UNITED STATES SECURITIES AND EXCHANGE COMMISSION FORM 10-K
WASHINGTON, DC 20549
(Mark One)
l ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the fiscal year ended December 31, 1994
OR
l TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from January 1, 1994, to December 31, 1994
Commission file number 0-14237
FIRST UNITED CORPORATION
(Exact name of registrant as specified in its charter)
Maryland 52-1380770
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
19 South Second Street
Oakland, Maryland 21550-0009
(Address of principal executive offices) (Zip Code)
Registrant s telephone number, including area code (301) 334-9471
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 per share
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 5(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. Yes l No l
Indicate by check mark if disclosures of delinquent filers pursuant to
Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained
herein, and will not be contained, to the best of the registrant s knowledge,
in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. l
The aggregate market value of the voting stock held by non-affiliates of
the registrant as of February 28, 1995:
Common Stock $.01 Par Value $126,931,224
The number of shares outstanding of the registrant classes of common
stock as of February 28, 1995:
6,191,767 Shares
Documents Incorporated by Reference
Portions of the registrant s definitive proxy statement for the annual
shareholders meeting to be held April 18, 1995, are incorporated by reference
into Part III.
(1)
First United Corporation
Table of Contents
PART I
Item 1. Business 3
Item 2. Properties 6
Item 3. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
PART II
Item 5. Market for the Registrant s Common Stock and Related
Shareholder Matters 6
Item 6. Selected Financial Data 8
Item 7. Management s Discussion and Analysis of Financial
Condition and Results of Operations 8-21
Item 8. Financial Statements and Supplementary Data 22-40
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 40
PART III
Item 10. Directors and Executive Officers of the Registrant 41
Item 11. Executive Compensation 41
Item 12. Security Onership of Certain Beneficial Owners and
Management 41
Item 13. Certain Relationships and Related Transactions 42
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 42
Signatures 43
(2)
PART I
Item 1. BUSINESS
FIRST UNITED CORPORATION
First United Corporation (the Corporation ) headquartered in Oakland,
Maryland, is a multi-bank holding company with one non-bank subsidiary. The
Corporation was organized under the laws of the State of Maryland in 1985. On
July 1, 1985, the Corporation acquired all the outstanding stock of First
United Interim National Bank, successor by merger of First United National
Bank & Trust.
On November 30, 1993, the Corporation merged with HomeTown Bancorp, Inc.,
(and its subsidiary Myersville Bank). On that date, the Corporation issued
697,500 shares of its common stock in exchange for all of the outstanding
shares of HomeTown Bancorp s common stock. On December 23, 1993, HomeTown
Bancorp (the holding company) was dissolved, resulting in Myersville Bank
becoming a direct subsidiary of the Corporation. The consolidated financial
statements of the Corporation give retroactive effect to the merger, which has
been accounted for as a pooling of interests. Accordingly, the financial
statements of the Corporation and Myersville Bank have been combined and are
included in the consolidated financial statements of the Corporation for all
periods presented.
First United National Bank & Trust, First United Bank of West Virginia,
N.A., Myersville Bank, and Oakfirst Life Insurance Corporation are the only
operating subsidiaries of the Corporation.
FIRST UNITED NATIONAL BANK & TRUST
First United National Bank & Trust is a national banking association
chartered in 1900 and is a member of the Federal Reserve System. The deposits
of First United National Bank & Trust are insured by the Federal Deposit
Insurance Corporation (FDIC).
First United National Bank & Trust operates fourteen banking offices,
five facilities in Garrett County, Maryland, eight in Allegany County,
Maryland and one in Washington County, Maryland. First United also operates a
total of fifteen Automated Teller Machines (ATM s), five of which are located
in Garrett County, nine in Allegany County and one in Washington County,
Maryland. First United National Bank & Trust provides a complete range of
retail and commercial banking services to a customer base in Garrett and
Allegany counties in Maryland and residents in neighboring counties in
Pennsylvania and West Virginia. The customer base in the aforementioned
geographical area consists of individuals, businesses and various governmental
units. The services provided by First United National Bank & Trust include
checking, savings, NOW and Money Market deposit accounts, business loans,
personal loans, mortgage loans, educational loans, lines of credit and
consumer-oriented financial services including IRA and KEOGH accounts. In
addition, First United Nationl Bank & Trust provides a variety of insurance
products, such as annuities and home owner s insurance, and full brokerage
services through a networking arrangement with PrimeVest Financial Services,
Inc., a full service broker-dealer. First United National Bank & Trust also
provides safe deposit and night depository facilities and a complete line of
trust services. As of December 31, 1994, First United National Bank & Trust
had total deposits of $291.87 million and total loans of $256.96 million, and
the total market value of assets under the supervision of the Trust Department
was approximately $129 million.
FIRST UNITED BANK OF WEST VIRGINIA, N.A.
First United Bank of West Virginia, N.A., is a national banking
association chartered in 1887 and is a member of the Federal Reserve System.
The deposits of First United Bank of West Virginia, N.A., are also insured by
the FDIC.
First United Bank of West Virginia, N.A., operates four banking offices.
Two are located in Mineral County, West Virginia; one is located in Hampshire
County, West Virginia, and one in Hardy County, West Virginia. In addition,
First United Bank of West Virginia, N.A., also operates three ATM s, one in
each of Mineral, Hampshire and Hardy Counties. First United Bank of West
Virginia, N.A., provides a complete range of retail and commercial banking
services to a customer base in Mineral, Hampshire and Hardy Counties, West
Virginia, and to residents in neighboring Garrett and Allegany Counties in
Maryland. The customers in these geographical areas consist of individuals,
businesses, and various governmental units. The services provided by the First
United Bank of West Virginia, N.A. include checking, savings, NOW, and Money
Market deposit accounts, business loans, personal loans, mortgage loans,
educational loans, lines of credit, trust services, and a variety of insurance
products such as annuities and home owner s insurance. First United Bank of
West Virginia, N.A., also provides safe deposit and night depository
facilities. First United Bank of West Virginia, N.A., opened banking offices
in Romney, Hampshire County, and Moorefield, Hardy County, West Virginia
during 1993. At December 31, 1994, First United Bank of West Virginia, N.A.
had total deposits of $40.54 million and total loans of $37.45 million.
(3)
MYERSVILLE BANK
Myersville Bank is a commercial bank incorporated under the laws of the
State of Maryland on October 26, 1898. The deposits of Myersville Bank are
insured with the FDIC. It is engaged in a general commercial and retail
banking business serving individuals, businesses, and governmental units in
Frederick County, Maryland, Washington County, Maryland, and neighboring
areas. Myersville Bank has its main office in Myersville, Maryland, which is
located in Frederick County. Myersville Bank also has branch offices in
Smithsburg, Maryland, and Hagerstown, Maryland which are located in Washington
County, and a banking office in Frederick, Maryland. In addition, Myersville
Bank also operates six ATM s, three of which are located in Frederick County
and three in Washington County.
Myersville Bank provides a variety of products and services to
individuals and businesses in its market area. Deposit accounts include
savings, checking (including NOW and Super NOW), money market, Christmas Club
and individual retirement accounts, as well as certificates of deposit and
trust services. The lending products of Myersville Bank include first and
second mortgages, home equity loans, vehicle loans, personal loans and
commercial loans including agribusiness loans. Myersville Bank also offers
services such as automated teller machines, money orders, Visa cards, safe
deposit boxes, direct deposit and banking by mail.
Historically, Myersville Bank has been a consumer-oriented institution
that has made loans to idividuals and small and medium-sized businesses. As
part of its provision of services in the Frederick/Washington County market,
Myersville Bank, in conjunction with its Community Reinvestment Act planning
process and the local housing authority, has adopted policies and strategies
which management believes have been helpful in determining both lending and
deposit patterns. Analysis of this information permits the Board of Directors
and senior management to ensure that potential borrowers are treated in a fair
and nondiscriminatory manner and to promote services in all areas of
Myersville Bank s market. At December 31, 1994, Myersville Bank had total
deposits of $62.73 million and total loans of $49.12 million.
OAKFIRST LIFE INSURANCE CORPORATION
Oakfirst Life Insurance Corporation is a reinsurance company that
reinsures credit life and credit accident and health insurance written by U.S.
Life Credit Life Insurance Corporation on consumer loans made by First United
National Bank & Trust and Myersville Bank. Oakfirst Life Insurance
Corporation, which was chartered in 1989, is a wholly owned subsidiary of the
Corporation.
Competition
The Corporation s banking subsidiaries, First United National Bank &
Trust, First United Bank of West Virginia, N.A., and Myersville Bank, compete
with various other national banking associations, state banks, branches of
major regional banks, savings and loan associations, savings banks, and credit
unions, as well as other financial service institutions such as insurance
companies, brokerage firms and various other investment firms. In addition to
this local competition, First United National Bank & Trust, First United Bank
of West Virginia, N.A., and Myersville Bank also compete for banking business
with institutions located outside the States of Maryland and West Virginia.
Supervision and Regulation of Banking Entities
The Corporation is a registered bank holding company subject to
regulation and examination by the Board of Governors of the Federal Reserve
System under the Bank Holding Company Act of 1956 (the Act ). The Corporation
is required to file with the board of governors quarterly and annual reports
and any additional information that may be required according to the Act. The
Act also requires every bank holding company to obtain the prior approval of
the Federal Reserve Board before acquiring direct or indirect ownership or
control of more than 5% of the voting shares of any bank which is not already
(4)
majority owned. The Act also prohibits a bank holding company, with certain
exceptions, from engaging in or acquiring direct or indirect control of more
than 5% of the voting shares of any company engaged in non-banking activities.
One of the principal exceptions to these provisions is for engaging in or
acquiring shares of a company engaged in activities found by the Federal
Reserve Board to be so closely related to banking or managing banks as to be a
proper incident thereto.
The Federal Deposit Insurance Corporation Improvement Act of 1991 (
FDICIA ) was enacted in December 1991. FDICIA was primarily designed to
provide additional financing for the FDIC by increasing its borrowing ability.
The FDIC was given the authority to increase deposit insurance premiums to
repay any such borrowing. In addition, FDICIA identifies capital standard
categories for financial institutions: well capitalized, adequately
capitalized, undercapitalized, significantly undercapitalized, and critically
undercapitalized. FDICIA imposes progressively more restrictive constraints on
operations, management and capital distributions depending on the category in
which an institution is classified.Pursuant to FDICIA, undercapitalized
institutions must submit recapitalization plans, and a holding company
controlling a failing institution must guarantee such institution s compliance
with its plan.
FDICIA also requires the various regulatory agencies to prescribe certain
non-capital standards for safety and soundness relating generally to
operations and management, asset quality and executive compensation and
permits regulatory action against a financial institution that does not meet
such standards. The statute also imposes limitations on certain mergers and
consolidations between insured depository institutions with different home
states.
In addition to limitations on bank holding company acquisitions under
laws administered by the Federal Reserve Board and FDIC, other restrictions on
acquisitions are contained in certain state laws. For example, the banking
laws of many states, including Maryland and West Virginia, generally permit
out-of-state bank holding companies to acquire and control domestic banks so
long as there is a reciprocal right under the statutes of the acquiring
company s home state. On September 29, 1994, the Interstate Banking Efficiency
Act was signed into Federal law. This legislation is intended to diminish the
barriers to interstate acquisitions and mergers among banking institutions,
and to provide greater flexibility in interstate branching. This statute is
not expected to have any immediate impact on the business and operations of
the Corporation, but no prediction can be made as the effect of the new law on
competitive conditions facing the banking industry in general or the
Corporation in particular.
First United National Bank & Trust, and First United Bank of West
Virginia, N.A. are Federally insured national banking associations. The
operation of both subsidiaries is subject to Federal and state laws applicable
to commercial banks with trust powers and to regulation by the Comptroller of
the Currency, the Federal Reserve Board, and the FDIC. Myersville Bank is a
Federally insured state chartered bank. It is subject to Federal and state
laws applicable to commercial banks and to regulation by the Maryland State
Banking Commission and the FDIC. The Corporation is examined regularly by the
Federal Reserve Board, the national banking subsidiaries are periodically
examined by the Office of the Comptroller of the Currency, while Myersville is
examined by the State of Maryland and FDIC, and Oakfirst Life Insurance
Corporation is periodically examined by the Arizona Department of Insurance.
In accordance with Federal Reserve regulations, the subsidiary banks are
limited as to the amount they may loan affiliates, including the Corporation,
unless such loans are collateralized by specific obligations. Additionally,
banking law limits the amount of dividends that a bank can pay without prior
approval from bank regulators.
Governmental Monetary and Credit Policies and Economic Controls
The earnings and growth of the banking industry and ultimately of First
United National Bank & Trust, First United Bank of West Virginia, N.A., and
Myersville Bank are affected by the monetary and credit policies of
governmental authorities, including the Federal Reserve System. An important
function of the Federal Reserve System is to regulate the national supply of
bank credit in order to control recessionary and inflationary pressures. Among
the instruments of monetary policy used by the Federal Reserve to implement
these objectives are open market operations in U.S. Government securities,
changes in the discount rate of member bank borrowings, and changes in reserve
requirements against member bank deposits. These means are used in varying
combinations to influence overall growth of bank loans, investments and
deposits and may also affect interest rates charged on loans or paid for
deposits. The monetary policies of the Federal Reserve authorities have had a
significant effect on the operating results of commercial banks in the past
and are expeced to continue to have such an effect in the future.
(5)
In view of changing conditions in the national economy and in the money
markets, as well as the effect of actions by monetary and fiscal authorities,
including the Federal Reserve System, no prediction can be made as to possible
future changes in interest rates, deposit levels, loan demand or their effect
on the business and earnings of the Corporation and its subsidiaries.
Employees
At December 31, 1994, the Corporation and its subsidiaries employed
approximately 391 individuals, of whom 50 were officers, 196 were full-time
employees, and 145 part-time employees.
Executive Officers of the Corporation
Information concerning the executive officers of the Corporation is
contained on page 5 of the Corporation s definitive Proxy Statement for the
annual shareholders meeting to be held April 18, 1995, and in Part III, Item
10 of this Annual Report on Form 10-K under the caption Directors and
Executive Officers of the Registrant.
