FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended June 30, 1995
Commission file number 0-14237
First United Corporation
(Exact name of registrant as specified in its charter)
Maryland 52-1380770
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification no.)
19 South Second Street, Oakland, Maryland 21550-0009
(address of principal executive offices) (zip code)
(301) 334-9471
Registrant's telephone number, including area code
Not applicable
Former name, address and former fiscal year, if changed since
last report.
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 periods that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common stock, $.01 Par value--6,191,767 shares outstanding as of
June 30, 1995 Preferred stock, No par value--No shares
outstanding as of June 30, 1995.
INDEX
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1995
(Unaudited), December 31, 1994, and June 30, 1994
(Unaudited).
Consolidated Statements of Income (Unaudited) - Six months
ended June 30, 1995 and 1994 and three months ended June 30, 1995
and 1994.
Consolidated Statement of Cash Flows (Unaudited) - Six
months ended June 30, 1995 and 1994.
Notes to Unaudited Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-k.
SIGNATURES
-02-
FIRST UNITED CORPORATION
Consolidated Balance Sheet
(In Thousands)
June 30, Dec. 31, June 30,
ASSETS 1995 1994 1994
(Unaudited) (*) (Unaudited)
-----------------------------
Cash and Due From Banks $18,367 $14,536 $14,108
Investments:
Available-for-Sale:
U.S. Treasury Securities 10,030 21,252 21,850
Obl. of Other U S Gov. Agen. 28,393 29,975 29,914
Obl. of St. and Loc. Govt 3,839 2,663 0
Other Investments 22,566 21,450 19,412
--------------------------
Total Available-for-Sale 64,828 75,340 71,176
Held-to-Maturity:
Obl. of Other U S Govt Agen 3,800 3,800 2,800
Obl. of St. and Loc. Govt 5,157 5,294 8,409
Other Investments 10,805 11,185 10,999
---------------------------
Total Held-to-Maturity 19,762 20,279 22,208
---------------------------
Total Investment Securities 84,590 95,619 93,384
Federal Funds Sold 1,700 0 1,980
Loans 349,777 335,725 317,368
Reserve for Poss. Credit Loss (2,203) (2,350) (2,341)
---------------------------
Net Loans 347,574 333,375 315,027
Bank Premises and Equipment 9,787 9,354 8,366
Acc. Int. Rec. and Other Assets 5,230 6,156 5,555
----------------------------
TOTAL ASSETS $467,248 $459,040 $438,420
============================
* The balance sheet at December 31, 1994 has been derived from
the audited financial statements at that date.
See notes to unaudited consolidated financial statements.
() Indicates Deduction
-03-
FIRST UNITED CORPORATION
Consolidated Balance Sheet
June 30, Dec. 31, June 30,
1995 1994 1994
(Unaudited) (*) (Unaudited)
LIABILITIES
Deposits
Non-int. Bearing Deposits $ 46,981 $ 43,090 $ 42,272
Interest Bearing Deposits 362,697 348,560 340,424
---------------------------
Total Deposits 409,678 391,650 382,696
Reserve for Taxes, Int., &
Other Liabilities 3,696 4,886 4,544
Fed funds purchased & other
borrowed money 300 11,373 799
----------------------------
TOTAL LIABILITIES 413,674 407,909 388,039
SHAREHOLDERS EQUITY
Preferred Stock -No Par Value
Authorized and Unissued; 2,000 Shares
Capital Stock -Par Value $.01 per Share:
Authorized 12,000 shares; Issued and
Outstanding 6,192 shares. 62 62 62
Surplus 23,141 23,141 23,141
Retained Earnings 30,377 29,435 27,842
Unrealized (Losses) on
Available-for-Sale Investment
Securities net of taxes (6) (1,507) (664)
---------------------------
TOTAL SHAREHOLDERS' EQUITY 53,574 51,131 50,381
---------------------------
TOTAL LIABILITIES' AND
SHAREHOLDERS EQUITY $467,248 $459,040 $438,420
============================
* The balance sheet at December 31, 1994 has been derived from
the audited financial statements at that date.
See Notes to unaudited consolidated financial statements.
