FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1995
Commission file number 0-14237
First United Corporation
(Exact name of registrant as specified in its charter)
Maryland 52-1380770
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification no.)
19 South Second Street, Oakland, Maryland 21550-0009
(address of principal executive offices) (zip code)
(301) 334-9471
Registrant's telephone number, including area code
Not applicable
Former name, address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter periods that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common stock, $.01 Par value--6,194,376 shares outstanding as of
September 30, 1995 Preferred stock, No par value--No shares
outstanding as of September 30, 1995.
-01-
INDEX
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1995
(Unaudited), December 31, 1994, and September 30, 1994
(Unaudited).
Consolidated Statements of Income (Unaudited) - Three months
ended September 30, 1995 and 1994 and nine months ended September
30, 1995 and 1994.
Consolidated Statement of Cash Flows (Unaudited) - Nine
months ended September 30, 1995 and 1994.
Notes to Unaudited Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
Item 2. Changes in Securities.
Item 3. Defaults upon Senior Securities.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
Item 6. Exhibits and Reports on Form 8-k.
SIGNATURES
-02-
FIRST UNITED CORPORATION
Consolidated Balance Sheet
(In Thousands)
Sept. 30, Dec. 31, Sept. 30,
ASSETS 1995 1994 1994
(Unaudited) (*) (Unaudited)
-----------------------------
Cash and Due From Banks $12,958 $14,536 $16,503
Investments:
Available-for-Sale:
U.S. Treasury Securities 11,583 21,252 21,406
Obl. of Other U S Gov. Agen. 31,972 29,975 35,199
Obl. of St. and Loc. Govt 3,871 2,663 0
Other Investments 26,750 21,450 21,105
--------------------------
Total Available-for-Sale 74,176 75,340 77,710
Held-to-Maturity:
Obl. of Other U S Govt Agen 2,800 3,800 3,800
Obl. of St. and Loc. Govt 4,483 5,294 9,195
Other Investments 9,751 11,185 14,658
---------------------------
Total Held-to-Maturity 17,034 20,279 27,653
---------------------------
Total Investment Securities 91,210 95,619 105,363
Federal Funds Sold 1,110 0 315
Loans 362,188 335,725 324,769
Reserve for Poss. Credit Loss (2,184) (2,350) (2,322)
---------------------------
Net Loans 360,004 333,375 322,447
Bank Premises and Equipment 9,978 9,354 8,919
Acc. Int. Rec. and Other Assets 6,108 6,156 6,571
----------------------------
TOTAL ASSETS $482,368 $459,040 $460,118
============================
* The balance sheet at December 31, 1994 has been derived from
the audited financial statements at that date.
See notes to unaudited consolidated financial statements.
() Indicates Deduction -03-
FIRST UNITED CORPORATION
Consolidated Balance Sheet
Sept. 30, Dec. 31, Sept. 30,
1995 1994 1994
(Unaudited) (*) (Unaudited)
LIABILITIES ----------------------------
Deposits
Non-int. Bearing Deposits $ 48,426 $ 43,090 $ 48,233
Interest Bearing Deposits 371,499 348,560 358,284
---------------------------
Total Deposits 419,925 391,650 406,517
Reserve for Taxes, Int., &
Other Liabilities 3,914 4,886 2,624
Fed funds purchased & other
borrowed money 4,000 11,373 0
Dividends Payable 743 0 743
----------------------------
TOTAL LIABILITIES 428,582 407,909 409,884
SHAREHOLDER'S 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 6,194 shares at September 30,
1995, 6,192 outstanding at December
31, 1994, and September 30, 1994,
respectively. 62 62 62
Surplus 23,186 23,141 23,141
Retained Earnings 30,490 29,435 27,898
Unrealized Gains(Losses) on
Available for Sale Securities
net of taxes 48 (1,507) (867)
---------------------------
TOTAL SHAREHOLDER'S EQUITY 53,786 51,131 50,234
---------------------------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $482,368 $459,040 $460,118
============================
-04-
* The balance sheet at December 31, 1994 has been derived from
the audited financial statements at that date.