Prospective Change in Organization of Certain Subsidiaries
The Corporation is currently seeking the approval of bank regulators to
merge First United Bank of West Virginia, N.A. into First United National Bank
& Trust. Management believes that effecting this merger will promote greater
standardization of services and products offered by these entities, thereby
enabling the Corporation to achieve administrative efficiencies and cost
savings. It is anticipated that as a result of the merger, two existing branch
office locations situated less than one mile apart will be combined. The costs
of effecting the merger, including legal and accounting fees and expenses, are
not expected to be material. The merger is expected to be completed before the
end of the 1995 calendar year.
Item 2. PROPERTIES
The main office of the Corporation and First United National Bank & Trust
occupies approximately 29,000 square feet at 19 South Second Street, Oakland,
Maryland, and is owned by First United National Bank & Trust. First United
National Bank & Trust has branch offices in Cumberland, LaVale, Frostburg, Bel
Air, Westernport, and Barton in Allegany County, Maryland. It also has
branches located in Oakland, Deep Creek Lake, Friendsville and Grantsville in
Garrett County, Maryland.
First United Bank of West Virginia, N.A., maintains four offices located
in West Virginia, two of which are owned. The main office is in Piedmont, West
Virginia, and occupies approximately 2,720 square feet. Other branches are
located in Keyser, Romney, and Moorefield, W.V.
The main office of Myersville Bank is located at 207-09 Main Street,
Myersville, Maryland. The Myersville property, as well as the three branch
offices in Smithsburg, Hagerstown, and Frederick, Maryland are owned in fee
simple.
The properties of the Corporation which are not owned are held under
long-term leases. Total rent expense for 1994, 1993 and 1992 was equal to
$169,736, $136,413, and $71,598, respectively.
Item 3. LEGAL PROCEEDINGS
The Corporation and it subsidiaries are at times, and in the ordinary
course of business, subject to legal actions. Management, upon the advice of
counsel, is of the opinion that losses, if any, resulting from the settlemet
of current legal actions will not have a material adverse effect on the
financial condition of the Corporation.
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
Item 5. MARKET FOR REGISTRANT S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS
The common stock of First United Corporation is traded on the Nasdaq
National Market System. This listing became effective on September 2, 1992.
There are 12,000,000 shares of common stock authorized and the total number of
shares outstanding as of December 31, 1994 was approximately 6,191,767. As of
December 31, 1994 the Corporation had approximately 2,485 holders of record of
(6)
its common stock. There are also 2,000,000 shares of preferred stock
authorized with no shares outstanding as of December 31, 1994. The following
tables reflect the high bid and high ask prices, restated for the 50% common
stock dividend paid on February 8, 1994 effected in the form of a 3-for-2
stock split during the period indicated and the cash dividends paid on common
stock for the periods indicated.
1994 High Ask High Bid
1st Quarter $25.00 $22.33
2nd Quarter 24.50 22.25
3rd Quarter 20.50 19.00
4th Quarter 21.00 19.50
1993 High Ask High Bid
1st Quarter 13.00 $11.66
2nd Quarter 14.17 12.84
3rd Quarter 17.34 15.34
4th Quarter 23.45 22.34
Cash Dividends
Cash dividends were paid by the Corporation on the dates indicated as
follows:
1994 1993
February $.11 $.09
May .10 .09
August .12 .09
November .12 .09
The Corporation paid a 100% stock dividend effected in the form of a
2-for-1 stock split on June 15, 1993. The Corporation also paid a 50% stock
dividend February 1, 1994, effected in the form of a 3-for-2 stock split.
The dividend amounts for 1993 in the above chart have been restated
to give effect to the acquision by the Corporation of HomeTown Bancorp, Inc.,
and to reflect the dividends per share paid by the two entities on a combined
basis. On a pre-transaction basis, actual dividends per share paid by the
Corporation and by HomeTown were $.43 and $1.40, for the year ended December
31, 1993, respectively.
Quotes for the Stock can be found on the Nasdaq/NMS under the symbol
FUNC. Market Makers for the Stock are:
Ferris Baker Watts Legg Mason Wood Walker Wheat First Securities
12 North Liberty St. 125 West Street, Suite 201 33 West Franklin Street
Cumberland, MD 21502 Annapolis, MD 21401 Hagerstown, MD 21740
(301) 724-7161 (800) 638-9165 (800) 388-1248
(800) 776-0629
29 North Liberty Street
Parker/Hunter Cumberland, MD 21502
14th and Chaplin St. (301) 724-2660
700 Riley Building
Wheeling, WV 26003 107 South Second Street
(800) 523-2153 Oakland, MD 21550
(301) 334-5806
(7)
6. SELECTED FINANCIAL DATA
(In thousands, except per share data)
1994 1993 1992 1991 1990
Balance Sheet Data
Total Assets $459,040 $423,380 $417,083 $400,296 $398,063
Total Deposits 391,650 368,527 365,827 354,618 354,687
Total Net Loans 333,375 314,476 299,663 281,516 285,066
Total Shareholder Equity 51,131 48,372 44,894 40,636 37,640
Operating Data
Interest Incoe $ 33,059 $ 32,484 $ 34,981 $ 38,638 $ 40,634
Interest Expense 11,265 11,356 14,834 20,308 22,623
Net Interest Income 21,794 21,128 20,147 18,330 18,011
Other Operating Income 3,832 3,488 2,750 2,674 2,619
Provision for Possible
Credit Losses 165 269 719 952 1,614
Other Operating Expense 16,220 15,158 13,058 12,386 11,824
Income Before Tax 9,241 9,189 9,120 7,666 7,192
Income Tax 3,014 3,177 2,918 2,356 2,019
Net Income $ 6,227 $ 6,012 $ 6,202 $ 5,310 $ 5,173
Per Share Data
Net Income $1.01 $0.97 $1.01 $0.86 $0.84
Regular Dividends Paid 0.45 0.36 0.34 0.33 0.32
Special Dividend 0.06
Book Value $8.26 $7.83 $7.29 $6.62 $6.14
** Per Share data has been restated to reflect the 100% stock dividend
paid on June 15,1993, and the 50% stock dividend paid on February 8, 1994.Item
Item 7 . MANAGEMENT S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This section presents management s discussion and analysis of the
financial condition and results of operations of First United Corporation and
subsidiaries (collectively, the Corporation ) including First United National
Bank & Trust, First United Bank of West Virginia, N.A., and Myersville Bank
(the Banks ), and Oakfirst Life Insurance Corporation.
This discussion and analysis should be read in conjunction with the
financial statements which appear elsewhere in this report.
In May 1993, the Corporation declared a 100% stock dividend effected in
the form of a two-for-one stock split paid on June 15, 1993. Share and per
share information in the accompanying financial statements have been restated
to reflect this stock split.
On November 30, 1993, the Corporation acquired all the outstanding stock
of Hometown Bancorp, Inc. in exchange for 697,500 shares of the Corporation s
common stock, along with cash in lieu of fractional shares, consummating the
acquisition announced in March 1993. Hometown s sole subsidiary was Myersville
Bank. The acquisition was accounted for as a pooling-of-interests.
Accordingly, financial data presented has been restated to reflect this
acquisition as if it had occurred at the beginning of the periods presented.
In December 1993, the Corporation declared a 50% stock dividend effected
in the form of a three-for-two stock split paid on February 8, 1994. Share and
per share information in the accompanying financial statements have been
restated to reflect this stock split.
(8)
EARNINGS ANALYSIS
OVERVIEW
The Corporation s net earnings for 1994 increased to $6.23 million, or
3.6% over the $6.01 million reported for 1993. Earnings for the year represent
a record level of performance for the Corporation, exceeding the previous
record of $6.20 million achieved in 1992. Return on average assets were 1.40%,
1.42% and 1.53% in 1994, 1993, and 1992, respectively.
The return on average shareholders equity for 1994 decreased to 12.32%
from 12.86% the previous year, as compared to 14.54% in 1992. Earnings per
share increased to $1.01 in 1994 from $.97 in 1993, and compared with $1.01 in
1992.
NET INTEREST INCOME
The primary source of earnings continued to be net interest income the
difference between interest income and related fees on earning assets, and the
interest expense incurred on deposits and other borrowed funds. This segment
of earnings is affected by changes in interest rates, account balances and the
mix of earning assets and interest bearing funding sources.
Total interest income for 1994 increased 1.8% over 1993, from $32.48
million to $33.06 million, primarily due to growth in earning assets, even
though the yield on earning assets declined slightly (see Table 1). Total
interest expense at $11.27 million was close to the 1993 level of $11.36
million, with the effect of lower rates paid being offset by growth in
deposits and borrowed funds. The net effect of these changes was a 3.2%
improvement in net interest income to $21.79 million in 1994 from $21.13
million in 1993. This compares to $20.15 million in 1992. The improvement in
1993 represents an increase of 4.86% over 1992 s net interest income. Table 3
analyzes the changes in net interest income attributable to volume and rate
components.
For analytical purposes, net interest income is adjusted to a taxable
equivalent basis. This adjustment facilitates performance comparisons between
taxable and tax-exempt assets by increasing tax-exempt income by an amount
equal to the federal income taxes which would have been paid if this income
were taxable at the statutorily applicable rate.
The taxable equivalent net interest margin has been relatively constant,
at 5.34% in 1994 and 5.37% in 1993 and 1992. Table 2 compares the components
of the net interest margin and the changes occurring between 1994, 1993, and
1992.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on management s continuing
evaluation of the loan portfolio, assessment of current economic conditions,
diversification and size of the portfolio, adequacy of collateral, past and
anticipated loss experience and the amount of non-performing loans.
The provision for possible credit losses decreased 37.0%, to $.17 million
in 1994, from $.27 million in 1993 which was down significantly from the 1992
provision of $.72 million. This favorable trend is a result of continued
efforts by managemet to improve procedures for credit analysis, problem loan
detection, and delinquency follow-up. In addition, improved economic
conditions in the Corporation s market areas have provided a positive effect
on loan loss experience.
Table 8 presents the activity in the allowance for loan losses by major
loan category for the past five years. Specific allocations in any particular
category may be reallocated in the future to reflect current conditions.
Accordingly, the entire allowance is considered available to absorb losses in
any category.
OTHER OPERATING INCOME
Non-interest income for 1994, at $3.83 million, increased 9.7% over the
$3.49 million earned in 1993. Although service charges on deposit accounts
declined $.63 million, this decrease was more than offset by improvements in
income from trust and fiduciary activities, brokerage commissions, fees from
the Corporation s broker-dealer affiliates and real estate appraisal
processing. Similar improvements account for the 1993 increase of 26.8% in
non-interest income over the $2.75 million earned in 1992.
(9)
OTHER OPERATING EXPENSE
Non-interest expense increased to $16.22 million in 1994 from $15.16
million in 1993, or 7.0%. Most of the increase in this category was due to
higher salary and benefit costs associated with merit compensation increases,
additional staffing required for the opening of the Riverside Office in
Frederick, Maryland and the cost of enhanced support for commercial loan and
trust services, particularly in the Myersville Bank subsidiary.
Expenditures to further increase the role of technology in improving
the efficiency of customer service delivery and internal processing activities,
such as the installation of a wide area computer network,
accounted for much of the increase in equipment expenses. It is anticipated
that the long run efficiencies gained by projects such as this will be a net
benefit to the earnings performance of the Corporation.
Salary, benefit, occupancy and equipment expenses related to the opening
of the Romney, Moorefield, and Hagerstown Martin s community offices accounted
for much of the $2.10 million increase in 1993 non-interest expense over the
1992 amounts.
APPLICABLE INCOME TAXES
Applicable income taxes include both current and deferred portions, which
are detailed in Note 9 of the audited consolidated financial statements.
Income tax expense amounted to $3.01 million in 1994 as compared with $3.18
million in 1993 and $2.92 million in 1992. These amounts represented effective
tax rates of 32.6%, 34.6%, and 32.0% for 1994, 1993, and 1992, respectively.
INVESTMENT SECURITIES
Investment securities classified as available-for-sale are held for an
indefinite period of time and may be sold in response to changing market and
interest rate conditions as part of the asset/liability management strategy.
Available-for-sale securities are carried at market value, with unrealized
gains and loss excluded from earnings and reported as a separate component of
stockholders equity net of income taxes. Investment securities classified as
held-to-maturity are those that management has both the positive intent and
the ability to hold to maturity, and are reported at amortized cost. The
Corporation does not currently follow a strategy of making securities
purchases with a view to near-term resales, and therefore does not own trading
securities. The Corporation doption of Statement of Financial Accounting
Standards No. 115, Accounting for Certain Investments in Debt and Equity
Securities, as of January 1, 1994, resulted in a change in classification of
$71 million of investment securities from held to maturity to available for
sale. For additional information, see Notes 1 and 3 to the Corporation s
audited consolidated financial statements.
Total investment securities amounted to $95.62 million, $81.53
million, and $82.25 million as of December 31, 1994, 1993, and 1992,
respectively. The higher level of investments in securities resulted primarily
from the excess increase in available funds resulting from the growth of
deposits over loans.
The Corporation manages its investment portfolios within policies which
seek to achieve desired levels of liquidity, manage interest rate sensitivity
risk, meet earnings objectives and provide required collateral support for
deposit activities. Excluding the U.S. Government and U.S. Government
sponsored agencies, the Corporation had no concentrations of investment
securities from any single issues that exceeded 10% of shareholders equity.
Table 4 exhibits the distribution, by type, of the investment portfolio for
the three years ended December 31, 1994, 1993, and 1992.
LOAN PORTFOLIO
The Corporation, through its Banks, is actively engaged in originating
loans to customers primarily in Garrett, Allegany, Washington and Frederick
Counties in Maryland; Mineral, Hardy and Hampshire Counties in West Virginia,
and the surrounding regions of West Virginia and Pennsylvania. The Corporation
has policies and procedures designed to mitigate credit risk and to maintain
the quality of the Corporation s loan portfolio. These policies include
underwriting standards for new credits and the continuous monitoring and
reporting of asset quality and the adequacy of the reserve for loan losses.
(10)
These policies, coupled with on-going training efforts, have provided an
effective check and balance for the risk associated with the lending process.
Lending authority is based on the level of risk, size of the loan and the
experience of the lending officer. Table 4 presents the composition of the
Corporation s loan portfolio by significant concentration.
The Corporation s policy is to make the majority of its loan commitments in
the market area it serves. This tends to reduce risk because management is
familiar with the credit histories of loan applicants and has an in-depth
knowledge of the risk to which a given credit is subject. The Corporation had
no foreign loans in its portfolio as of December 31, 1994.
During 1994, net loans increased $18.90 million or 6.0% to a total of
$333.38 million. Due to continued favorable rate environment for much of the
year, mortgage lending continued to be the primary source of loan growth.
