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 March 31, 1995
Commission file number 0-14237
First United Corporation
(Exact name of registrant as specified in its charter)
Maryland 52-1380770
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification no.)
19 South Second Street, Oakland, Maryland 21550-0009
(address of principal executive offices) (zip code)
(301) 334-9471
Registrant's telephone number, including area code
Not applicable
Former name, address and former fiscal year, if changed since
last report.
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter periods that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practical date.
Common stock, $.01 Par value--6,191,767 shares outstanding as of
March 31, 1995 Preferred stock, No par value--No shares
outstanding as of March 31, 1995.
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INDEX
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1995
(Unaudited), December 31, 1994, and March 31, 1994
(Unaudited).
Consolidated Statements of Income (Unaudited) - Three months
ended March 31, 1995 and 1994.
Consolidated Statement of Cash Flows (Unaudited) - Three
months ended March 31, 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
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FIRST UNITED CORPORATION
Consolidated Balance Sheet
(In Thousands)
March 31, Dec. 31, March 31,
ASSETS 1995 1994 1994
(Unaudited) (*) (Unaudited)
-----------------------------
Cash and Due From Banks $15,494 $14,536 $13,451
Investments:
Available-for-Sale:
U.S. Treasury Securities 18,289 21,252 22,480
Obl. of Other U S Gov. Agen. 30,360 29,975 30,922
Obl. of St. and Loc. Govt 3,566 2,663 0
Other Investments 19,684 21,450 17,519
--------------------------
Total Available-for-Sale 71,899 75,340 70,921
Held-to-Maturity:
Obl. of Other U S Govt Agen 3,800 3,800 0
Obl. of St. and Loc. Govt 5,239 5,294 8,687
Other Investments 11,558 11,185 0
---------------------------
Total Held-to-Maturity 20,597 20,279 8,687
---------------------------
Total Investment Securities 92,496 95,619 79,608
Federal Funds Sold 500 0 2
Loans 344,590 335,725 319,018
Reserve for Poss. Credit Loss (2,370) (2,350) (2,320)
---------------------------
Net Loans 342,220 333,375 316,698
Bank Premises and Equipment 9,510 9,354 8,165
Acc. Int. Rec. and Other Assets 6,772 6,156 4,541
----------------------------
TOTAL ASSETS $466,992 $459,040 $422,465
============================
* 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
March 31, Dec. 31, March 31,
1995 1994 1994
(Unaudited) (*) (Unaudited)
LIABILITIES
Deposits
Non-int. Bearing Deposits $ 44,155 $ 43,090 $ 38,535
Interest Bearing Deposits 362,352 348,560 327,957
---------------------------
Total Deposits 406,507 391,650 366,492
Reserve for Taxes, Int., &
Other Liabilities 3,857 4,886 4,858
Fed funds purchased & other
borrowed money 4,000 11,373 1,195
Dividends Payable 743 0 0
----------------------------
TOTAL LIABILITIES 415,107 407,909 372,545
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 6,192 shares at March 31,
1995, 6,192 outstanding at December
31, 1994, and 6,192 outstanding at
March 31, 1994 62 62 62
Surplus 23,141 23,141 23,141
Retained Earnings 29,347 29,435 26,899
Unrealized (Losses) on
Available for Sale Securities
net of taxes (665) (1,507) (182)
---------------------------
TOTAL SHAREHOLDER'S EQUITY 51,885 51,131 49,920
---------------------------
TOTAL LIABILITIES AND
SHAREHOLDER'S EQUITY $466,992 $459,040 $422,465
============================
-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 March 31,
1995 1994
-------------------
(Unaudited)
INTEREST INCOME
Interest and fees on loans $7,471 $6,892
Interest on investment securities:
Taxable 1,236 770
Exempt from federal income tax 108 153
--------------------
$1,344 $ 923
Interest on federal funds sold 32 22
--------------------
TOTAL INTEREST INCOME $8,847 $7,837
INTEREST EXPENSE
Interest on deposits:
Savings $527 $606
Interest-bearing transaction acct. 583 444
Time, $100,000 or more 384 222
Other time 1,801 1,229
Interest on Fed Funds purchased
& other borrowed money 69 1
--------------------
TOTAL INTEREST EXPENSE $3,364 $2,502
NET INTEREST INCOME $5,415 $5,335
Provision for possible credit losses 30 80
---------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE CREDIT LOSSES $5,453 $5,255
OTHER OPERATING INCOME
Trust department income $234 $210
Service charges on deposit accts. 349 297
Insurance premium income 62 58
Security gains 0 3
Other income 304 349
--------------------
Total Other Operating Income $949 $917
-06-
OTHER OPERATING EXPENSES
Salaries and Employees Benefits $2,329 $2,111
Occupancy Expense of Premises 177 226
Equipment Expense 293 268
Data Processing Expense 161 120
Deposit Assess. and Related Fees 263 236
Other Expense 1,082 909
---------------------
Total Other Operating Expenses $4,305 $3,870
INCOME BEFORE TAX $2,097 $2,302
Applicable Income Taxes (698) (702)
----------------------
NET INCOME $1,399 $1,600
======================
NET INCOME PER SHARE $0.23 $0.26
======================
Average Common Shares
Outstanding 6,192 6,192
======================
See Notes to Unaudited consolidated financial statements.