See Notes to unaudited consolidated financial statements.
() Indicates Deduction
-05-
FIRST UNITED CORPORATION
Consolidated Statement Of Income
(In Thousands, except per share data)
Three Months
Ended September 30,
1995 1994
-------------------
(Unaudited)
INTEREST INCOME
Interest and fees on loans $ 8,057 $ 7,131
Interest on investment securities:
Taxable 1,255 1,072
Exempt from federal income tax 113 117
--------------------
$1,368 $ 1,189
Interest on federal funds sold 73 (18)
--------------------
TOTAL INTEREST INCOME $ 9,498 $ 8,302
INTEREST EXPENSE
Interest on deposits:
Savings $ 522 $ 871
Interest-bearing transaction acct. 708 606
Time, $100,000 or more 402 148
Other time 2,173 1,162
Interest on Fed Funds purchased
& other borrowed money 5 72
--------------------
TOTAL INTEREST EXPENSE $ 3,810 $2,859
NET INTEREST INCOME $ 5,688 $5,443
Provision for possible credit losses 0 2
---------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE CREDIT LOSSES $ 5,688 $ 5,441
OTHER OPERATING INCOME
Trust department income $233 $213
Service charges on deposit accts. 417 160
Insurance premium income 84 100
Security gains 0 20
Other income 344 501
--------------------
Total Other Operating Income $1,078 $ 994
-06-
Three Months
Ended September 30,
1995 1994
-------------------
OTHER OPERATING EXPENSES
Salaries and Employees Benefits $2,327 $2,294
Occupancy Expense of Premises 97 170
Equipment Expense 321 311
Data Processing Expense 154 201
Deposit Assess. and Related Fees (17) 274
Restructuring Expense 266 0
Other Expense 1,166 936
---------------------
Total Other Operating Expenses $ 4,314 $ 4,186
INCOME BEFORE TAX $2,452 $2,249
Applicable Income Taxes (850) (725)
----------------------
NET INCOME $1,602 $1,524
======================
NET INCOME PER SHARE $0.26 $0.25
======================
Average Common Shares
Outstanding 6,192 6,192
======================
See Notes to Unaudited consolidated financial statements.
-07-
FIRST UNITED CORPORATION
Consolidated Statement Of Income
(In Thousands, except per share data)
Nine Months
Ended September 30,
1995 1994
-------------------
(Unaudited)
INTEREST INCOME
Interest and fees on loans $ 23,412 $20,990
Interest on investment securities:
Taxable 3,652 2,766
Exempt from federal income tax 342 398
--------------------
$3,994 $ 3,164
Interest on federal funds sold 159 77
--------------------
TOTAL INTEREST INCOME $27,565 $24,231
INTEREST EXPENSE
Interest on deposits:
Savings $ 1,569 $1,782
Interest-bearing transaction acct. 1,926 1,462
Time, $100,000 or more 1,162 775
Other time 6,007 3,878
Interest on Fed Funds purchased
& other borrowed money 99 104
--------------------
TOTAL INTEREST EXPENSE $10,763 $8,001
NET INTEREST INCOME $16,802 $16,230
Provision for possible credit losses 0 165
---------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE CREDIT LOSSES $16,802 $16,065
OTHER OPERATING INCOME
Trust department income $702 $647
Service charges on deposit accts. 1,169 974
Insurance premium income 209 233
Security (losses)gains (19) 23
Other income 953 996
--------------------
Total Other Operating Income $3,014 $2,873
-08-
Nine Months
Ended September 30,
1995 1994
-------------------
(Unaudited)
OTHER OPERATING EXPENSES
Salaries and Employees Benefits $6,837 $6,547
Occupancy Expense of Premises 562 675
Equipment Expense 918 847
Data Processing Expense 447 431
Deposit Assess. and Related Fees 507 762
Restructuring Expense 1,085 0
Other Expense 3,414 2,748
---------------------
Total Other Operating Expenses $13,770 $12,010
INCOME BEFORE TAX $6,046 $6,928
Applicable Income Taxes (2,015) (2,242)
----------------------
NET INCOME $4,031 $4,686
======================
NET INCOME PER SHARE $0.65 $0.76
======================
Average Common Shares
Outstanding 6,192 6,192
======================
See Notes to Unaudited consolidated financial statements.