Favorable economic conditions also resulted in a significant increase in
construction loans. Installment credit decreased during the year, in part due
to greater usage of Home Equity Lines of credit for installment purchases.
Table 5 details the dollar amount and percentage distribution of the various
key categories of credit in the loan portfolio.
Funding for loan growth during 1994 was provided by increased levels of
deposits, while 1993 loan growth was supported by a decrease in federal funds
sold.
It is the policy of the Corporation to place a loan in non-accrual status
whenever there is substantial doubt about the ability of a borrower to pay
principal or interest on any outstanding credit. Management considers such
factors as payment history, the nature of the collateral securing the loan and
the overall economic situation of the borrower when making a non-accrual
decision. Non-accrual loans are closely monitored by management. A
non-accruing loan is restored to accrual status when principal and interest
payments have been brought current, it becomes well-secured or isin the
process of collection and the prospects of future contractual payments are no
longer in doubt. At December 31, 1994, $ 1.03 million of non-accrual loans
were secured by collateral with an estimated value of $1.83 million. The
amount listed in Table 6 under restructured loans in 1992 is also included in
the non-accrual loans total for that year.
As of December 31, 1994, the Corporation had $1.52 million in loans for
which payments were current, but the borrowers were experiencing financial
difficulties. The corresponding total for year-end 1993 was $1.9 million.
These loans are subject to on-going management attention and their
classifications are reviewed monthly.
DEPOSIT AND OTHER FUNDING
Deposit liabilities increased to $391.65 million in 1994 from $368.53
million at the end of 1993, or 6.3%. The $23.12 million in deposit growth
compares favorably to the $2.7 million growth in deposits experienced during
1993, when market interest rates were generally at the low-point in the
current business cycle. Time and savings deposits continue to be the main
source of deposit growth, although interest bearing demand deposits exhibited
some growth during both 1994 and 1993. The Corporation continues to experience
strong competition for deposits from other commercial banks, credit unions,
the stock market and mutual funds. Table 10 displays the average balances and
average rates paid on all major deposit classifications for 1994, 1993, and
1992.
CAPITAL RESOURCES
The Banks of the Corporation and the Corporation itself are subject to
risk-based capital regulations which were adopted by Federal banking
regulators and became fully phased in on December 31, 1992. These guidelines
are used to evaluate capital adequacy, and are based on an institution s
asset/risk profile and off-balance sheet exposures, such as unused loan
commitments and stand-by letters of credit. The regulatory guidelines require
that a portion of total capital be Tier 1 Capital, consisting of common
shareholders equity and perpetual preferred stock, less goodwill and certain
other deductions. The remaining capital, or Tier 2 capital, consists of
elements such as subordinated debt, mandatory convertible debt, and
grandfathered senior debt, plus the allowance for credit losses, subject to
certain limitations.
Under the risk-based capital regulations, banking organizations are
required to maintain a minimum 8% total risk-based capital ratio (total
qualifying capital divided by risk-weighted assets), including a Tier 1 ratio of
4%. The risk-based capital rules have been further supplemented by a
leverage ratio, defined as Tier 1 capital divided by average assets, after
(11)
certain adjustments. The minimum leverage ratio is 3% for banking
organizations that do not anticipate significant growth and have
well-diversified risk (including no undue interest rate risk exposure),
excellent asset quality, high liquidity, and good earnings. Other banking
organizations not in this category are expected to have ratios of at least
4-5%, depending on their particular condition and growth plans. Higher capital
ratios could be required if warranted by the particular circumstances or risk
profile of a given banking organization. In the current regulatory
environment, banking companies must stay well capitalized in order to receive
favorable regulatory treatment on acquisition and other expansion activities
and favorable risk-based deposit insurance assessments. The Corporation s
capital policy establishes guidelines meeting these regulatory requirements,
and which take into account current or anticipated risks and future growth
opportunities.
On December 31, 1994, the Corporation s risk-based capital ratio was
16.18%, well above the regulatory minimum of 8.00%. The risk-based capital
ratios for year-end 1993 and 1992 were 18.88% and 1851%, respectively.
Retained earnings and shareholder participation in the Corporation s
dividend reinvestment and stock purchase plan provided an additional $4.26
million in total stockholders equity, which grew to $52.64 million at the end
of 1994, from $48.37 million at year-end 1993 and $44.89 million at year-end
1992. The equity to assets ratio at December 31, 1994, was 11.14%, compared
with 11.43% and 10.76% at year-end 1993 and 1992. As a result of the
Corporation s adoption of Statement of Financial Accounting Standards No. 115
Accounting for Investments in certain Debt and Equity Securities, an
adjustment to shareholders equity as of January 1, 1994, of $506, net of
taxes, was recorded.
Cash dividends of $.45 per share were paid during 1994, compared with
$.36 per share in 1993 and $.34 per share in 1992. This represents a dividend
payout rate (dividends per share divided by net income per share) of 33.8%,
37.1%, and 33.7% for 1994, 1993 and 1992.
ASSET AND LIABILITY MANAGEMENT
INTRODUCTION
The Investment and Funds Management Committee of the Corporation seeks to
assess and manage the risk associated with fluctuating interest rates while
maintaining adequate liquidity. This is accomplished by formulating and
implementing policies that take into account the sources and uses of funds,
maturity and repricing distributions of assets and liabilities, pricing
strategies, and marketability of assets.
LIQUIDITY
The objective of liquidity management is to assure that the withdrawal
demands of depositors and the legitimate credit needs of the Corporation s
delineated market areas are accommodated. Total liquid assets, represented by
cash, investment securities (avabilabe-for-sale and held-to-maturity maturing
within one year) and loans maturing within one year, amounted to $102.71
million, or 22.4% of total assets at December 31, 1994. This compares with
$128.96 million, or 30.5% of 1993 year-end assets, and $104 million, or 26.8%,
of 1992 year-end assets. The decrease from 1994 to 1993 is primarily the
result of assets being invested for longer periods of time to enhance the
yield of the Corporation s portfolio.
Additional liquidity of $ 89 million is available from unused lines
of credit at various upstream correspondent banks and the Federal Home Loan
Bank of Atlanta.
INTEREST RATE SENSITIVITY
Interest rate sensitivity refers to the degree that earnings will be
impacted by changes in the prevailing level of interest rates. Interest rate
risk arises from mismatches in the repricing or maturity characteristics
between assets and liabilities. Management seeks to avoid fluctuating net
interest margin, and to enhance consistent growth of net interest income
through periods of changing interest rates. The Corporation uses interest
sensitivity gap analysis and simulation models to measure and manage these
risks. The gap report assigns each interest-earning asset and interest-bearing
liability to a time frame reflecting its next repricing or maturity date. The
differences between total interest-sensitive assets and liabiliies at each
time interval represent the interest sensitivity gap for that interval. A
positive gap generally indicates that rising interest rates during a given
interval will increase net interest income, as more assets than liabilities
will reprice. A negative gap position would benefit the Corporation during a
period of declining interest rates.
(12)
In order to manage interest sensitivity risk, management of the
Corporation formulates guidelines regarding asset generation and pricing,
funding sources and pricing and off-balance sheet commitments. These
guidelines are based on management s outlook regarding future interest rate
movements, the state of the regional and national economy, and other financial
and business risk factors. Management uses computer simulations to measure the
effect on net interest income of various interest rate scenarios. This
modeling reflects interest rate changes and the related impact on net income
over specified periods. Managment does not use derivative financial
instruments to effect its interest rate sensitivity.
Rates on different assets and liabilities within a single maturity
category adjust to changes in interest rates to varying degrees and over
varying periods of time. The relationships between prime rates and rates paid
on purchased funds are not constant over time. The rate or growth in
interest-free sources of funds will influence the level of interest-sensitive
funding sources. In addition, the absolute level of interest rates will affect
the volume of earning assets and funding sources. As a result of these
limitations, the interest-sensitive gap is only one factor to be considered in
estimating the net interest margin.
Table 13 presents the Corporation s interest rate gap position at
December 31, 1994. This is a one-day position which is continually changing
and is not necessarily indicative of the Corporation s position at any other
time.
(13)
Distribution of Assets, Liabilities and Shareholders EquityInterest Rates
and Interest Differential Tax Equivalent Yields
( In thousands )
Table 1
For the Years Ended December 31,
1994 1993 1992
Avg. Annl Avg Annl Avg Annl
Bal Int Rate Bal Int Rate Bal Int Rate
Federal funds
sold $574 $144 5.23% $7,851 $260 3.31% $9,857 $468 4.75%
Other interest-earning
assets 125 4 3.20% 0 0 0.00% 0 0 0.00%
Investments:
Taxable 84,915 3,424 5.45% 73,562 3,929 5.34% 72,297 5,155 7.13%
Non Taxable 8,579 1,192 9.39% 8,954 583 9.89% 12,617 973 11.72%
Total investment
securities 93,494 4,616 5.59% 82,516 4,512 8.21% 84,914 6,128 9.23%
Loans 324,140 28,295 8.73% 308,804 27,712 8.97% 384,543 28,385 9.80%
Total earning
assets 418,332 33,059 7.90% 399,171 32,484 8.21% 384,543 34,981 9.23%
Reserve for possible credit
losses (2,333) (2,775) (2,714)
Other non-earning
assets 28,931 25,875 24,336
Total non-earning
assets 26,598 23,100 21,622
Total
Assets $444,930 $33,059 7.90% $422,271 $32,484 8.21% $406,165 $34,981 9.23%
Liabilities andShareholders Equity
Deposits:
Noninterest-bearing deposits
$43,763 $ 0 0.00% $ 36,054 $0 0.00% $32,667 $ 0 0.00%
Interest-bearing demand deposits
93,352 2,136 2.29% 87,538 2,115 2.42% 79,722 2,846 3.57%
Savings deposits
85,998 2,359 2.74% 73,528 1,983 2.70% 66,924 2,496 4.25%
Time deposits
$100,00 or more
29,937 1,142 3.81% 17,093 445 4.40% 19,568 757 5.50%
Time deposits less than $100,000
133,528 5,326 3.99% 154,863 6,813 2.60% 158,945 8,735 3.87%
Short-term borrowings
6,040 302 5.50%
Total deposits and short-term borrowings
392,618 11,265 2.87% 369,076 11,356 3.41% 357,826 14,834 4.56%
Other liabilities
2,283 6,455 5,676
Shareholders equity
50,030 46,740 42,663
Total Liabilities and
Shareholders Equity
$444,930 $11,265 2.87% $422,271 $11,356 3.41% $406,165 $14,834 4.56%
**The above table reflects the average rates earned or paid stated on a tax
equivalent basis assuming a tax rate of 34%.
(14)
Net Interest Margin
( In thousands )
Table 2
1994 1993 199 2
Tax Tax Tax
Average Equiv. Average Equiv. Equiv.
Balance Rate Balance Rate Balance Rate
Earning Assets $418,332 7.90% $399,171 8.21% $384,543 9.23%
Interest-bearing
Liabilities 348,855 2.87% 333,022 3.41% 325,159 4.56%
Net Benefit of
Noninterest-bearing Sources 0.60% 0.57% 0.70%
Average Cost of Funds 2.71% 2.84% 3.86%
NET INTEREST MARGIN 5.34% 5.37% 5.37%
*The above table reflects the average rates earned or paid stated on a tax
equivalent basis assuming a tax rate of 34%.
Interest Variance Analysis (1)
( In thousands )
Table 3
1994 COMPARED TO 1993 1993 COMPARED TO 1992
INCREASE INCREASE
(DECREASE) DUE TO (DECREASE) DUE TO
Volume Rate Net Volume Rate Net
Interest income:
Loans $1,196 ($ 613) $ 583 $1,865 ($2,538) ($ 673)
Tax Invest 556 (384) 172 ( 87) (1,139) (1,226)
Non-Tax Invest (118) 50 (68) (429) 39 ( 390)
Federal Funds
Sold (366) 250 116 ( 95) ( 113) ( 208)
Total Interest
Income $1,272 ($ 697) $575 $1,254 ($3,751) ($2,497)
Interest expense:
Interest-bearing $ 89 ($ 68) $ 21 121 (852) ( 731)
Savings 188 188 376 281 (794) ( 513)
Time Deposits (248) (1,239) (1,487) 661 (2,583) (1,922)
Time Deposits
>100,000 294 403 697 (312) (312)
Total Deposits $ 322 ($ 715) ($ 393) $ 751 ($ 4,229) ($3,478)
Total Interest
Expense $ 624 ($ 715) $ (91) $ 751 ($ 4,229) ($ 3,478)
Net Interest
Income $ 647 $ 19 $ 666 $ 503 $ 478 $ 981
(1) The change in interest income/expense due to both volume and rate has
been allocated to volume and rate changes in proportion to the relationship of
the absolute dollar amounts of the change in each.
(15)
Investment Security Maturities, Yields, and Market Values
( In thousands )
Table 4
December 31, 1994
Tax
U.S. T.E. Federal T.E. State T.E. T.E. Equiv.
Treasury Yld Agencies Yld & Muni Yld Other Yld Total Yld
Maturity Book Value
Available-for-Sale
Within One Year
$12,684 4.13% $3,789 5.36% $0 0.00% $150 6.38% $16,623 4.43%
One to Five Years
9,065 4.94% 24,878 5.78% 686 7.43% 12,632 5.74% 47,261 5.63%
Five to Ten Years
0 0.00% 2,081 4.31% 2,045 7.74% 1,908 7.45% 6,034 6.47%
Over Ten Years
0 0.00% 0 0.00% 0 0.00% 5,280 6.87% 5,280 6.87%
Book Value
$21,749 $30,748 $2,731 $19,970 $75,198 5.52%
Taxable Equivalent Yield
4.47% 5.63% 7.66% 6.21% 5.52%
Held-to-Maturity
Within One Year
$0 0.00% $0 0.00% $921 9.97% $2,455 5.35% $3,376 6.61%
One to Five Years
0 0.00% 3,800 5.61% 2,617 6.95% 7,279 6.89% 13,696 6.55%
Five to Ten Years
0 0.00% 0 0.00% 1,246 7.55% 1,451 5.19% 2,697 6.28%
Over Ten Years
0 0.00% 0 0.00% 510 15.47% 2,427 5.75% 2,937 7.44%
Book Value
$0 $3,800 $5,294 $13,612 $22,706 6.64%
Total Book Value
$21,749 $34,548 $8,025 $33,582 $97,904
Taxable Equivalent Yield
0.00% 5.61% 8.44% 6.23% 6.64%
Market Value
$21,252 $33,612 $7,769 $32,380 $95,013
December 31,1993 Book Value
23,467 $33,315 $8,538 $16,211 $81,531
December 31,1992 Book Value
$22,565 $34,498 $10,967 $14,218 $82,248
**The above yields have been adjusted to reflect a tax equivalent basis
assuming a tax rate of 34%.