-07-
FIRST UNITED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS OF DOLLARS) Three Months
Ended March 31,
1995 1994
--------------------
(Unaudited)
OPERATING ACTIVITIES
Net Income $ 1,399 $ 1,600
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 30 80
Provision for depreciation 262 209
Net accretion & amortization of investment
security discounts & premiums 128 258
(Increase)decrease in acc. interest
& other receivables. (616) 71
(Decrease)in accrued interest
& other payables (286) (428)
--------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 917 $ 1,790
--------------------
INVESTING ACTIVITIES
Proceeds from maturities of available-for-
sale securities $ 30,453 $ 19,696
Purchases of available-for-sale securities (25,715) (17,893)
Proceeds form maturities of held-to-maturity
securities 1,713 552
Purchases of held-to-maturity securities (2,614) (690)
Net (increase)in loans (8,875) (2,302)
Purchases of premises & equipment (418) (348)
-------------------
NET CASH USED IN INVESTING ACTIVITIES $ (5,456) $ (985)
-------------------
FINANCING ACTIVITIES
(Decrease)in Fed Fund Purchased
and Other Borrowed Money $ (7,373) 0
Net increase (decrease)in demand deposits,
NOW accounts and savings accounts 6,880 (3,046)
Net increase in certificates of deposits 7,977 829
Cash dividends paid or declared (1,487) 0
Proceeds form issuance of capital stock 0 130
-08-
NET CASH PROVIDED BY(USED)IN --------------------
FINANCING ACTIVITIES $ 5,997 $ (2,087)
--------------------
Cash and cash equivalents at beg. of qtr. $ 14,536 $ 14,735
Increase (decrease) in cash & cash equiv. $ 1,458 $ (1,282)
--------------------
Cash & cash equivalents at end of period $ 15,994 $ 13,453
====================
See Notes to unaudited consolidated financial statements.
-09-
FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
March 31, 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 month period ended March 31, 1995, are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1995. The enclosed consolidated financial
statements should be read in conjunction with the consolidated
financial statements and footnotes thereto included in the
Company's annual report on Form 10-K for the year ended December
31, 1994.
Earnings per share are based on the weighted average number
of shares outstanding of 6,192 for the three months ended March
31, 1995 and 1994.
Note B -- 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 adopted Statements No. 114 and 118 on January 1,1995.
The Corporation has determined that the effect of implementing
these Statements was immaterial on the Corporation's financial
position and results of operations.
-10-
Part I. Financial Information
Item II. Management's Discussion and Analysis
Consolidated net earnings for the quarter totaled $1.399
million, which is $.201 million less than was recorded for the
first quarter of 1994. This translates into $.23 per share for
the current period. For the same quarter of 1994, each share
earned $.26. Return on average equity (ROAE) fell from 12.32
percent, at December 31, 1994, to 10.79 percent as of March 31,
1995. During the first quarter of 1994 the Corporation received
a non recurring tax credit of $.09 million. The remainder of the
decrease is attributed to costs associated with the Corporation's
expansion in the Frederick and Hagerstown, MD markets, the
implementation of a Corporate Wide Area Network, and interest
costs associated with a deposit campaign conducted in early 1995.
The efficiency ratio, which is a key measuring tool for
profitability and operating efficiency, was -66.08 percent for
the period ended March 31, 1995. This represents an increase
from year end 1994 when the ratio was -63.70 percent. This
increase was largely due to a rise in non-interest expense and a
shrinking net interest margin. The rise in the efficiency ratio
can be attributed to the expansion in the Frederick and
Hagerstown markets along with the implementation of a Corporate
Wide Area Network. As the Corporation expanded into new market
areas, a slight lessening effect on first quarter earnings
occurred. However, it is anticipated that these investments will
enhance the Corporation s market share, customer service, and
profitability in the future. Non-interest income and non-
interest expense in 1995 were $0.949 million and $4.305 million
versus $0.917 and $3.870 in the same period in 1994,
respectively.