-09-
FIRST UNITED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS) Nine Months
Ended September 30,
1995 1994
--------------------
(Unaudited)
OPERATING ACTIVITIES
Net Income $ 4,031 $ 4,686
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 0 165
Provision for depreciation 809 643
Net accretion & amortization of investment
security discounts & premiums 352 551
(Increase)in acc. interest
& other receivables. (19) (1,959)
(Decrease) Increase in accrued interest
& other payables (229) 3,114
--------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 3,992 $ 7,200
--------------------
INVESTING ACTIVITIES
Proceeds from maturities of available-for-
sale securities $ 76,031 $ 44,286
Purchases of available-for-sale securities (71,877) (56,835)
Proceeds form maturities of held-to-maturity
securities 5,549 2,171
Purchases of held-to-maturity securities (4,076) (10,607)
Net (increase) decrease in loans (26,629) 8,412
Purchases of premises & equipment (1,433) (1,536)
-------------------
NET CASH USED IN INVESTING ACTIVITIES $(22,435) $(14,109)
-------------------
FINANCING ACTIVITIES
Decrease in Fed Fund Purchased
and Other Borrowed Money $ (7,373) 0
Net increase in demand deposits,
NOW accounts and savings accounts 4,913 24,478
Net increase (decrease) in certificates
of deposits 23,362 (13,512)
Cash dividends paid or declared (2,972) (2,104)
Proceeds form issuance of capital stock 45 130
-10-
Nine Months
Ended September 30,
1995 1994
--------------------
(Unaudited)
NET CASH PROVIDED BY --------------------
FINANCING ACTIVITIES $ 17,975 $ 8,992
--------------------
Cash and cash equivalents at beg. of qtr. $ 14,536 $ 14,735
(Decrease) increase in cash & cash equiv. $ (468) $ 2,083
--------------------
Cash & cash equivalents at end of period $ 14,068 $ 16,818
====================
See Notes to unaudited consolidated financial statements.
-11-
FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
September 30, 1995
Note A -- Basis of Presentation
The accompanying unaudited consolidated financial statements
have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions to Form 10-Q. Accordingly, they do not include
all the information and footnotes required for complete financial
statements. In the opinion of management, all adjustments
considered necessary for a fair presentation, consisting of
normal recurring items have been included. Operating results for
the three and nine month periods ended September 30, 1995, are
not necessarily indicative of the results that may be expected
for the year ending December 31, 1995. The enclosed consolidated
financial statements should be read in conjunction with the
consolidated financial statements and footnotes thereto included
in the Company's annual report on Form 10-K for the year ended
December 31, 1994.
Earnings per share are based on the weighted average number
of shares outstanding of 6,192 for the nine months ended
September 30, 1995 and 1994.
-12-
Part I. Financial Information
Item II. Management's Discussion and Analysis
Consolidated net earnings for the quarter totaled $1.602
million, which is $.078 million more than was recorded for the
third quarter of 1994. Translated into per share amounts, this
equates to $.26 per share for the second quarter of 1995 versus
$.25 per share in 1994. Year to date consolidated net earnings
totaled $4.031 million versus $4.686 million in 1994 or $.65 and
$.76 per share respectively. The decrease in earnings can be
attributed to the following items: second quarter 1995 early
retirement one time charge of $.82 million and increases in other
expenses relating to costs associated with subsidiary bank consolidation
which are discussed in more detail below.