(16)
Summary of Loan Portfolio
( In thousands )
Table 5
Loans Outstanding as of December 31,
1994 1993 1992 1991 1990
Commercial, Financial,
& Agricultural $47,111 $38,351 $48,295 $46,666 $46,524
Real Estate
Construction 19,838 10,902 4,568 2,118 1,798
Real Estate Mortgage 220,991 220,228 198,659 173,364 175,206
Installment 47,785 47,301 50,939 61,940 64,065
TOTAL $335,725 $316,782 $302,461 $284,088 $287,593
Percentage of Portfolio as of December 31,
1994 1993 1992 1991 1990
Commercial, Financial,
& Agricultural 14.03% 12.11% 15.97% 16.43% 16.18%
Real Estate
Construction 5.91% 3.44% 1.51% 0.75% 0.62%
Real Estate Mortgage 65.83% 69.52% 65.68% 61.02% 60.92%
Installment 14.23% 14.93% 16.84% 21.80% 22.28%
TOTAL 100.00% 100.00% 100.00% 100.00% 100.00%
Maturities of Loan Portfolio
(In thousands)
Table 6
December 31, 1994
MATURING
MATURING AFTER ONE MATURING
WITHIN BUT WITHIN AFTER FIVE
ONE YEAR FIVE YEAR YEARS TOTAL
Commercial, Financial
& Agricultural $31,835 $ 1,224 $ 14,052 $ 47,111
Real Estate Construction 0 19,838 0 19,838
Real Estate Mortgage 11,485 48,973 160,533 220,991
Installment 16,900 29,825 1,060 47,785
Total $60,220 $99,860 $175,645 $335,725
Classified by Sensitivity to Change in Interest Rates
Fixed-Interest Rate
Loans $56,069 $64,164 $27,042 $147,275
Adjustable-Interest
Rate Loans 4,151 35,696 148,603 188,450
Total $60,220 $ 99,860 $ 175,645 $335,725
(17)
Risk Elements of Loan Portfolio
( In thousands )
Table 7
For the Years Ended December 31
1994 1993 1992 1991 1990
Non-accrual Loans $1,027 $438 $2,337 $3,155 $2,067
Accruing Loans Past
Due 90 Days or More 489 1,243 463 887 652
Restructured Loans 0 0 1,530 0 0
Information with respect to non-accrual loans at December 31,1994 and 1993 is
as follows:
1994 1993
Non-accrual Loans $1,027 $438
Interest Income That Would
Have Been Recorded Under Original Terms $ 502 $132
Interest Income Recorded During the Period $ 48 $ 5
Activity of Loan Loss Provision
Table 8 ( In thousands )
Summary of Loan Loss Experience
For the Years Ended December 31
1994 1993 1992 1991 1990
Balance at Beginning
of Period $ 2,306 $ 2,798 $ 2,572 $ 2,527 $ 2,033
Loans Charged Off:
Commercial, Financial
, and Agricultural 35 469 53 250 465
Real Estate
Construction 0 0 0 0 0
Real Estate
Mortgage 164 359 359 276 244
Installment 121 264 349 588 606
TOTAL CHARGED OFF 320 1,092 761 1,114 1,315
Recoveries of Loans:
Commercial, Financial,
and Agricultural 39 135 87 50 13
Real Estate
Construction 0 0 0 0 0
Real Estate Mortgage 35 97 79 60 76
Installment 126 99 102 97 106
TOTAL RECOVERIES 200 331 268 207 195
Net Loans Charged Off 120 761 493 907 1,120
Provision Charged
to Operations 164 269 719 952 1,614
Balance at the End
of Period 2,350 2,306 2,798 2,572 2,527
Loans Net of Unearned Income
at End of Period $335,725 $316,782 $302,461 $284,088 $287,593
Daily Average
Balance of Loans $331,169 $308,804 $289,722 $283,558 $285,051
Allowance for Possible Loan Loss
to Loans Outstanding 0.70% 0.73% 0.93% 0.91% 0.88%
Net Charge Offs to Average
Loans Outstanding 0.04% 0.24% 0.06% 0.03% 0.39%
(18)
Allocation of Allowance for Loan Losses
( In thousands )
Table 9
1994 1993 1992 1991 1990
Commercial $ 457 $ 448 $ 544 $ 500 $ 491
Real Estate Mortgage 661 649 787 723 711
Home Equity 11 11 13 12 12
Consumer 223 219 266 244 240
Commitments 78 77 93 85 84
Unallocated 920 903 1,095 1,007 989
Total $2,350 $2,306 $2,798 $2,572 $2,527
Average Deposit Balances
Table 10 ( In thousands )
Deposits by Major Classification for the Years Ended December 31,
1994 1993 1992
Average Average Average
Balance Yield Balance Yield Balance Yield
Noninterest-bearing
demand deposits $ 43,763 $ 36,054 $ 32,667
Interest-bearing
demand deposits 93,352 2.29% 87,539 2.42% 79,722 3.57%
Savings deposits 85,998 2.74% 73,528 2.70% 66,924 4.25%
Time deposits
$100,000 or more 29,937 3.81% 17,093 4.41% 19,568 5.50%
Time deposits less
than $100,000 133,528 3.99% 154,863 2.60% 158,945 3.87%
Total $386,578 $369,077 $357,826
(19)
Maturity of Time Deposits
( In thousands )
Table 11 For the Year Ended December 31, 1994
Greater than Less Than
$100,000 $100,000
Maturities
3 Months or Less $ 4,338 $ 8,093
3 - 6 Months 11,347 34,479
6-12 Months 7,496 30,277
Over 1 Year 7,258 62,801
Total $30,439 $135,650
Summary of Significant Ratios
Table 12
1994 1993 1992
Return on Average Assets 1.40% 1.42% 1.53%
Return on Average Equity 12.32% 12.86% 14.54%
Dividend Payout Ratio 33.80% 37.11% 33.66%
Total Equity to Total Assets at Year End 11.14% 11.43% 10.76%
Primary Capital Ratio 10.02% 11.91% 11.36%
Total Risk-based Capital Ratio 16.18% 18.88% 18.51%
Leverage Ratio 16.18% 18.88% 18.51%
(20)
Summary of Interest Sensitivity Analysis
Table 13 (In thousands)
As of December 31, 1994
0-90 91-365 1-5 Over 5
Days Days Years Years TOTAL
Assets
Rate Sensitive
Securities
(Available-for-Sale &
Held-to-Maturity) (1) $ 11,458 $10,968 $60,957 $14,521 $ 97,904
Loans (2) 63,431 98,936 126,916 46,442 335,725
Fed Funds Sold 0 0 0 0 0
TOTAL RATE SENSITIVE 74,889 109,904 187,873 60,963 433,629
Liabilities
Rate Sensitive Deposits
Investors Choice 13,337 0 0 0 13,337
Time Deposits Less
Than $100,000 8,093 64,756 62,801 0 135,650
Time Deposits $100,000
or More 4,338 18,843 7,258 0 30,439
IMMA 39,516 0 0 0 39,516
ONE & Now Accounts 56,319 0 0 0 56,319
Fed Funds Purchased
and Other Borrowed Funds 11,373 0 0 0 11,373
TOTAL RATE
SENSITIVE (3) and (4) $132,976 $83,599 $70,059 $0 $286,634
GAP ( Rate Sensitive Assets less Rate Sensitive Liabilities )
(58,087) 26,305 117,814 60,963 146,995
GAP to TOTAL Assets (12.65%) 5.73% 25.67% 13.28% 32.02%
(1 ) Securities are based on estimated maturities at book value .
(2 ) Adjustable Rate Loans are shown in the time frame corresponding
to the next contractual interest rate adjustment.
(3 ) Transaction Accounts such as IMMA , ONE, and NOW are generally
assumed to be subject to repricing within one year. This is based on the
Corporation s historical experience with respect to such accounts.
(4 ) This total does not include any type of savings accounts.
Management feels these accounts are not rate sensitive.
(21)
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a ) The following audited consolidated financial statements and
related documents are set forth in this Annual Report on Form
10-K on the following pages:
Page Number
Independet Auditors Report 24
Consolidated Balance Sheet 25
Consolidated Statements of Income 26
Consolidated Changes in Shareholder Equity 27
Consolidated Statement of Cash Flows 28
Notes to Consolidated Financial Data 29
(b) The following supplementary data is set forth
in this Annual Report on Form 10-K on the
following pages:
Summary of Quarterly Financial Data 40
(22)
To the Shareholders:
The consolidated financial statements, accompanying notes and related
financial data of First United Corporation were prepared by Management, who
has the primary responsibility for the integrity of the financial institution.
The Corporation has a comprehensive system of internal accounting
controls designed to provide reasonable assurance that assets are safe-guarded
and reported financial information accurately reflects the condition of First
United Corporation and its subsidiaries. This system of controls is reviewed
by both internal auditors and independent auditors who monitor the adequacy
and effectiveness of the control sytem.
The audit function, selection of independent auditors, and review of the
results of regulatory examinations are under the general oversight of the
Audit Committee of the Board of Directors. Regular meetings are held with the
internal auditors and the independent auditors, both of whom have free, direct
access to the Committee. Ernst & Young LLP, independent auditors, have audited
the financial statements of First United Corporation and subsidiaries for the
years ended December 31, 1994, 1993, and 1992, as stated in their report.
Richard Stanton
/s/ Richard G. Stanton
Chairman of the Board, President
and Chief Executive Officer
(23)
Report of Independent Auditors
Board of Directors and Shareholders
First United Corporation
We have audited the accompanying consolidated statements of financial
condition of First United Corporation and subsidiaries as of December 31, 1994
and 1993, the related consolidated statements of income, changes in
shareholders equity, and cash flows for each of the three years in the period
ended December 31, 1994. These financial statements are the responsibility of
the Company s management. Our responsibility is to express an opinion on these
financial statements based on our audits. We did not audit the financial
statements of HomeTown Bancorp a wholly-owned subsidiary, which statements
reflect total revenues constituting 11.2% in 1992 of the related consolidated
totals. Those statements were audited by other auditors whose report has been
furnished to us, and our opinion, insofar as it relates to data included for
HomeTown Bancorp is based solely on the report of the other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material missatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, based on our audits and the report of other auditors, the
financial statements referred to above present fairly, in all material
respects, the consolidated financial position of First United Corporation and
subsidiaries at December 31, 1994 and 1993, and the consolidated results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed on Note 1 to the financial statements effective January 1,
1994, the Corporation changed its method of accounting for investments in debt
and equity securities.
January 30, 1995 /s/ Ersnt & Young LLP
(24)
First United Corporation and Subsidiaries
Consolidated Statements of Financial Condition
(In thousands)
December 31
1994 1993
Assets
Cash and due from banks $ 14,536 $ 12,832
Federal funds sold 1,903
Investments:
Available-for-sale securities-at market
value-cost-$75,198 at December 31, 1994 72,913
Held-to-maturity market-value $22,100
and $82,299 at December 31, 1994 and
1993, respectively 22,706 81,531
Total investment securities 95,619 81,531
Loans 335,725 316,782
Reserve for possible credit losses (2,350) (2,306)
Net loans 333,375 314,476
Bank premises and equipment 9,354 8,026
Accrued interest receivable and other assets 6,156 4,612
Total Assets $459,040 $423,380
Liabilities and Shareholders Equity
Liabilities:
Noninterest-bearing deposits $ 43,090 $ 41,456
Interest-bearing deposits 348,560 327,071
Total deposits 391,650 368,527
Federal funds purchased and other
borrowed money 11,373
Reserve for taxes, interest and
other liabilities 4,886 6,481
Total Liabilities 407,909 375,008
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 and 6,186 shares at
December 31, 1994 and 1993 respectively 62 62
Surplus 23,141 23,005
Retained earnings 29,435 25,305
Unrealized gain or loss on marketable equity
securities, net of tax (1,507)
Total Shareholders Equity 51,131 48,372
Total Liabilities and Shareholders Equity $459,040 $423,380
See notes to consolidated financial statements.
(25)
First United Corporation and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share amounts)
Year ended December 31
1994 1993 1992
Interest income
Interest and fees on loans $28,295 $27,712 $28,385
Interest on investment securities:
Taxable 4,101 3,929 5,155
Exempt from federal income taxes 515 583 973
4,616 4,512 6,128
Interest on federal funds sold 144 260 468
Interest on time deposits
with other banks 4
Total interest income 33,059 32,484 34,981
Interest expense
Interest on deposits:
Savings 2,359 2,658 3,359
Interest-bearing transaction
accounts 2,136 2,147 2,802
Time, $100,000 or more 1,142 889 1,201
Other time 5,326 5,617 7,450
Interest on federal funds purchased
and other borrowed funds 302 35 22
Total interest expense 11,265 11,356 14,834
Net interest income 21,794 21,128 20,147
Provision for possible credit losses 165 269 719
Net interest income after provision
for possible credit losses 21,629 20,859 19,428
Other operating income
Trust Department income 839 744 654
Service charges on deposit accounts 1,302 1,365 1,186
Insurance premium income 302 314 348
Security gains and (losses) (5) 28 19
Other income 1,394 1,037 543
3,832 3,488 2,750
Other operating expense
Salaries and employee benefits 8,838 7,627 6,751
Occupancy expense of premises 894 977 814
Equipment expense 1,154 1,053 866
Data processing expense 486 386 362
Deposit assessment and related fees 965 923 787
Other expense 3,883 4,192 3,478
16,220 15,158 13,058
Income before income taxes 9,241 9,189 9,120
Applicable income taxes 3,014 3,177 2,918
Net income $ 6,227 $ 6,012 $ 6,202
Earnings per share $1.01 $0.97 $1.01
See notes to consolidated financial statements.