() Indicates Deduction
-04-
FIRST UNITED CORPORATION
Consolidated Statement Of Income
(In Thousands, except per share data)
Six Months
Ended June 30,
1995 1994
-------------------
(Unaudited)
INTEREST INCOME
Interest and fees on loans $15,355 $13,859
Interest on investment securities:
Taxable 2,397 1,694
Exempt from federal income tax 229 281
--------------------
$2,626 $1,975
Interest on federal funds sold 86 95
--------------------
TOTAL INTEREST INCOME $18,067 $15,929
INTEREST EXPENSE
Interest on deposits:
Savings $1,047 $911
Interest-bearing transaction acct. 1,218 960
Time, $100,000 or more 760 221
Other time 3,834 2,875
Interest on Fed Funds purchased
& other borrowed money 94 175
--------------------
TOTAL INTEREST EXPENSE $6,953 $5,142
NET INTEREST INCOME $11,114 $10,787
Provision for possible credit losses 0 (163)
---------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE CREDIT LOSSES $11,114 $10,624
OTHER OPERATING INCOME
Trust department income $469 $434
Service charges on deposit accts. 752 814
Insurance premium income 125 133
Security (losses) / gains (19) 3
Other income 609 495
--------------------
Total Other Operating Income $1,936 $1,879
-05-
Six Months
Ended June 30,
1995 1994
OTHER OPERATING EXPENSES -------------------
(Unaudited)
Salaries and Employees Benefits $4,510 $4,253
Occupancy Expense of Premises 465 505
Equipment Expense 597 536
Data Processing Expense 293 230
Deposit Assess. and Related Fees 524 488
Restructuring Expense 819 0
Other Expense 2,248 1,812
---------------------
Total Other Operating Expenses $9,456 $7,824
INCOME BEFORE TAX $3,594 $4,679
Applicable Income Taxes 1,165 1,517
----------------------
NET INCOME $2,429 $3,162
======================
NET INCOME PER SHARE $0.39 $0.51
======================
Average Common Shares
Outstanding 6,192 6,192
======================
See Notes to Unaudited consolidated financial statements.
-06-
FIRST UNITED CORPORATION
Consolidated Statement Of Income
(In Thousands, except per share data)
Three Months
Ended June 30,
1995 1994
-------------------
(Unaudited)
INTEREST INCOME
Interest and fees on loans $7,884 $6,981
Interest on investment securities:
Taxable 1,161 905
Exempt from federal income tax 121 129
--------------------
$1,282 $1,034
Interest on federal funds sold 54 73
--------------------
TOTAL INTEREST INCOME $9,220 $8,088
INTEREST EXPENSE
Interest on deposits:
Savings $520 $464
Interest-bearing transaction acct. 635 532
Time, $100,000 or more 376 119
Other time 2,033 1,370
Interest on Fed Funds purchased
& other borrowed money 25 174
--------------------
TOTAL INTEREST EXPENSE $3,589 $2,659
NET INTEREST INCOME $5,631 $5,429
Provision for possible credit losses (30) 83
---------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE CREDIT LOSSES $5,661 $5,346
OTHER OPERATING INCOME
Trust department income $235 $224
Service charges on deposit accts. 403 445
Insurance premium income 63 71
Security (losses)/gains (19) 0
Other income 305 248
--------------------
Total Other Operating Income $987 $988
-07-
Three Months
Ended June 30,
1995 1994
-------------------
(Unaudited)
OTHER OPERATING EXPENSES
Salaries and Employees Benefits $2,181 $2,183
Occupancy Expense of Premises 288 237
Equipment Expense 304 273
Data Processing Expense 132 126
Deposit Assess. and Related Fees 261 241
Restructuring Expense 819 0
Other Expense 1,166 897
---------------------
Total Other Operating Expenses $5,151 $3,957
INCOME BEFORE TAX $1,497 $2,377
Applicable Income Taxes (467) (815)
----------------------
NET INCOME $1,030 $1,562
======================
NET INCOME PER SHARE $0.17 $0.25
======================
Average Common Shares
Outstanding 6,192 6,192
======================
See Notes to Unaudited consolidated financial statements.
-08-
FIRST UNITED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS) Six Months
Ended June 30,
1995 1994
--------------------
(Unaudited)
OPERATING ACTIVITIES
Net Income $ 2,429 $ 3,162
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 0 163
Provision for depreciation 540 435
Net accretion & amortization of investment
security discounts & premiums 262 416
Realized (loss)/gain on sale
Of investment securities (19) 0
Decrease / (increase)in acc. interest
& other receivables. 926 (943)
(Decrease) / increase in accrued interest
& other payables (1,190) 1,138
--------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 2,948 $ 4,371
--------------------
INVESTING ACTIVITIES
Proceeds from sales and maturities of available-
for-sale investment securities $ 57,218 $ 22,917
Purchases of available-for-sale
investment securities (44,669) (35,829)
Proceeds from maturities of held-to-
maturity investment securities 3,810 830
Purchases of held-to-maturity
investment securities (4,072) (4,556)
Net (increase) / decrease in loans (14,199) 715
Purchases of premises & equipment (973) (775)
-------------------
NET CASH USED IN INVESTING ACTIVITIES $ (2,885) $ (16,698)
-------------------
-09-
Six Months
Ended June 30,
1995 1994
--------------------
FINANCING ACTIVITIES (Unaudited)
(Decrease) in Fed Fund Purchased
and Other Borrowed Money $(11,073) 0
Net (decrease) / increase in demand deposits,
NOW accounts and savings accounts (1,472) 9,654
Net increase in certificates of deposits 19,500 4,515
Cash dividends paid or declared (1,487) (619)
Proceeds form issuance of capital stock 0 130
NET CASH PROVIDED BY IN --------------------
FINANCING ACTIVITIES $ 5,468 $ 13,680
--------------------
Cash and cash equivalents at beg. of qtr. $ 14,536 $ 14,735
Increase in cash & cash equiv. 5,531 1,353
--------------------
Cash & cash equivalents at end of period $ 20,067 $ 16,088
====================
See Notes to unaudited consolidated financial statements.