In keeping with the Corporation's ongoing efforts to
maintain or increase profitability in an increasingly competitive
marketplace and to make the most productive use of employees, the
Corporation offered a voluntary early retirement plan to select
employees. There were eleven employees eligible to participate in
the plan, and all eleven eligible employees opted to participate
in the plan. As of September 30, 1995, all eleven employees had
left employment of the Company. The cost of the plan was covered
by a special one-time charge to earnings. To carry out this plan,
the Board of Directors authorized a one-time pre-tax charge of
$0.82 million against second quarter earnings. The charge is
comprised largely of additional pension expense of $0.43 million,
severance pay and one-time health insurance charges related to
the eleven retirees.
While the charge is expected to lower 1995 pre-tax earnings
by approximately $.13 per share, management believes the overall
expense reduction resulting from this action will better position
the Corporation for profitable growth in the years ahead. As we
implement our restructuring plan, we will realize cost savings of
increasing magnitude. These savings will further improve our
profitability and enable us to implement our ambitious marketing
and new product programs more aggressively. We also expect that
they will help us sustain our strong dividend payment record.
During the third quarter the Corporation began realizing some
savings associated with the program.
-13-
While the above mentioned items negatively impacted net
earnings in 1995, it is anticipated that the results of this
restructuring will improve the Corporation's market share and,
enhance customer service and profitability in the future.
The efficiency ratio, which is a key measuring tool for
profitability and operating efficiency was -68.29% as of
September 30, 1995 versus -62.59% at September 30, 1994. The
one-time charge associated with the voluntary early retirement
plan is the largest cause in the deterioration of the efficiency
ratio. If the ratio is calculated adjusting for the one-time
charge, the efficiency ratio would have been -62.91%. The other
above mentioned reasons for the decline in net income also
impacted negatively on the efficiency ratio.
The unrealized gain on available for sale securities was
created by two factors. First, interest rates have declined
substantially over the first nine months of the year. This has
caused the market price of all fixed income securities to
increase. Second, the securities in the available for sale
portfolio have gotten closer to their maturity dates. As this
occurs, market value and book value converge lessening the market
gain or loss to book value.
Interest expense increased $2.76 million or 34.52% over the
first nine months of 1994. Throughout much of the first three
quarters of 1995 the Corporation experienced rising deposit
costs, and a slight increase in the level of average interest
bearing deposits. The Corporation also conducted a deposit campaign
in early 1995 which caused an increase in the interest expense.
The rising interest costs were the result of action by the
Federal Reserve Bank in the first quarter and also by competitive
forces in all of the Corporation's market areas. The Corporation
also conducted a deposit campaign which was successful in raising
$16 million in new deposits in the first quarter. The reason for
the deposit campaign was to not only increase our deposit base,
but also to reduce our external borrowing which totaled $11.4
million as of December 31, 1994. The precise timing of gathering
deposits is critical in the management of the Corporation's
liquidity and interest margins. In managing the Corporation's
liquidity and interest margins, the Corporation utilizes a
diverse line of products at all of its subsidiaries.
Net interest income for the first three quarters of 1995
increased 3.52% from the same period in 1994 to $16.80 million.
Even though interest expense has increased, the Asset/Liability
Committee (ALCO) has been able to achieve an interest margin of
5.22% versus 5.40% for the same period in 1994. The 5.22% net
-14-
interest margin is within the expectations of the Corporation, as
deposit costs have increased faster than asset yields during
1995. This is the opposite of what occurred in 1994. The ALCO
committee was also able to achieve a Return on Average Assets
(ROAA) of 1.14% versus 1.44% during the same period in 1994.
After adjusting for the one-time restructuring charge of $1.085
million in 1995, the ROAA would be 1.33%.
Thus far in 1995, the Corporation experienced
excellent loan growth. Total gross loans amounted to $362.19
million, which represents a growth of $37.42 million over
September 30, 1994, and a growth of $26.46 million over December
31, 1994.