(26)
First United Corporation and Subsidiaries
Consolidated Statements of Changes in Shareholders Equity
(In thousands, except per share amounts)
Unrealized
Common Gains and Retained Total
Stock Surplus (Losses ) Earnings Capital
Balance at January 1, 1992 $62 $22,479 $18,095 $40,636
Net income for the year 6,202 6,202
Dividend reinvestment and stock purchase
plan 159 159
Cash dividends $.34 per share (2,103) (2,103)
Balance at December 31, 1992 62 22,638 0 22,194 44,894
Net income for the year 6,012 6,012
Dividend reinvestment and
stock purchase plan 367 367
Cash dividends $.47 per share (2,901) (2,901)
Balance at December 31, 1993 62 23,005 0 25,305 48,372
Adjustment to begining balance
for change in accounting method,
net of income tax of $261 506 506
Change in unrealized gains and (losses),
net of tax of $516 (2,013) (2,013)
Net income for the year 6,227 6,227
Dividend reinvestment and
stock purchase plan 136 136
Cash dividends $.34 per share (2,097) (2,097)
Balance at December 31, 1994 $62 $23,141 $(1,507) $29,435 $51,131
( ) indicate deduction
See notes to consolidated financial statements.
(27)
First United Corporation and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Year ended December 31
1994 1993 1992
Operating activities
Net income $ 6,227 $ 6,012 $ 6,202
Adjustments to reconcile net income
to net cash provided
by oprating activities:
Provision for possible credit losses 165 269 719
Provision for depreciation 864 821 660
Net accretion and amortization of investment
security discounts and premiums 717 1,365 943
Loss (gain) on sale of investment securities 5 (28) (19)
(Increase) decrease in accrued interest receivable
and other assets (1,544) 457 567
(Decrease) increase in reserve for taxes,
interest and other liabilities (1,595) 119 1,245
Net cash provided by operating activities 4,839 9,015 10,317
Investing activities
Proceeds from sales of investment securities 1,614 944
Proceeds from maturities and sales of
investment securities available for sale 45,747
Purchases of available for sale
investment securities (59,770) (71,156) (47,053)
Purchases of investment securities
held-to-maturity (8,428)
Proceeds from maturities of investment
securities held-to-maturity 6,133 68,922 41,795
Net (increase) in loans (19,064) (15,082) (18,900)
Purchase of premises and equipment (2,192) (2,068) (1,119)
Net cash used in investing activities (37,574) (17,770) (24,333)
Financing activities
Net increase in demand deposits, NOW accounts
and savings accounts 8,733 8,219 32,580
Net increase (decrease) in certificates
of deposit 14,391 (5,519) (21,372)
Increase in federal funds purchased and
other borrowed funds 11,373
Cash dividends paid or declared (2,097) (2,901) (2,103)
Proceeds from issuance of common stock 136 367 159
Net cash provided by financing activities 32,536 166 9,264
Decrease in cash and cash equivalents (199) (8,589) (4,752)
Cash and cash equivalents at
beginning of year 14,735 23,324 28,076
Cash and cash equivalents at end of year $14,536 $14,735 $23,324
See notes to consolidated financial statements.
(28)
First United Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(in thousands, except per share amounts)
1. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying financial statements of First United Corporation
(Corporation) include the accounts of its wholly owned subsidiaries, First
United National Bank & Trust (Bank), The First United Bank of West Virginia,
N.A., (Piedmont), Myersville Bank (Myersville) and Oakfirst Life Insurance
Corporation (Non-Bank). All significant intercompany accounts and transactions
have been eliminated.
Investments
Securities held-to-maturity and available-for-sale: Management determines
the appropriate classification of debt securities at the time of purchase and
reevaluates such designation as of each balance sheet date. Debt securities
are classified as held-to-maturity when the Corporation has the positive
intent and ability to hold the securities to maturity. Held-to-maturity
securities are stated at amortized cost.
Debt securities not classified as held-to-maturity and marketable equity
securities are classified as available-for-sale. Available-for-sale securities
are stated at fair value, with the unrealized gains and losses, net of tax,
reported as a separate component of shareholders equity.
The amortized cost of debt securities classified as hld-to-maturity or
available-for-sale is adjusted for amortization of premiums and accretion of
discounts to maturity, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in interest
income from investments. Interest and dividends are included in interest
income from investments. Realized gains and losses, and declines in value
judged to be other-than-temporary are included in net securities gains
(losses). The cost of securities sold is based on the specific identification
method.
At December 31, 1994, there were no securities held in the investment
portfolio which were classified as trading.
Interest on Loans
Interest on loans is recognized based upon the principal amount
outstanding. It is the Corporation s policy to discontinue the accrual of
interest when circumstances indicate that collection is doubtful.
Bank Premises and Equipment
Bank premises and equipment are carried at cost, less accumulated
provision for depreciation. The provision for depreciation for financial
reporting generally has been made by using the straight-line method based on
the estimated useful lives of the assets, which range from 18 to 50 years for
buildings and 4 to 20 years for equipment. The provision for depreciation for
general tax purposes and for the Alternative Minimum Tax generally has been
made using the double-declining balance method and the ACRS method based on
the estimated useful lives of the assets which range from 18 to 50 years for
buildings and 4 to 10 years for equipment.
Reserve for Possible Credit Losses
For financial reporting purposes, management regularly reviews the loan
portfolio and determines a provision for possible credit losses based upon the
impact of economic conditions on the borrower s ability to repay, past
collection experience, the risk characteristics of the loan portfolio and such
other factors which, in management s judgement, deserve current recognition.
For income tax purposes, the Corporation provides the maximum addition to the
reserve for possible credit losses allowable under applicable federal income
tax law. Deferred taxes are provided or reversed in the statement of income
for any difference.
Income Taxes
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards ( SFAS ) No. 109, Accounting for Income Taxes. There
was no cumulative effect adjustment for the adoption of SFAS No. 109 and prior
year financial statements have not been restated. The Corporation had
previously recorded income taxes using the deferred method under APB No. 11.
(29)
The provision for income taxes is based on income and expense
amounts reported in the Consolidated Statements of Income adjusted for the
effects of the alternative minimum tax. Under the liability method, the
deferred tax liability or asset is determined based on the difference between
the financial statement and tax bases of assets and liabilities (i.e., First
United Corporation and Subsidiaries temporary differences) and is measured at
the enacted tax rates that will be in effect when these differences reverse.
Deferred tax expense is determined by the change in the liability or asset for
deferred taxes adjusted for changes in the deferred tax asset valuation
allowance.
Statement of Cash Flow
The Corporation has defined cash and cash equivalents as those amounts
included in the balance sheet captions Cash and due from banks and Federal
funds sold. The Corporation paid $11,093, $11,242 and $15,689 in interest on
deposits and other borrowed moneyfor the years ending December 31, 1994, 1993
and 1992, respectively.
Earnings Per Share
Earnings per share are based on the weighted average number of shares
outstanding of 6,191, 6,178 and 6,155 for 1994, 1993 and 1992, respectively.
For comparative purposes, earnings per share, dividends per share and
weighted average shares outstanding for the years ended December 31, 1993 and
1992 have been restated to reflect the 50% stock dividend effected in the form
of a three-for-two stock split of the Corporation s common stock paid February
8, 1994, to shareholders of record as of January 14, 1994.
Recently Issued Accounting Guidance
In May 1993, the FASB issued Statements No. 114 Accounting by Creditors
for Impairment of a Loan, and in October, 1994 the FASB issued Statement No.
118 Accounting by Creditors for Impairment of a Loan Income Recognition and
Disclosures. The Corporation is required to adopt Statements No. 114 and No.
118 in the fiscal year ending December 31, 1995. The Corporation has completed
the analyses of Statements No. 114 and 118 and has determined that the effect
of implementing these Statements will be immaterial on the Corporation s
financial position and results of operations.
Accounting Change
In May 1993 the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments in
Debt and Equity Securities. The Corporation adopted the provisions of the new
standard for investments held as of or acquired after January 1, 1994. In
accordance with the Statement, prior period financial statements have not been
restated to reflect the change in accounting principle. The opening balance
shareholders equity was decreased by $717 (net of $370 in deferred income
taxes) to reflect the net unrealized holding losses on securities classified
as available-for-sale previously carried at amortized cost.
Reclassifications
For comparability purposes certain reclassifications of prior year
amounts have been made.
2. Merger
On November 30, 1993, the Corporation merged with HomeTown Bancorp (and
its subsidiary Myersville Bank). On that date, the Corporation issued 697,500
shares of its common stock in exchange for all of the outstanding shares of
HomeTown Bancorp s common stock. On December 23, 1993, HomeTown Bancorp (the
holding Company) was dissolved resulting in Myersville Bank becoming a direct
subsidiary of the Corporation. The consolidated financial statements of the
Corporation give retroactive effect to the merger, which has been accounted
for as a pooling of interests. Accordingly, the financial statements of the
Corporation and Myersville Bank have been combined and are included in the
consolidated financial statements of the Corporation for all periods
presented.
(30)
Revenue, net income and dividends per share for the Corporation and for
HomeTown Bancorp were as follows:
Year ended December 31
1993 1992
Revenue:
First United Corp. $31,346 $32,997
Myersville 4,626 4,734
Combined $35,972 $37,731
Net Income:
First United Corp. $ 5,332 $ 5,509
Myersville 680 693
Combined $ 6,012 $ 6,202
Dividends per share:
First United Corp. .53 .40
Myersville 1.40 1.35
Combined .47 .34
3. Investment Securities
The following is a comparison of book and market values of
available-for-sale securities and held-to-maturity securities:
Available-for-Sale Securities
Gross Gross Estimated
Unrealized Unrealize d Fair
Cost Gains Losses Value
December 31, 1994 (In thousands)
U. S. Treasury securities and
obligations of U. S. government
agencies $52,497 $ $1,270 $51,227
Obligations of states and political
subdivisions 2,731 68 2,663
Mortgage-backed securities 19,711 13 958 18,766
U. S. corporate securities and
other debt securities 259 2 257
Total debt securities $75,198 $13 $2,298 $72,913
Held-to-Maturity Securities
Gross Gross Estimated
Unrealized Unrealized Fair
Cost Gains Losses Value
December 1, 1994 (In thousands)
U. S. Treasury securities and
obligations of U. S. government
agencies $3,800 $ $163 $ 3,637
Obligations of states and political
subdivisions 5,294 71 259 5,106
U. S. corporate securities 11,185 255 10,930
Total debt securities 20,279 71 677 19,673
Equity securities 2,427 2,427
Totals $22,706 $71 $677 $22,100
Equity securities consist of Federal Reserve Bank and Federal Home Loan
Bank Stock. These securities have no maturity and therefore are classified in
the Due after 10 years maturity line.
During the year ended December 31, 1994, available-for-sale
securities with a fair market value at the date of sale of $7.2 million were
sold. The gross realized gains on such sales totaled $2, and the gross
realized losses totaled $5. Debt and marketable equity held-to-maturity
securities with a fair market value at the date of sale of 4.1 million were
sold, for a gross realized loss of $2. The securities that were sold from the
held-to-maturity category were sold within ninety days of maturity.
(31)
December 31, 1993
Gross
Amortized Unrealized Market
Cost Gains Value
U.S. Treasury securities $23,467 $ 41 $23,508
U.S. Government agencies and corporations 33,315 396 33,711
Obligations of states and political subdivisions 8,538 251 8,789
Mortgage-backed securities 14,344 80 14,424
Other debt securities 1,867 1,867
Totals $81,531 $768 $82,299
There were no unrealized losses in the Corporation s investment portfolio
at December 31, 1993.
The amortized cost and estimated fair value of debt and marketable
equity securities at December 31, 1994, by contractual maturity, are shown
below. Actual maturities will differ from contractual maturities because the
issuers of the securities may have the right to prepay obligations without
prepayment penalties.
Available-for-sale Securities
Amortized Market
Cost Value
Due in one year or less $16,623 $16,460
Due after one year through five years 47,261 45,478
Due after five years through ten years 6,034 5,879
Due after ten years 5,280 5,096
$75,198 $72,913
Held-to-Maturity Securities
Amortized Market
Cost Value
Due in one year or less $ 3,376 $ 3,358
Due after one year through five years 13,696 13,174
Due after five years through ten years 2,697 2,590
Due after ten years 2,937 2,978
$22,706 $22,100
At December 31, 1994, investment securities with a book value of $23,237
were pledged to secure public and trust deposits as required or permitted by
law.
4. Reserve for Possible Credit Losses
Transactions in the reserve for possible credit losses are summarized as
follows:
1994 1993 1992
Balance at January 1 $2,306 $2,798 $2,572
Provision charged to operating expense 164 29 719
2,470 3,067 3,291
Gross credit losses (320) (1,092) (761)
Recoveries 200 331 268
Net credit losses 120 (761) (493)
Balance at December 31 $2,350 $2,306 $2,798
Non-accruing loans were $1,027, $438 and $2,337 at December 31, 1994,
1993 and 1992, respectively. Interest income not recognized as a result of
non-accruing loans was $502, $132 and $231 during the years ended December 31,
1994, 1993, and 1992, respectively.
(32)
5. Loans and Concentrations of Credit Risk
The Corporation through its banking subsidiaries is active in originating
loans to customers primarily in Garrett, Allegany, Washington and Frederick
counties in Maryland; and Mineral, Hardy and Hampshire Counties in West
Virginia, and the surrounding regions of West Virginia and Pennsylvania. The
following table presents the Corporation s composition of credit risk by
significant concentration.
December 31, 1994
Loans
Loan Commitments Total
Commercial, financial and agricultural $ 47,111 $ 27,868 $ 74,979
Real estate construction 19,838 14,190 34,028
Real estate mortgage 220,991 21,482 242,473
Installment 47,785 7,570 55,355
Letters of credit 886 886
$335,725 $ 71,996 $407,721
December 31, 1993
Loans
Loan Commitments Total
Commercial, financial and agricultural $ 38,351 $ 8,426 $ 46,777
Real estate construction 10,902 2,152 13,054
Real estate mortgage 220,228 7,361 227,589
Installment 47,301 11,689 58,990
Letters of credit 4,037 4,037
$316,782 $ 33,665 $350,447
Loan commitments are made to accommodate the financial needs of the
Corporation s customers. Letters of credit commit the Corporation to make
payments on behalf of customers when certain specified future events occur.
Letters of credit are issued to customers to support contractual obligations
and to insure job performance. Historically, more than 99 percent of letters
of credit expire unfunded. Loan commitments and letters of credit have credit
risk essentially the same as that involved in extending loans to customers and
are subject to normal credit policies. Collateral is obtained based on
management s credit assessment of the customer.
