from mergers between Webster’s big regional competitors. It picked up divested branches from Fleet Financial Corp.’s merger with Shawmut National Corp. in 1996, and it is a likely contender to benefit from Fleet’s merger with BankBoston Corp, announced last week.

John Brennan, Webster’s chief financial officer, said last week it was too early to consider assets that the proposed Fleet Boston Corp. will almost certainly have to divest. However, Webster gobbled up 20 branches and $850 million in assets and deposits directly from the Shawmut merger, and wound up with the remaining branches divested in Connecticut when it bought Eagle Financial in 1997.

Although Webster sees the importance in the new fee-income businesses that banks are getting into, its growth largely occurred on the back of thrifts’ traditional mortgage lending business. Fee-based income jumped just over 5% last year to 18.5% of total income–most of which stems from servicing loans–and is expected to climb to 25% in the next three to five years.

"If you think about our overall strategy, we already were a strong residential mortgage lender, a strong home equity lender, a strong deposit taker," Brennan said. "But we’ve been trying to broaden our product line over the last several years and we’ve been getting into other fee income lines, trust and investment management services and insurance."

The bank has two main strategies to gain even more market share. One is understanding the customer as thoroughly as possible with the help of market focus research groups and other marketing tools. The other is having better customer information to retain those customers driving the bank’s profitability, and offer them the best products and services for their needs through direct marketing, Brennan said.

John Menke, the bank’s database manager, said what sets Webster apart is that its database includes a lot of information most bank databases don’t have, such as data on specific transaction behavior of customers–not just what channel was used, but the specific location. And it makes better use of the information. "This information allows us to understand what we can do to effect a change in those behaviors, to increase the value of that product for both the customer and the bank." He said because the information is organized in a single data mart, the bank can view the true value and depth of a relationship.

Additionally, because models are getting better and better, the bank is better able to predict what services the customer will need. This week the bank is getting software delivered that will predict the most likely product a customer will purchase. "It’s just guidance, but in many instances, that’s all that is needed to get the customer to sign up for the additional service," Menke said.

Looking carefully at customer needs has kept Webster’s traditional banking business competitive, but Brennan said the bank–which anticipates keeping its flexible thrift charter–is looking into new areas to increase fee income and provide customers with a broader range of products.

One such effort was its purchase in June 1998 of Damman Insurance, which has clients all over the country. The insurance company is stationed under the holding company, whereas the bank’s other business lines are under the banking subsidiary.

He said the company’s purchase earlier this year of Access National Mortgage, an Internet mortgage company with $350 million in origination volume in 1998, fits into the strategy by increasing fee income. "And that’s one of the big differences as we evolve into a financial services provider; products that generate fee income rather than spread income," Brennan said. Access originates loans in 47 states.

The bank’s 105 branches across Connecticut have what Brennan calls "pretty strong" market share, ranking third in deposits in the state. It ranks either first or second in the Hartford, New Haven and Litchfield County markets, with at least 30% of the households in those areas banking with Webster.

The bank also originates loans in surrounding states, but it is not in a hurry to cross borders, Brennan said. "We would probably consider branching into other states if we could make it work economically. One of the problems with branching today is always somebody in that state that has greater cost savings because they’re there."

Brennan said part of the bank’s ongoing facelift involves diversifying the products and asset mixes. Currently, the bank has about 75% of its loans in residential mortgages. The goal over the next three-to-five years is to lower that number to 55%, while increasing the percentage of consumer and business loans to 25% from about 12% now. On the deposit side, the story is similar: management wants to boost checking accounts to 22%-23% from 19% now, while deflating CDs to 50% from the current 55% of deposits. The remainder, savings accounts and money market deposit accounts, is slated to drop to around 28%.

Striving for fewer and lower-cost deposits fits into Webster’s overall modernization strategy: "By increasing our commercial/industrial lending, small business lending and consumer lending–instead of residential mortgages–we will be selling more of those loans and retaining servicing, (thus giving) customer value," Brennan said.

In a new kind of municipal-revenue bond underwriting deal, Commerce Capital Markets is working on helping large cities fund mass transit improvements without having to wait until the federal grant money has trickled in.

The Cherry Hill, N.J.-based investment bank subsidiary of Commerce Bancorp would underwrite a bond that would be paid off entirely through future federal government grants. The idea is similar to grant anticipation revenue vehicle (Garvee) bonds which have been used in the last year to pay for highways, but not mass transit. Commerce Capital’s methodology on the new bonds would be different, according to Vince Stafford, CEO of the firm. Commerce Capital is proposing that the deals would not need the general obligation bonds that many Garvees require. That would be the case with deals that Commerce Capital is proposing to two major cities–which the firm declined to name until the deals are clinched.

This innovation was made possible last summer in Congress through legislation appropriating $217 billion for highway and mass transit spending over six years, called the Transportation Equity Act for the 21st Century, or Tea-21. This legislation made it a virtual guarantee that the funds will be there for municipalities to use, a change from before. Although three states used Garvee bonds which did not require additional backing from general obligation bonds–known as "naked Garvees"–last year to fund highways, the proceedure had not yet been used for mass transit.

Stafford explained the cities can get their projects started sooner by getting funding this way than getting a grant of a certain number of years and having to wait until nearly the end of that time to start. He said he is expecting a decision from one of the cities sometime this week.