Interest expense increased $.881 million from the same
quarter last year. As interest rates continue to rise it is of
utmost importance that we take advantage of increasing our
deposit base which is a less expensive source of funding to
support loan growth versus other sources. The Corporation
conducted a deposit campaign during the first quarter which was
successful in raising $16 million in new deposits. The
Corporation embarked on the campaign not only in an effort to
increase our deposit base, but also to reduce our external
borrowing which totaled $11.4 million at December 31, 1994. The
deposits were also raised prior to the last increase in rates by
the Federal Reserve Bank. By taking this approach, the
Corporation was also able to secure deposits to fund future loan
-11-
growth at a lower cost. The deposit growth was also obtained at
a yield that was lower than the external borrowing cost which was
6.39 percent at December 31, 1994. The timing of gathering
deposits is critical in the management of the Corporation's
interest rate margin and liquidity needs. Our distinct line of
products allows us to offer unparalleled diversity. In return,
our depositors not only enjoy benefits that are unavailable
elsewhere, but competitive rates as well.
Net interest income for the first three months of 1995
increased 2.77 percent from the same period in 1994, to $5.483
million. Although interest expense has increased, the
Asset/Liability Management Committee has made a concerted effort
to obtain an optimal return on average assets (ROAA), as a result
ROAA was 1.22 percent at March 31, 1995 compared to 1.53 at March
31, 1994. The result was a corporate net interest margin of 5.18
percent in comparison to the interest margin of 5.34 percent at
the end of year 1994. The 5.18 percent net interest margin is
within the expectations of the Corporation, as deposit costs have
increased faster than asset yields during the first quarter of
1995. This is the opposite of what occurred in 1994.
The Reserve for Possible Credit Losses amounted to $2.370
million at March 31, 1995 which amounts to 0.69 percent of total
loans. First United's loan review process continues to keep the
loan portfolio under close scrutiny. Net charge offs for the
first quarter totaled $.011 million. This represents .0032
percent of our net loan total of $342.220 million.
First United opened its newest supermarket community office
on March 8, 1995. This office is located in the new Martin's
Food Store on Dual Highway in Hagerstown. This is the third
supermarket office opened by the First United family of community
banks.
Myersville Bank's Riverside Center has made a great
contribution to the Corporation by assisting in growing its
deposits. This office contributed $6.536 million of the
Corporation's $406.507 million deposits during the first quarter
of 1995.
The Corporation, in an effort to control costs, is in the
process of closing its Thayer Center office. The Corporation
will transfer the customer relationship to the main office which
is located less than one-half mile away, thus gaining efficiency
of both staffing and facility expense while maintaining good
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customer accessibility and service. The office is scheduled to
close May 13, 1995.
The Corporation is also in the process of merging its
banking subsidiaries into one entity. First United National Bank
and Trust and First United Bank of West Virginia are planned to
be consolidated in early third quarter and Myersville Bank in
early fourth quarter 1995. The Corporation is currently applying
to the various regulatory agencies for approval of the
transactions. As a result of the consolidation, the Citizens
office, located in Westernport, MD, will be closed July 15, 1995.
The Corporation will transfer the customer relationships to the
Corporation s Piedmont office which is located less than one-half
mile away, thus gaining efficiency of both staffing and facility
expense while maintaining good customer accessibility and
service.
Another strong quality of First United is its capital
position. Shareholders equity increased to $51.885 million, a
3.94 percent increase from the first quarter of 1994, which was
$49.92 million. Risk based capital, which is an expression of
your Corporation's stability and security was 16.35 percent,
which far surpasses the regulatory minimum of 8.00 percent.
The Corporation paid a cash dividend of .12 on February 1,
1995, and on March 29 declared another dividend of equal amount,
to be paid May 1, 1995, to shareholders of record as of April 24,
1995.
In keeping with the Corporation's on-going efforts to
maintain or increase profitability in an increasingly competitive
marketplace, and to make the most productive use of employees,
the Corporation is offering a voluntary retirement plan. The
cost of the plan will be covered by a special charge to earnings.
To carry out this plan, the Board of Directors has authorized a
one-time pre-tax charge of $0.813 million against second quarter
earnings.
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 more aggressively implement our
ambitious marketing and new product programs. We also expect
that they will help us sustain our strong dividend payment
record.
-13-
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.
Results of 1995 Proxy Vote
For Against Abstain
----------------------------------
Directors 4,156,420 13,056
Ernst & Young 4,554,890 3,267 56,781
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 period ending March 31, 1995.
-14-
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 05/10/95 /s/ RICHARD G. STANTON
---------- ----------------------------------------
Richard G. Stanton, Chairman of the
Board, President, and Chief Executive
Officer
Date 05/10/95 /s/ ROBERT W. KURTZ
---------- ----------------------------------------
Robert W. Kurtz, Executive Vice
President and Treasurer
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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 05/10/95
---------- ----------------------------------------
Richard G. Stanton, Chairman of the
Board, President and Chief Executive
Officer
Date 05/10/95
---------- ---------------------------------------
Robert W. Kurtz, Executive Vice
President and Treasurer
-16-
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