Commercial, financial and agricultural loans are collateralized by
real estate and equipment, and the loan-to-value ratios generally do not
exceed 70 percent. Real estate mortgage loans are collateralized by the
related property, and the loan-to-value ratios generally do not exceed 80
percent.
Any customer real estate mortgage loan exceeding a loan-to-value ratio of
80 percent will require private mortgage insurance. Installment loans are
typically collateralized with loan-to-value ratios which are established based
on historical experience and the financial condition of the borrower and
generally range from 80 percent to 90 percent of the amount of the loan. The
Corporation will also make unsecured consumer loans to qualified borrowers
meeting with the underwriting standards of the Corporation.
6. Bank Premises and Equipment
The composition of Bank premises and equipment is as follows:
1994 1993
Bank premises $ 9,292 $ 8,610
Equipment 8,735 7,538
18,027 16,148
Less accumulated depreciation (8,673) (8,122)
Total $ 9,354 $ 8,026
(33)
7. Fair Value of Financial Instruments
As required by the Statement of Financial Accounting Standards ( SFAS )
No. 107, Disclosures about Fair Value of Financial Instruments, the
Corporation has presented fair value information about financial instruments,
whether or not recognized in the statement of financial condition, for which
it is practicable to estimate that value. Fair value is best determined by
values quoted through active trading markets. Active trading markets are
characterized by numerous transactions of similar financial instruments
between willing buyers and willing sellers. Because no active trading market
exists for various types of financial instruments, many of the fair values
disclosed were derived using present value discounted cash flow or other
valuation techniques. As a result, the Corporation s ability to actually
realize these derived values cannot be assumed.
The fair values disclosed under SFAS No. 107 may vary significantly
between institutions based on the estimates and assumptions used in the
various valuation methodologies. SFAS No. 107 excludes disclosure of non
financial assets such as buildings as well as certain financial instruments
such as leases. Accordingly, the aggregate fair values presented do not
represent the underlying value of the Corporation.
The actual carrying amounts and estimated fair values of the Corporation
s financial instruments that are included in the statement of financial
condition at December 31 are as follows:
1994 1993
Estimated Estimated
Carrying Fair Carying Fair
Amount Value Amount Value
Cash and due from banks $ 14,536 $ 14,536 $ 12,832 $ 12,832
Investment securities 95,619 95,013 81,531 82,299
Loans 335,725 327,13 316,782 319,929
Deposits 391,650 392,195 368,827 369,129
Federal funds purchased and
other borrowed funds 11,373 11,373
The following methods and assumptions were used by the Corporation in
estimating its fair value disclosures for financial instruments:
Cash and Cash Equivalents: The carrying amounts as reported in the
statement of financial condition for cash and short-term instruments
approximate those assets fair values.
Investment Securities: Fair values for investment securities are based on
quoted market values.
Loans Receivable: For variable rate loans that reprice frequently or in
one year or less, and with no significant change in credit risk, fair values
are based on carrying values. Fair values for fixed rate loans and loans that
do not reprice frequently are estimated using a discounted cash flow
calculation that applies current interest rates being offered on the various
loan products.
Federal Funds Purchased and Other Borrowed Funds: Federal funds purchased
and other borrowed funds include federal funds purchased, Federal Home Loan
Bank borrowings and other short-term borrowings. The fair value of short-term
borrowings approximates the carrying value of these instruments based upon
their short-term nature.
Deposit Liabilities: The fair values disclosed for demand deposits (e.g.,
interest and non-interest checking, savings, and certain types of money market
accounts) are, by definition, equal to the amount payable on demand at the
reporting date (i.e., their carrying amounts.) The carrying amounts for
variable rate certificates of deposit approximate their fair values at the
reporting date. Fair values for fixed rate certificates of deposit are
estimated using a discounted cash flow calculation that applies interest rates
currently being offered on the various certificates of deposit to the cash
flow stream.
Off-balance-sheet Financial Instruments: In the normal course of
business, the Corporation makes commitments to extend credit and issues
standby letters of credit. As a result of excessive costs, the Corporation
considers estimation of fair values for commitments and standby letters of
credit to otherwise be impracticable. The Corporation s estimate of impairment
due to collectibility concerns related to these off-balance-sheet financial
instruments is included in the reserve for possible credit losses. The
Corporation does not have any derivative financial instruments at December 31,
1994.
(34)
8. Federal Home Loan Bank (FHLB) Advances and Other Borrowings
Borrowings consist of the following:
FHLB advances payable to FHLB Atlanta,
secured by all FHLB advances and certain first Mortgage Loans:
Due January 4, 1995 @ 6.88% $4,000
Due January 21, 1995, @ 6.25% 2,000
Due January 22, 1995 @ 6.18% 2,000
Total $8,000
The Corporation through its banking subsidiary, First United National Bank
& Trust, has a credit agreement with FHLB of Atlanta in an amount up to
$75,000. The line of credit is secured with the first lien on the 1-4 family
mortgage portfolio totaling $150,010 on December 31, 1994.
The Corporation's banking subsidiary First United National Bank & Trust
has established various unsecured lines of credit totaling $6 million at
various upstream correspondent banks. As of December 31, 1994, the outstanding
balance under these lines was $3,373. The subsidiary also has established $8
million reverse repo lines at various correspondent banks. As of December 31,
1994, there was nothing outstanding on these facilities. The Corporation
utilizes the lines to meet daily liquidity and does not rely on lines as a
source of long term liquidity.
9. Income Tax
Effective January 1, 1993, the Corporation changed its method of
accounting for income taxes from the deferred method to the liability method
required by FASB Statement No. 109, Accounting for Income Taxes (see Note
1). As permitted under the new rules, prior year s financial statements have
not been restated. The cumulative effect of adopting Statement 109 as of
January 1, 1993 was not material to the consolidated financial statements.
A reconciliation of the statutory income tax at the applicable rates
to the income tax expense included in the statement of income is as follows:
Liability Deferred
Deferred Method Method
1994 1993 1992
Income before income taxes $9,241 $9,189 $9,120
Statutory income tax rate 34% 34% 34%
Income tax 3,142 3,124 3,101
State franchise tax, net of federal tax benefit 283 424 230
Effect of nontaxable interest and loan income (283) (369) (439)
Effect of TEFRA interest limitation 27 32 40
Other (155) (34) (14)
Income tax expense for the year $3,014 $3,177 $2,918
Taxes currently payable $2,738 2,901 2,998
Deferred taxes (benefit) 366 276 (80)
Income tax expense for the year $3,014 $3,177 $2,918
Deferred income taxes reflect the net tax effects of temporary
differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes.
Significant components of the Corporation s deferred tax assets and
liabilities as of December 31 are as follows:
(35)
1994 1993
Deferred tax assets:
Reserve for possible credit losses................ $422 $ 406
Deferred loan origination fees.................... 287 286
Pension expense................................... 682 64
Merger costs...................................... 115 115
Unrealized loss on investment securites........... 777 _
Other............................................. 18 18
Total deferred tax assets....................... 1,687 1,089
Valuation allowance............................... (153) (142)
Total deferred tax assets less valuation
allowance....................................... 1,534 947
Deferred tax liabilities:
Excess depreciation............................... 487 460
Employee compensation............................... 207 _
Other............................................. _ 57
Total deferred tax liability.................... 694 517
Net deferred tax assets............................. $840 $ 430
The components of the provision for deferred tax (benefit) for the year
ended December 31, 1992 are as follows:
1992
Reserve for possible credit losses................................... $(87)
Deferred loan origination fees....................................... (21)
Pension expense...................................................... (37)
Excess depreciation.................................................. 34
Other................................................................ 31
Total deferred
taxes................................................................. $(80)
The Corporation made income tax payments of $3,142, $2,030, and $2,896
for the years ending December 31, 1994, 1993 and 1992, respectively.
10. Employee Benefit Plans
The Corporation has a noncontributory pension plan covering substantially
all full-time employees who qualify as to age and length of service.
Pension expense charged to operations was $243, $225 and $211 in 1994,
1993, and 1992, respectively. The benefits are based on years of service and
the employees compensation during the last five years of employment. The
Corporation's funding policy is to make annual contributions in amounts
sufficient to meet the current year's finding requirements.
The following table sets forth plan's funded status and amounts recognized
in the Corporation's financial statements for the years ended
December 31:
1994 1993
Actuarial present value of accumulated
benefit obligations:
Accumulated benefit obligation, including vested
benefits of $4,178 in 1994 and $3,559 in 1993 $(4,214) $(3,584)
Projected benefit obligation for service
rendered to date.......... (6,147) (5,873)
Plan assets at fair value, primarily listed
stocks and fixed income securities 5,419 5,145
Projected benefit obligation in excess of
plan assets (728) (728)
Unrecognized net loss 1,268 902
Unrecognized prior service cost arising from
amendment effective January 1, 1991 (36) (38)
Unrecognized net asset arising at transition
at January 1 (800) (840)
Accrued pension cost $ (296) $ (704)
(36)
1994 1993 1992
Net pension cost included the following components:
Service costs_benefits earned
during the year $261 $249 $223
Interest cost on projected benefit obligation 417 426 398
Actual return on plan assets 177 (341) (311)
Net amortization and deferral (612) (109) (99)
Net pension expense included in employee benefits $243 $225 $211
The weighted average discount rate used in determining the actuarial
present value of the projected benefit obligation was 7.5% and 8% for 1994 and
1993, respectively. The expected long-term rate of return on plan assets was
7.5% in 1994, and 8% in 1993 and 1992. Salaries were assumed to increase at 4%
in 1994 and at 5% and 6.25% in 1993 for the Corporation and Myersville,
respectively. During 1994, the Corporation lowered the discount rate used to
value its projected benefit obligation and the long-term rate of return on
plan assets to reflect the current rate environment. These changes in
assumptions will not have a material impact on the Corporation's consolidated
financial statements for 1995.
The Corporation has a profit-sharing plan covering full-time employees
who have completed one year of service. Contributions made to the plan are
determined by the Board of Directors. The contributions to the profit-sharing
trust fund for 1994, 1993 and 1992 were $583, $566 and $458, respectively.
The Corporation has an Employee Stock Ownership Plan (ESOP) which covers
full-time employees who have completed one year of service. The contributions
made to the plan are determined by the Board of Directors of the Corporation,
and are accrued when authorized. The expense relating to the ESOP for 1994,
1993, and 1992 was $40, $33 and $92, respectively. The contribution is used by
the plan to purchase shares of common stock of the Corporation.
11. Federal Reserve Requirements
The banking subsidiaries are required to maintain reserves with the
Federal Reserve Bank. During 1994, the daily average amount of these required
reserve was approximately $4,792.
12. Restrictions on Subsidiary Dividends, Loans or Advances
Banking law limits the amount of dividends which a bank can pay without
obtaining prior approval from bank regulators. Under this law the banking
subsidiaries could, without regulatory approval, declare dividends in 1994 of
approximately $7,241 plus an additional amount equal to the net profits for
1995 up to the date of any such dividend declaration.
Under Federal Reserve regulations, the banking subsidiaries are also
limited to the amount they may loan to their affiliates, including the
Corporation, unless such loans are collateralized by specified obligations. At
December 31, 1994, the maximum amount available for transfer from the banking
subsidiaries to the Corporation in the form of loans was approximately $5,348.
(37)
13. Parent Company Financial Information (Parent Company Only)
Condensed Statements of Financial Condition
December, 31
1994 1993
Assets
Cash................................................. $ 775 $ _
Investment securities................................ 2,913 216
Investment in bank subsidiaries...................... 43,924 42,985
Dividend receivable and other assets................. 82 660
Land and bank houses................................. _ 548
Investment in non-bank subsidiaries.................. 4,908 4,623
Total Assets......................................... $52,602 $49,032
Liabilities and Shareholder's Equity
Reserve for taxes, interest and other liabilities.... $ 11 $ _
Dividends payable.................................... _ 660
Shareholders' equity................................. 52,591 48,372
Total Liabilities and Shareholder's Equity........... $52,602 $49,032
Year ended December 31
Condensed Statement of Incom 1994 1993 1992
Income:
Dividend income from subsidiaries $4,959 $3,251 $4,205
Other income 147 25 7
Total income 5,106 3,276 4,212
Expense:
Other expenses 73 18 _
Total expense 73 18 _
Income before income taxes and equity
in undistributed net income of
subsidiaries 5,033 3,258 4,212
Equity in undistributed net income of
subsidiaries:
Banks 939 2,532 1,764
Non-bank 270 222 227
Less income tax (15) _ _
Net income $6,227 $6,012 $6,203
(38)
13. Parent Company Financial Information (Parent Company Only) (continued)
Condensed Statement of Cash Flows
Year ended December 31
1994 1993 1992
Operating activities
Net income $6,227 $6,012 $6,203
Adjustments to reconcile net income to
net cash provided by operating activities:
Increase in other receivables _ (660) _
Undistributed equity in subsidiaries:
Banks (939) (2,532) (1,764)
Non-bank (270) (222) (227)
Increase in other assets 578 660 _
(Decrease) Increase in other
liabilities (649) _ _
Net cash provided by operating activities 4,947 3,258 4,212
Investing activities
(Purchase) Disposal of premises and
equipment 548 (548) _
Purchase of investment securities (2,959) (216) (35)
Proceeds from investment maturities 200 35 _
Investment in subsidiary _ _ (2,499)
Net cash used in investing activities (2,211) (729) (2,534)
Financing activities
Cash dividends (2,097) (2,901) (2,103)
Proceeds from issuance of common stock 136 367 159
Net cash used by financing activities (1,961) (2,534) (1,944)
Increase in cash and cash equivalents 775 (5) (266)
Cash and cash equivalents at beginning of year _ 5 271
Cash and cash equivalents at end of year $ 775 $ _ $ 5
14. Commitments and Contingent Liabilities
The Corporation and its subsidiaries are at times, and in the ordinary
course of business, subject to legal actions. Management, upon the advice of
counsel, is of the opinion that losses, if any, resulting from the settlement
of current legal actions will not have a material adverse effect on the
financial condition of the Corporation.
Oakfirst Life Insurance Corporation, a wholly owned subsidiary of the
Corporation, had $9,727 of life, accident and health insurance in force at
December 31, 1994. In accordance with state insurance laws, this subsidiary is
capitalized at $4,845.