-10-
FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
June 30, 1995
Note A -- Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q. Accordingly, they do not include
all the information and footnotes required for complete financial
statements. In the opinion of management, all adjustments
considered necessary for a fair presentation, consisting of
normal recurring items have been included. Operating results for
the six month period ended June 30, 1995, are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1995. The enclosed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December
31, 1994.
Earnings per share are based on the weighted average number
of shares outstanding of 6,192 for the three and six months ended
June 30, 1995 and 1994.
-11-
Part I. Financial Information
Item II. Management's Discussion and Analysis
Consolidated net earnings for the quarter totaled $1.03
million, which is $.53 million less than was recorded for the
second quarter of 1994. This translates into $.17 per share for
the second quarter of 1995 versus $.25 per share in 1994. Year-to-date
consolidated earnings totaled $2.43 million versus $3.16
million in 1994 or $.39 and $.51 per share respectively. The
decrease in earnings can be attributed to the following items:
second quarter 1995 early retirement one time charge of $.82
million which is discussed in more detail below, and increases in
other expenses relating to costs associated with subsidiary bank
consolidation, expansion in Frederick and Hagerstown, Maryland
market areas, the implementation of an Automated Corporate Wide
Area Network, relocation of the Corporate Marketing Department,
and interest costs associated with a deposit campaign conducted
in early 1995.
In keeping with the Corporation's ongoing efforts to
maintain or increase profitability in an increasingly competitive
marketplace and to make the most productive use of employees, the
Corporation offered a voluntary early retirement plan to select
employees. There were eleven employees eligible to participate in
the plan, and all eleven eligible employees opted to participate
in the plan. As of June 30, 1995, ten employees had left
employment with the other person scheduled to leave in the third
quarter. The cost of the plan was covered by a special one-time
charge to earnings. To carry out this plan, the Board of
Directors authorized a one-time pre-tax charge of $0.81 million
against second quarter earnings. The charge is comprised largely
of additional pension expense of $0.43 million, severance pay and
one-time health insurance charges related to the eleven retirees.
While the charge is expected to lower 1995 pre-tax earnings
by approximately $.13 per share, management believes the overall
expense reduction resulting from this action will better position
the Corporation for profitable growth in the years ahead. As we
implement our restructuring plan, we will realize cost savings of
increasing magnitude. These savings will further improve our
profitability and enable us to implement our ambitious marketing
and new product programs more aggressively. We also expect that
they will help us sustain our strong dividend payment record.
While the above mentioned items negatively impacted net
earnings in 1995, it is anticipated that the results of this
restucturing will improve the Corporation's market share and,
enhance customer service and profitability in the future.
-12-
The efficiency ratio, which is a key measuring tool for
profitability and operating efficiency was -71.23% as of June 30,
1995 versus -60.69% at June 30, 1994. The one-time charge
associated with the voluntary early retirement plan is the
largest cause in the deterioration of the efficiency ratio. If
the ratio is calculated adjusting for the one-time charge, the
efficiency ratio would have been -65.06%. The other above
mentioned reasons for the decline in net income also impacted
negatively on the efficiency ratio.
Interest expense increased $1.81 million or 35.22% over the
first half of 1994. Throughout much of the first half of 1995 the
Corporation experienced rising deposit costs,and a slight
increase in the level of average interest bearing deposits.
The rising interest costs were the result of action by the
Federal Reserve Bank and also by competitive forces in all of the
Corporation's market areas. The Corporation also conducted a
deposit campaign which was successful in raising $16 million in
new deposits in the first quarter. The reason for the deposit
campaign was not only increase to our deposit base, but also to
reduce our external borrowing which totaled $11.4 million as of
December 31, 1994. The precise timing of gathering deposits is
critical in the management of the Corporation's liquidity and
interest margins. In managing the Corporation's liquidity and
interest margins, the Corporation utilizes a diverse line of
products at all of its subsidiaries.