The Corporation also experienced strong deposit growth so
far in 1995. Deposits as of September 30, 1995 totaled
$419.93 million versus $406.52 million at September 30, 1994 and
$391.65 million at December 31, 1994. The growth in deposits was
experienced primarily in consumer Certificates of Deposit from
within our various market areas.
The Reserve for Possible Credit Losses amounted to $2.18
million at September 30, 1995, which amounts to 0.60% of total
gross loans. First United's loan review process continues to
keep the loan portfolio under close scrutiny. Net charge offs for
the third quarter totaled $.163 million. This represents 0.04% of
our gross loan total of $362.19 million. Because of the low level
of losses, the Corporation did not make a loan loss provision in
the first three quarters of 1995. The Corporation also credits
excellent underwriting standards and training to the excellent
credit quality of the portfolio.
First United opened its newest supermarket community office
on March 8, 1995. This office is located in the new Martin's
Food Store on Dual Highway in Hagerstown. This is the third
supermarket office opened by the First United family of community
banks.
Myersville Bank's Riverside Center office has made a great
contribution to the Corporation by assisting in growing its
deposits and loans. To date, the Corporation is pleased with the
growth of the customer base within this office.
The Corporation, in an effort to control costs, closed its
Thayer Center office May 13, 1995 and transferred the customer
relationship to the Oakland Main Office which is located in close
proximity to the Thayer Center office.
-15-
In another effort to control costs the Corporation closed
the Citizens office in Westernport, MD on August 25, 1995 and
transferred the relationship to the Tri Towns office in Piedmont,
WV which is located less than one half a mile away. As a result
of this transfer, the carrying value of the fixed assets related
to the Citizns branch was written down by $.266 million to
reflect its current market value. Management is currently
exploring disposition options related to this property.
The Corporation also completed the consolidation of First United
Bank of West Virginia into First United National Bank & Trust on
August 25, 1995.
The Corporation recently received approval to merge Myersville Bank
into First United National Bank & Trust. It is anticipated that
the consolidation will occur sometime during the fourth quarter
of this year. Once completed, additional efficiencies will be
realized throughout the Corporation.
The Corporation also received a refund of $.255 million from
the FDIC in the third quarter as a result of the FDIC fund
reducing its required funding level. This amount was recorded as
a reduction in insurance premiums. Under the new FDIC assessment
schedule, First United National Bank & Trust will pay $.04 per
$100 of insured deposits.
Another strong quality of First United is its capital
position. Shareholder equity increased to $53.79 million, a 7.07%
increase from the balance at September 30, 1994, which was $50.23
million. Because of the Corporation's strong and consistent
earnings, the capital of the Corporation continues to grow. Risk
based capital, which is an expression of your Corporation's
stability and security, was a hardy 16.19% versus 17.92% on
September 30, 1994, far surpassing the regulatory minimum of 8%.
During the current year, the Corporation paid a $.12 per
share dividend on February 1, 1995, May 1, 1995, and August 1,
1995. The Board of Directors also declared a $.12 per share
dividend on September 27, 1995 payable November 1, 1995 to
shareholders of record on October 23, 1995.
-16-
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Changes in Securities.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
None.
Item 5. Other Information.
None.
Item 6. Exhibits and Reports on Form 8-K.
The Company did not file any reports on Form
8-K for the quarter ending September 30, 1995.
-17-
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST UNITED CORPORATION
Date 11/02/95 /s/ RICHARD G. STANTON
---------- ----------------------------------------
Richard G. Stanton, Chairman of the
Board, President, and Chief Executive
Officer
Date 11/02/95 /s/ ROBERT W. KURTZ
---------- ----------------------------------------
Robert W. Kurtz, Executive Vice
President and Treasurer
-18-
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST UNITED CORPORATION
Date 11/02/95
---------- ----------------------------------------
Richard G. Stanton, Chairman of the
Board, President and Chief Executive
Officer
Date 11/02/95
---------- ---------------------------------------
Robert W. Kurtz, Executive Vice
President and Treasurer
-19-
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