15. Related Party Transactions
In the ordinary course of business, executive officers and directors of
the Corporation, including their families and companies in which certain
directors are principal owners, were loan customers of the Corporation and its
subsidiaries. Pursuant to the Corporation's policy, such loans were made on
the same terms, including interest rates and collateral, as those prevailing
at the time for comparable transactions with unrelated persons and do not
involve more than the normal risk of collectibility. Changes in the dollar
amount of loans outstanding to officers, directors and their associates were
as follows for the years ended December 31:
1994 1993 1992
Balance, January 1 $2,940 $2,924 $3,004
Loans or advances 5,971 1,023 1,149
Repayments (1,434) (1,007) (1,229)
Balance, December 31 $7,477 $2,940 $2,924
(39)
16. Quarterly Results of Operations (Unaudited)
The following is a summary of the quarterly results of operations for the
years ended December 31, 1994 and 1993.
Three months ended
March 31 June 30 September 30 December 31
1994
Interest income $7,841 $8,088 $8,302 8,828
Interest expense 2,483 2,659 2,859 3,264
Net interest income 5,358 5,429 5,443 5,564
Provision for possible
credit losses 80 83 2 0
Other income 891 988 994 959
Other expenses 3,867 3,957 4,186 4,210
Income before income taxes 2,302 2,377 2,249 2,313
Applicable income taxes 702 815 725 772
Net income $1,600 $1,562 $1,524 $1,541
Earnings per share $0.26 $0.25 $0.25 $0.25
Three months ended
March 31 June 30 September 30 December 31
1993
Interest income $8,275 $8,071 $8,089 $8,049
Interest expense 2,968 3,030 2,786 2,572
Net interest income 5,307 5,041 5,303 5,477
Provision for possible
credit losses 173 165 21 (90)
Other income 715 857 892 1,024
Other expenses 3,533 3,641 3,969 4,015
Income before income taxes 2,316 2,092 2,205 2,576
Applicable income taxes 769 708 737 963
Net income $1,547 $1,384 $1,468 $1,613
Earnings per share $0.25 $0.22 $0.24 $0.268
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
(40)
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information with respect to Directors of the Registrant is
incorporated by reference from the Registrant s definitive Proxy Statement for
he annual shareholders meeting to be held April 18, 1995, from pages 2
through 6.
Executive Officers of the Registrant are:
NAME POSITION AGE
Richard G. Stanton Chairman of the Board 55
President and
Chief Executive Officer
Robert W. Kurtz Executive Vice President 48
and Treasurer
William B. Grant Executive Vice President 41
and Secretary
No family relationships, as defined by the rules and regulations of the
Securities and Exchange Commission, exist among any of the Directors,
Nominees, or Executive Officers.
All officers are elected annually by the Board of Directors and hold office at
the pleasure of the Board.
Mr. Stanton has been President and CEO of First United Corporation since 1987
and Chairman of the Board of First United Corporation since 1990 and First
United National Bank & Trust since 1987.
Mr. Kurtz has been Treasurer of First United Corporation since 1990 and
Executive Vice-President of First United National Bank & Trust since 1987.
Mr. Grant has been Secretary of First United Corporation since 1990 and
Executive Vice-President of First United National Bank & Trust since 1987.
OTHER SIGNIFICANT EMPLOYEES OF THE REGISTRANT ARE:
NAME POSITION AGE
Philip D. Frantz Senior Vice President 34
and Controller
Benjamin W. Ridder Senior Vice President 53
Director of Sales
and Training
L. Scott Rush Senior Vice President 41
Mr. Frantz has been Controller of the Corporation since 1988 and Vice
President since 1990. He was appointed Senior Vice President in 1993.
Mr. Ridder and Mr. Rush have both been Senior Vice Presidents of the
Corporation since 1987.
Item 11. EXECUTIVE COMPENSATION
Information required by Item 11 is incorporated by reference from pages 4
and 5 of the definitive Proxy Statement of the Corporation for the annual
meeting of shareholders to be held on April 18, 1995.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Information required by Item 12 is incorporated by reference from
pages 2 and 3 of the definitive Proxy Statement of the Corporation for the
annual meeting of shareholders to be held on April 18, 1995.
(41)
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is incorporated by reference from
page 6 of the definitive Proxy Statement of the Corporation for the annual
meeting of shareholders to be held on April 18, 1995, and from Note 15 on page
33 of this Form 10-K. There are no other relationships required to be
disclosed in this item pursuant to the instructions for this report.
PART IV.
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) and (2) Finaincial Statements and Financial Statement Schedules.
The consolidated financial statements of the Corporation are listed in
Item 6 of the Annual Report on Form 10-K. All schedules applicable to the
Corporation are shown in the financial statements or in the notes thereto
included in this Annual Report on Form 10-K.
All other schedules to the consolidated financial statements required by
Article 9 of Regulation S-X and all other schedules to the financial
statements of the Registrant required by Article 5 of Regulation S-X are not
required under the related instructions or are inapplicable and, therefore,
have been omitted.
(3) Listing of Exhibits.
(a) 3.1 Articles of Incorporation of the Corporation, incorporated by
reference to Annual Report on Form 10-K for the year ended December 31, 1993.
3.2 By-laws of the Corporation, incorporated by reference to Annual
Report on Form 10-K for the year ended December 31, 1993.
10.1 Employment contract of Terry L. Reiber, President and Chief
Executive Officer of Myersville Bank and a Director of the Corporation,
incorporated by reference to Annual Report on Form 10-K for the year ended
December 31, 1993.
21.1 Subsidiaries of the Corporation, incorporated by reference on pages
1-4 of this Form 10-K.
23.1 Consent of independent accountants, filed herewith.
(b) The Registrant filed no reports on Form 8-K during the last quarter
of the year ended December 31, 1994.
(42)
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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
By: /s/ Richard G. Stanton
Richard G. Stanton
Chairman of the Board, President,
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated.
Signatures
/s/ David J. Beachy /s/ Dr. Andrew E. Mance
(David J. Beachy) Director (Dr. Andrew E. Mance) Director
/s/ Donald M. Browning /s/ Donald E. Moran
(Donald M. Browning) Director (Donald E. Moran) Director
/s/ Rex W. Burton /s/ Terry L. Reiber
(Rex W. Burton) Director (Terry L. Reiber) Director
/s/ John L. Conway /s/ I. Robert Rudy
(John L. Conway) Director (I. Robert Rudy) Director
/s/ Paul Cox, Jr. /s/ Tod. P. Salisbury
(Paul Cox, Jr.) Director (Tod P. Salisbury) Director
/s/ Dr. B. L. Grant /s/ James F. Scarpelli
(Dr. B. L. Grant) Director (James F. Scarpelli) Director
/s/ Robert W. Kurtz /s/ Karen F. Spiker
(Robert W. Kurtz) Director (Karen F. Spiker) Director
(43)
FIRST UNITED CORPORATION
19 South Second Street
P.O. Box 9
Oakland, Maryland 21550
March 17, 1995
PROXY STATEMENT
INFORMATION CONCERNING THE SOLICITATION
The enclosed proxy is solicited on behalf of the Board of Directors of
First United Corporation (the "Company") for use at the Annual Meeting of
shareholders to be held on April 18, 1995 and any adjournment thereof. It is
requested that the proxy be completed, signed and returned to the Company
promptly. The cost of soliciting proxies will be borne by the Company. In
addition to solicitation by mail, proxies may be solicited by officers,
directors and regular employees of the Company personally or by telephone,
telegraph or facsimile. No additional remuneration will be paid to officers,
directors or regular employees who solicit proxies. The Company may reimburse
brokers, banks, custodians, nominees and other fiduciaries for their
reasonable out-of-pocket expenses in forwarding proxy materials to their
principals. The Company has also engaged Mellon Securities Transfer, Inc. to
assist in the solicitation of proxies, at an estimated cost of $1,000 plus
reasonable expenses. Should you attend the meeting and desire to vote in
person, you may withdraw your proxy by requesting management to do so, prior
to exercise by the named proxies. Also, your proxy may be revoked before it is
exercised, whether or not you attend the meeting, by notifying William B.
Grant, Secretary, First United Corporation, P.O. Box 9, Oakland, Maryland
21550-0009, in writing prior to the Annual Meeting. Your proxy may also be
revoked by using a subsequently signed proxy. The proxy materials are first
being mailed to shareholders on or about March 17, 1995.
SHAREHOLDERS' PROPOSALS FOR 1996 ANNUAL MEETING
Shareholders' proposals intended to be presented at the 1996 Annual
Meeting must be received by the Company no later than November 18, 1995.
OUTSTANDING VOTING SECURITIES; VOTING RIGHTS
The holders of record of Common Stock at the close of business on March
10,1995, will be entitled to receive notice of and vote at the Annual Meeting.
As of that date, there were 6,191,767 shares of Common Stock outstanding and
entitled to be voted at the Annual Meeting except that an aggregate of 538,768
shares, or 8.70%, held by the Trust Department of First United National Bank &
Trust ("FUNBT"), as sole trustee for the benefit of various beneficiaries, may
not be voted in the election of directors. Each share of Common Stock is
entitled to one vote. Directors are elected by a plurality of the votes cast
by the holders of shares of Common Stock present in person or represented by
proxy at the meeting, with a quorum present. For purposes of the election of
directors, abstentions and broker non-votes do not affect the plurality vote.
STOCK OWNERSHIP OF PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth information regarding the number of
shares of Common Stock owned as of December 31, 1994 by directors and nominees
for director, each executive of fixer named in the Summary Compensation Table,
and all directors and named executive officers as a group. To the Company's
knowledge, no person beneficially owns more than 5% of the Company's
outstanding Common Stock.
(1)
Common Stock Percent of
Beneficially Outstanding
Owned(1)(2) Common Stock
NAME
David J. Beachy 6,904 .11%
Donald M. Browning 16,774 .27%
Rex W. Burton 8,485 .14%
John L. Conway 61,993 (3) 1.00%
Paul Cox, Jr 962 .01%
Richard D. Dailey, Jr 1,574 .03%
WllliamB. Grant 3,924 (3) .06%
RobertW. Kurtz 8,291 (3) .13%
Andrew E. Mance 43,525 .70%
Elaine L. McDonald 1,278 .02%
Donald E. Moran 94,497 1.53%
Terry L. Reiber 3,944 .06%
I. Robert Rudy 27,031 .44%
Tod R Saiisbury 6,205 .10%
JamesE Scarpelli,Sr 98,073 (3) 1.60%
Karen E Spiker 4,370 .07%
Richard G. Stanton 12,002 (3) .19%
RobertG. Stuck 701 .01%
Directors & Executive Officers
As a group (18 persons) . . . . . . 401,533 6.48%
(I) Except as otherwise indicated and except for shares held by members of
an individual's family or in trust, all shares are held with sole dispositive
and voting power.
(2) Does not indude 703,340 shares held in the nomunee name First Oak Co.
administered by the Trust Department of FUNBT, none of which shares are
beneficially owned by any director or executive officer of the Company.
(3) Does not include 978 shares,629 shares, and 603 shares held in the
First United Corporation ESOP for Richard G.Stanton, Robert W. Kurtz, and
William B. Grant, respectively, as to which voting rights have been retained.
Does not include 71,769 shares held by the Trust Department of FUNBT in
revocable, living trusts of the family of James E Scarpelli, Sr., and
50,130 shares held by family members of John L. Conway in which voting rights
have been retained.
ELECTION OF DIRECTORS (PROPOSAL NO. 1)
(I) The Board has set the number of directors at eighteen (18). The
shareholders will vote at this Annual Meeting for directors who will sene a
one year term expiring at the Annual Meeting of shareholders in 1996. The
persons named in the enclosed proxy will vote for the election of the
nominees named below unless authority to vote is withheld. The Board of
Directors has no reason to believe that any nominee herein will be unable to
serve.
(2) The Board of Directors has placed into nomination the following
nominees:
NAME Age Occupation During Past Director of the Company
(As of 12/31/94) Five Years or Any of Its Subsidiaries Since
(1) (2)
David J. Beachy 54 Vice President, 1979
Fred E. Beachy
Lumber Co., Inc.,
Building Supplies
Donald M. Browning 69 Chairman of the 1963
Board, Browning's,
Inc., Retail Groceries
Rex W. Burton 60 Owner & President, 1991
Burton's, Inc., Dry Goods
(2)
John L. Conway 74 Banker, Retired 1986 1983
Paul Cox, Jr. 55 President, Antietam Business
Equipment 1993
Richard D. Dailey, Jr. 39 President, 1992
Cumberland Electric Company
WllliamB. Grant 41 ExecutiveVicePresident and
Secretary, 1995
First United Corporation,
Executive Vice President,
First United National Bank & Trust
Robert W. Kurtz 48 Executive Vice President and
Treasurer, 1990
First United Corporation,
Executive Vlce President,
First United National Bank & Trust
Andrew E. Mance 80 Physician 1958
Elaine L. McDonald 47 Vice President, 1992
Alpine Village / Silver Tree Inn
Donald E. Moran 64 Chairman of the Board and
President, 1961
First United Bank
of West Virginia, N.A.,
Secretary/Treasurer,
Moran Coal Company
I. Robert Rudy 42 Owner, Rudy s
DeptStore, 1992
Dry Goods
Terry L. Reiber 47 Banker, President and CEO, 1988
Myersville Bank
Tod R Salisbury 42 Partner, Salisbury &McLister, 1989
Law Firm
James E Scarpelli, Sr. 80 Owner, Scarpelli Funeral Home 1983
Karen E Spiker 43 Real Estate Broker,
A & A Realty/ 1988
Better Homes and Gardens
Richard G. Stanton 55 Chairrnan of the Board,
President and CEO, 1973
First United Corporation
and First United National
Bank & Trust
Robert G. Stuck 49 Vice President,
Oakview Motors,Inc. 1992
(I) Except as other wise indicated, there has been no change in the
principal occupation or employment during the past five years.
(2) As to Messrs. Dailey, Grant, Stuck and Ms. McDonald, who are the only
non-incumbent nominees, the date shown refers to the year when the individual
became a director of FUNBT. As to incumbent directors, this date refers to the
year when the individual, with the exception of Messrs. Cox, Kurtz, Moran,
Reiber, Rudy, Salisbury, and Ms. Spiker, became a director of FUNBT. Donald E.
Moran became a director of First United Bank of West Virginia, N.A. in
1961 and a director of the Company in 1988. Robert W. Kurtz became a director
of the Company in 1990. I. Robert Rudy and Karen E Spiker became directors of
the Company in 1992. Paul B. Cox, Jr., Terry L. Reiber, and Tod R Salisbury
became directors of the Company in 1993 and Myersville Bank in 1993, 1988, and
1989 respectively. All other directors became directors of the Company in
1985.