Net interest income for the first half of 1995 increased
3.03% from the same period in 1994 to $11.11 million. Even
though interest expense has increased, the Asset/Liability
Committee (ALCO) has been able to achieve an interest margin of
5.23% versus 5.45% for the same period in 1994. The 5.23% net
interest margin is within the expectations of the Corporation, as
deposit costs have increased faster than asset yields during the
first half of 1995. This is the opposite of what occurred in
1994. The ALCO committee was also able to achieve a Return on
Average Assets (ROAA) of 1.05% versus 1.47% during the same
period in 1994. After adjusting for the one-time restructuring
charge of $.82 million in 1995, the ROAA would be 1.26%.
During the first half of 1995, the Corporation experienced
excellent loan growth. Total gross loans amounted to $349.78
million, which represents a growth of $21.41 million over June
30, 1994, and a growth of $14.05 million over December 31, 1994.
-13-
The Corporation also experienced strong deposit growth in
the first half of 1995. Deposits as of June 30, 1995 totaled
$409.68 million versus $382.70 million at June 30, 1994 and
$391.65 million at December 31, 1994. The growth in deposits was
experienced primarily in consumer Certificates of Deposit from
within our various market areas.
The Reserve for Possible Credit Losses amounted to $2.20
million at June 30, 1995, which amounts to 0.63% of total gross
loans. First United's loan review process continues to keep the
loan portfolio under close scrutiny. Net charge offs for the
first quarter totaled $.152 million. This represents 0.04% of our
gross loan total of $349.78 million. Because of the low level of
losses, the Corporation did not have a loan loss provision in the
first half of 1995. The Corporation also credits excellent
underwriting standards and training to the excellent credit
quality of the portfolio.
First United opened its newest supermarket community office
on March 8, 1995. This office is located in the new Martin's
Food Store on Dual Highway in Hagerstown. This is the third
supermarket office opened by the First United family of community
banks.
Myersville Bank's Riverside Center has made a great
contribution to the Corporation by assisting in growing its
deposits. To date, the Corporation is pleased with the growth of
the customer base within this office.
The Corporation, in an effort to control costs, closed its
Thayer Center office May 13, 1995 and transferred the customer
relationship to the Oakland Main Office which is located in close
proximity to the Thayer Center office.
The Corporation is also in the process of merging its
banking subsidiaries into one entity by planning to consolidate
First United National Bank and Trust and First United Bank of
West Virginia in the third quarter and Myersville Bank in the
fourth quarter of 1995. The Corporation is currently in the
process of applying to the various regulatory agencies for
approval of the transactions. As a result of the consolidation,
the Citizens office, located in Westernport, Maryland, will be
closed in the third quarter. The Corporation will transfer the
customer relationships to the Corporation's Piedmont office which
is located less than one-half mile away, thus gaining efficiency
of both staffing and facility expense while maintaining good
customer accessibility and service.
-14-
Another strong quality of First United is its capital
position. Shareholder equity increased to $53.58 million, a 6.35%
increase from the balance at June 30, 1994, which was $50.38
million. Because of the Corporation's strong and consistent
earnings, the capital of the Corporation continues to grow. Risk
based capital, which is an expression of your Corporation's
stability and security, was a hardy 16.25% versus 16.75% on June
30, 1994, far surpassing the regulatory minimum of 8%.
The Corporation paid a $.12 per share dividend on February
1, 1995 and May 1, 1995. The Board of Directors also declared a
$.12 per share dividend on July 5, 1995 payable August 1, 1995 to
shareholders of record on July 24, 1995.
-15-
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
The Company did not file any reports on Form
8-K for the quarter ending June 30, 1995.
-16-
SIGNATURES
Pursuant to the requirement 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 UNITED CORPORATION
Date 07/10/95 /s/ RICHARD G. STANTON
---------- ----------------------------------------
Richard G. Stanton, Chairman of the
Board, President, and Chief Executive
Officer
Date 07/10/95 /s/ ROBERT W. KURTZ
---------- ----------------------------------------
Robert W. Kurtz, Executive Vice
President and Treasurer
-17-
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 UNITED CORPORATION
Date 07/10/95
---------- ----------------------------------------
Richard G. Stanton, Chairman of the
Board, President and Chief Executive
Officer
Date 07/10/95
---------- ---------------------------------------
Robert W. Kurtz, Executive Vice
President and Treasurer
-18-
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