The Board of Directors recommends that shareholders vote FOR such nominees.
Attendance at Board Meetings
During 1994 the Board of Directors of the Company held fourteen meetings.
All incumbent directors who are nominees for reelection attended at least 75%
of the Board Meetings. All such incumbent directors also attended at least 75%
of the meetings of each committee of the Board on which such director served,
with the exception of Donald E. Moran and Tod P. Salisbury, who attended 55%
and 60% of meetings of the committees on which they served, respectively. In
addition, directors of the Company s subsidiaries have met in accordance with
guidelines established by the Board of Directors.
Committees of the Board of Directors
In addition to meeting as a group, certain members of the Board also
devote their time to certain standing comrnittees. Among those committees are
the Audit, Investment and Funds Management, Executive Management and
Compensation and Strategic Planning Committees, whose members and principal
functions are listed below. The Chairman of the Board. President
and CEO of the Company, Richard G. Stanton. is an ex-offido member of all
comrnitees, except the Audit Committee.
Audit Committee - The Audit Committee, which consists of David J. Beachy,
Donald E. Moran, Tod R Salisbury, and Board nominee Robert G Stuck, reviews
significant audit and accounting principles, policies and practices, meets
with the Company s auditor to review the Company s internal auditing function,
and meets with the Company s independent auditors to review the results of the
annual examination. This committee met four times in 1994.
(3)
Investment and Funds Management Committee - This comnnittee reviews and
recommends changes to the Company s asset and liability, investment,
liquidity, and capital plans. The Investment and Funds Management Committee
met twice in 1994. Members of the committee are Paul Cox, Bowie Linn Grant
(who will retire from the Board and serve as director emeritus for a
period of two years from and after the date of the 1995 Annual Meeting),
Andrew E. Mance, Board nominee Elaine L. McDonald, and Donald E. Moran.
Executive Management and Compensation Committee - This committee is
responsible for reviewing and recommending changes to the Company s insurance
program, overseeing compliance with the Company s By-Laws and Articles of
Incorporation, supervising the Companys CEO, recommending to the Board a
compensation policy for the CEO and other executive officers of the Company
and its subsidiaries, recommending changes to the CEO s compensation
package based on performance reviews, monitoring the performance of the
Company and its subsidiaries, recommending changes to the Company s and
subsidiaries personnel policies, serving as a director nomination committee,
and functions with the authority of the full Board between meetings of the
Board. The Executive Management and Compensation Committee met five times
in 1994. Members of the comnnittee are David J. Beachy, Donald M. Browning,
John L. Conway, I. Robert Rudy, Tod R Salisbury, and Karen E Spiker.
Strategic Planning Committee - The functions of this committee are
long-term planning to insure that management decisions take into account the
future operating environment, the development of corporate statements of
policy, review of overall management internal control procedures, and review
of management s internal and external information and communications systems.
The Strategic Planning Committee met seven times in 1994. Members of this
committee are John L. Conway, Paul Cox. Jr., Donald E. Moran, I. Robert
Rudy, and Karen R Spiker.
Compensation Committee Interlocks and Insider Participation
The persons who served on the Executive Management and Compensation
Committee at December 31, 1994 are listed above under the caption Executive
Management and Compensation Committee .
The late Mr. Horace Whitworth, who sewed as General Counsel to the Company
and certain of its affiliates. and was a member of such committee, received
approximately $20,000 in legal fees in connection with such services during
1994.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS (PROPOSAL NO. 2)
Subject to ratification by shareholders, the Board of Directors has
reappointed Emst & Young LLP as independent auditors to audit the consolidated
financial statements of the Company and its subsidiaries. Ernst & Young LLP
has advised the Company that no one within the firm nor any of its members or
associates has any direct financial interest in or has any connection with the
Company or its subsidiaries other than as independent auditors. No
representatives of Ernst & Young LLP are expected to be present at the Annual
Meeting.
The Board of Directors recommends that shareholders vote FOR such
ratification.
REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS
Directors Fees
Directors fees are paud only todirectors whoare not executive of fixers of
the Company. A director of the Company receives up to $350 for a Board meeting
and up to $ 175 for each comnnittee meeting of the Board of which the director
is a member, depending on the length of the meeting. Directors of subsidiaries
of the Company are compensated for their attendance of meetings of the
subsidiaries boards.
Summary Compensation Table
The following sets forth the total remuneration for services in all
capacities paid during each of the last three fiscal years to the chief
executive officer and each of the other executive officers of the Company as
to whom total remuneration exceeded $100,000 during the fiscal year ended
December31,1994.
(A) (B) (C) (D) (E)
Name and Year Salary Bonus All other
Principal Position Compensation
(1) (2) (3) (4)
Richard G. Stanton 1994 $158,024 $46,889 $20,068
Chairman of the Board 1993 158,939 18,637 19,463
President and CEO 1992 158,532 35,564 21,970
Robert W.Kurtz 1994 $107,372 $30,621 $11,311
Executive vice 1993 107,396 17,945 10,187
President and 1992 104,711 25,198 12,221
Treasurer
William B. Grant 1994 $ 95,672 $27,193 $13,237
Executive vice 1993 95,196 17,945 12,567
President and 1992 95,196 25,198 13,885
Secretary
(I) Salary amounts for 1992, 1993, and 1994 include directors fees. As of
March 1, 1994 directors fees were no longer paid to directors who are
executive officers of the Company.
(2) The pay for performance was distributed in 1995 for 1994 performance.
(3) Indudes (i)basic and matching contlibutions made by the Company under
the Company's Profit Sharing Plan of $18,826, $10,433, $12,430 for Messrs.
Stanton, Kurtz, and Grant, respectively, and (ii) contributions made by the
Company under the Employee Stock Ownership Plan of $ 1,242, $878, and $807 for
Messrs. Stanton, Kurt, and Grant respectively. Each of Messrs. Stanton, Kurtz,
and Grant has in excess of 7 years of credited service under the respective
plans, and is therefore 100% vested.
(4) First United National Bank & Trust s profit sharing plan and pension
and salary deferral plan are described under the caption Pension and Profit
Sharing .
(4)
Executive Management and Compensation Committee Report
The basic philosophy of the Company's compensation program is to offer
competitive compensation for all executive employees that takes into account
both individual contributions and corporate performance. Compensation levels
for executives were recommended by the Executive Management and Compensation
Comrnittee and approved by the non-employee directors of the Board.
The principal elements of executive compensation are salary and bonus.
Base salaries are set at levels intended to foster a career orientation among
executives, consistent with the long-term nature of the Company's business
objectives. In setting base salary levels, consideration is given to
establishing salary levels that approximate the amounts paid for similar
executive positions at other community banking organizations. Salary
adjustments and bonus amounts are determined in accordance with the Annual
Incentive Program established for executive officers and other members of
senior management in 1992.
The program, which was developed in consultation with the Company's
independent accountants, utilizes a targeted goal oriented approach whereby
each year the committee establishes performance goals based on the
recommendation of the Chairman and Chief Executive Officer. The performance
goals include such strategic financial measures as: Return on Equity,
Return on Assets, and Efficiency Ratio. Each of these elements is weighted
approximately the same. The measures are established annually at the start of
each fiscal year and will be tied directly to the Company's business strategy,
projected budgeted results and competitive peer group performance.
The targeted goals are set at levels which reward only continued
exceptional Company performance. The incentive awards (consisting of upward
salary adjustments and bonus amounts)are expressed as a percent of base pay and
measured on a range around the targeted goals with a fixed maximum
incentive award. Performance below certain stated minimum threshold levels
will result in no incentive payout to the executives. The goals established at
the beginning of fiscal 1994 were met, and accordingly, bonuses were awarded.
Since the targets were exceeded to a greater extent than in prior years. bonus
amounts were greater than those peud in 1993.
In addition to quantitative results, the committee considered a number of
qualitative factors in evaluating the compensation level of Richard G.
Stanton, Chairman, President, and CEO of the Company. The committee recognized
Mr. Stanton's efforts in managing the Company to achieve its 1994 financial
objectives and in successfully directing the further integration of the
Myersville Bank operations into the Company. The committee also acknowledged
Mr. Stanton's leadership in the continued improvement in asset quality of the
loan portfolio of the Company's subsidiary banks. The committee believes that
accomplishment of these results has added to the financial strength of the
Company.
BY: EXECUTIVE MANAGEMENTAND COMPENSATION COMMITTEE
David J. Beachy
Donald M. Browning
John L. Conway
I. Robert Rudy
Tod R Salisbury
Karen E Spiker
PERFORMANCE GRAPH
Set forth below is a graph showing S-year cumulative total return of the
First United Corporation Common Stock as compared with the NASDAQ - listed
bank index, as prepared by the Center for Research in Securities Prices, and
the NASDAQ total index. A list of component companies within the NASDAQ -
listed bank index will be provided upon written request.
TOTAL NASDAQ FIRST UNITED
YEAR NASDAQ NASDAQ BANKS CORPORATION
1990 84.92 73.23 90.05
1991 136.28 120.17 90.69
1992 158.58 174.87 113.33
1993 180.93 199.28 206.30
1994 176.92 198.69 186.21
Shareholder return is calculated and presented on the basis of $100.00
invested at December 31, 1989.
(5)
PENSION AND PROFIT SHARING PLANS
The following table shows the maximum annual retirement benefits payable
under the Company Defined Benefit Pension Plan for various levels of
compensation during the year of service:
APPROXIMATE ANNUAL BENEFIT UPON RETIREMENT AT AGE 65 BASED ON YEARS OF
CREDITED SERVICE
FINAL ANNUAL
COMPENSATION 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
30,000 6,000 8,000 10,000 12,000 14,000
70.000 15,000 20,000 25,000 30,000 35,000
110,000 24,000 32,000 40,000 48,000 56,000
150,000 33,000 44,000 55,000 66,000 77,000
190,000 33,000 44,000 55,000 66,000 77,000
For purposes of this table, final average compensation shown is twelve
times the average of the highest salary during sixty consecutive months in the
last one hundred twenty months preceding normal retirement. Also, for purposes
of the table, benefits are payable for life with a minimum guarantee of ten
years. Benefits are computed on an actuarial basis to convert the benefits at
normal retirement to a lifetime only benefit. The amounts would be increased
by a factor of 1.0677% during 1994. Social Security benefits are not shown on
the table and would not reduce retirement benefits under the plan.
Projected Benefits for Highly Compensated Employees:
CURRENT COMPENSATION CREDITED SERVICE AT ESTIMATED ANNUAL
COVERED BY THE PLAN NORMAL RETIREMENT BENEFITS AT RETIRE
Richard G. Stanton $ 174,961 44 Years $ 90,500
Robert W. Kurtz 123,617 38 Years 66,858
William B. Grant 113,617 40 Years 63,580
The Company also has a Profit Sharing Plan wherein an eligible officers
and employees share in the net earnings. Eligibility is determined by one year
of service requiring one thousand or more hours worked during that year.
Benefits under the plan, which consist of a percentage of salary, vest as
follows:
Years of Service Vested Percentage Years of Service Vested Percentage
Less than 3 years 0% More than 5 but less than 6 60%
More than 3 but
less than 4 20% More than 6 but less than 7 80%
More than 4 but
less than 5 40% 7 years and over 100%
Contributions to the Plan are within the discretion of the Board of
Directors. Contributions to he Plan for 1994 and 1993 were $583,000 and
$566,448, respectively. The Plan also provides for salary deferrals pursuant
to Section 401 (k) of the Internal Revenue Code.
The Company matches 50% of the first 4% of deferred salary and 25% of
deferrals over 4% and up to 6% of salary. The Profit Sharing Plan is
administered by the Trust Department of First United National Bank & Trust.
The Company implemented an Employee Stock Ownership Plan in 1988.
Eligibility parameters for the ESOP are similar to Profit Sharing Plan. In
1994 and 1993. the Company contributed $40.000 and $33.887. respectively, to
the Plan.
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
Some of the directors and officers of the Company and their associates
were customers of and had banking transactions with banking subsidiaries of
the Company in the ordinary course of business during 1994. All loans and loan
commitments included in such transactions were made on the same terms,
including interest rates and collateral, as those prevailing at the same time
for comparable transactions with others, and in the opinion of the management
of the Company, do not involve more than a normal risk of collectability or
present other unfavorable features.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Pursuant to Section 16(a) of the Securities Exchange Act of 1934 and the
rules thereunder, the Company's executive of ficers and directors are required
to file with the Securities and Exchange Commission reports of their ownership
of Common Stock. Based solely on a review of copies of such reports furnished
to the Company, or written representations that no reports were required, the
Company believes that during the fiscal year ended December 31, 1994 its
executive officer and directors complied with the Section 16(a) requirements,
except that late filings were made with respect to the following reporting
persons: One report was filed approximately 3 days late by Mr. Grant: one
report was filed approximately 18 days late by Mr. Salisbury; and one report
was filed approximately 9 days late by Mr. Scarpelli.
OTHER MATTERS
As of the date of this proxy statement, the Board of Directors is not
aware of any matters, other than those stated above, that may be brought
before the meeting. The persons named in the enclosed form of proxy or their
substitutes will vote with respect to any such matters in
accordance with their best judgement.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ William B. Grant
WILLIAM B. GRANT
Secretary to the Board
(6)
CONSENT OF INDEPENDENT AUDITORS
We consent to the incorporation by reference in the following Registration
Statement (Form S-3 No. 33-25428) of First United Corporation, and in the
related Prosspectus of our report dated January 30, 1995, with respect to the
consolidated financial statements of First United Corporation, included in
this in this Annual Report (Form 10-K) for the year ended for the year ended
December 31, 1994.
Baltimore, Maryland
March 20, 1995
(1)
Independent Auditors Report
To the Board of Directors and Shareholders of
Hometown Bancorp, Inc. and Subsidiary
We have audited the consolidated balance sheet of Hometown Bancorp, Inc.
and Subsidiary as of December 31, 1992, the related consolidated statements of
income, changes in shareholders' equity, and cash flows for the year then
ended (none of which are shown separately herein. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above (none of
which are shown separately herein) present fairly, in all material respects,
the financial position of HomeTown Bancorp, Inc. and Subsidiary as of December
31, 1992, and the results of their operations and their cash flows for the
year then ended in conformity with generally accepted accounting principles.
/s/ Smith Elliott Kearns & Company
Hagerstown, Maryland
January 11, 1993
