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, 1997
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) 334-4715
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--6,287,542 shares outstanding as of
September 30, 1997 Preferred stock, No par value--No shares
outstanding as of September 30, 1997.
- -01-
INDEX
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 1997
(Unaudited), December 31, 1996, and September 30, 1996(Unaudited).
Consolidated Statements of Income (Unaudited) - Nine months
ended September 30, 1997 and 1996 and three months ended September 30, 1997
and 1996.
Consolidated Statement of Cash Flows (Unaudited) - Nine
months ended September 30, 1997 and 1996.
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)
September 30, Dec. 31, September 30,
Assets 1997 1996 1996
(Unaudited) (*) (Unaudited)
-----------------------------
Cash and due from banks $15,269 $15,307 $22,004
Investment securities:
Available-for-sale:
U.S. Treasury Securities 16,507 20,576 20,471
Obl. of other U S Gov. Agen. 34,574 36,182 38,041
Obl. of St. and Loc. Govt 6,361 6,956 6,150
Other investments 21,767 19,997 21,420
-------------------------
Total available-for-sale 79,209 83,711 86,082
Held-to-maturity:
Obl. of other U S Govt Agen - 1,518 1,521
Obl. of St. and Loc. Govt 9,313 8,362 6,022
Other investments 12,389 16,477 16,787
---------------------------
Total held-to-maturity 21,702 26,357 24,330
---------------------------
Total investment securities 100,911 110,068 110,412
Federal funds sold 3,300 900 2,197
Loans 429,973 382,780 374,043
Reserve for poss. credit losses (2,529) (2,186) (2,011)
---------------------------
Net loans 427,444 380,594 372,032
Bank premises and equipment 9,182 9,331 9,057
Acc. int. Rec. and other assets 8,932 7,421 7,214
----------------------------
Total Assets $565,038 $523,621 $522,916
============================
* The balance sheet at December 31, 1996 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
September 30, Dec. 31, September 30,
1997 1996 1996
(Unaudited) (*) (Unaudited)
Liabilities ------------------------------
Deposits
Non-int. bearing deposits $ 52,248 $ 52,530 $ 52,329
Interest bearing deposits 445,634 400,009 399,807
---------------------------
Total deposits 497,882 452,539 452,136
Reserve for taxes, int., &
Other liabilities 5,033 5,365 5,863
Fed funds purchased & other
borrowed money 5,000 8,000 7,500
Dividends payable 885 902 845
----------------------------
Total Liabilities 508,800 466,806 466,344
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 6,288 shares at September 30,
1997, 6,442 outstanding at December
31, 1996, and 6,490 outstanding at
September 30, 1996 63 64 65
Surplus 23,977 26,661 27,070
Retained earnings 31,898 29,877 29,630
Unrealized gain (loss) on
available-for-sale securities
net of taxes 300 213 (193)
---------------------------
Total Shareholders' Equity 56,238 56,815 56,572
---------------------------
Total Liabilities and
Shareholders' Equity $565,038 $523,621 $522,916
============================
* The balance sheet at December 31, 1996 has been derived from
the audited financial statements at that date.
See Notes to unaudited consolidated financial statements.
() Indicates Deduction
-04-
FIRST UNITED CORPORATION
Consolidated Statement Of Income
(In Thousands, except per share data) Nine Months
Ended September 30,
1997 1996
-------------------
(Unaudited)
Interest income
Interest and fees on loans $ 27,333 $ 24,392
Interest on investment securities:
Taxable 4,060 4,188
Exempt from federal income tax 523 399
--------------------
4,583 4,587
Interest on federal funds sold 93 148
--------------------
Total interest income 32,009 29,127
Interest expense
Interest on deposits:
Savings 870 1,370
Interest-bearing transaction acct. 2,118 2,051
Time, $100,000 or more 1,818 1,390
Other time 8,814 7,160
Interest on fed funds purchased
& other borrowed money 212 60
--------------------
Total interest expense 13,832 12,031
--------------------
Net interest income 18,177 17,096
Provision for possible credit losses 623 356
--------------------
Net interest income after provision
for possible credit losses 17,554 16,740
Other operating income
Trust department income 1,035 900
Service charges on deposit accts. 1,635 1,285
Insurance premium income 226 238
Other income 1,638 1,168
--------------------
Total other operating income 4,534 3,591
Other operating expenses
Salaries and employees benefits 6,997 6,698
Occupancy expense of premises 732 775
Equipment expense 1,248 1,078
Data processing expense 429 418
Deposit assess. and related fees 124 88
Other expense 5,527 3,772
--------------------
Total other operating expenses 15,057 12,829
--------------------
Income before income taxes 7,031 7,502
Applicable income taxes (2,309) (2,479)
--------------------
Net income $4,722 $5,023
====================
Earnings per share $ 0.74 $0.77
====================
See Notes to Unaudited consolidated financial statements.
-05-
FIRST UNITED CORPORATION
Consolidated Statement Of Income
(In Thousands, except per share data) Three Months
Ended September 30,
1997 1996
-------------------
(Unaudited)
Interest income
Interest and fees on loans $ 9,497 $ 8,243
Interest on investment securities:
Taxable 1,327 1,432
Exempt from federal income tax 161 147
-------------------
1,488 1,579
Interest on federal funds sold 40 68
-------------------
Total interest income 11,025 9,890
Interest expense
Interest on deposits:
Savings 284 453
Interest-bearing transaction acct. 773 696
Time, $100,000 or more 699 489
Other time 3,044 2,490
Interest on fed funds purchased
& other borrowed money 87 3
-------------------
Total interest expense 4,887 4,131
-------------------
Net interest income 6,138 5,759
Provision for possible credit losses 376 158
-------------------
Net interest income after provision
for possible credit losses 5,762 5,601
Other operating income
Trust department income 345 300
Service charges on deposit accts. 731 447
Insurance premium income 80 95
Other income 421 470
------------------
Total other operating income 1,577 1,312
Other operating expenses
Salaries and employees benefits 2,226 2,242
Occupancy expense of premises 240 138
Equipment expense 418 390
Data processing expense 134 149
Deposit assess. and related fees 34 41
Other expense 1,800 1,308
---------------------
Total other operating expenses 4,861 4,268
---------------------
Income before income taxes 2,487 2,645
Applicable income taxes (838) (839)
---------------------
Net income $1,649 $1,806
=====================
Earnings per share $ 0.26 $0.28
=====================
See Notes to Unaudited consolidated financial statements.
-06-
FIRST UNITED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Nine Months
Ended September 30,
1997 1996
--------------------
(Unaudited)
Operating activities
Net Income $ 4,722 $ 5,023
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 623 356
Provision for depreciation 1,067 970
Net accretion & amortization of investment
security discounts & premiums (142) 296
Realized gain on sale
of investment securities - 12
Increase in acc. interest
& other receivables. (1,511) (276)
(Decrease) increase in accrued interest
& other payables (349) 2,337
--------------------
Net cash provided by operating activities 4,410 8,718
Investing activities
Proceeds from maturities of available-for-
sale securities 50,429 39,098
Purchases of available-for-sale securities (42,020) (49,887)
Proceeds form maturities of held-to-maturity
securities 4,808 3,097
Purchases of held-to-maturity securities (3,866) (7,266)
Net increase in loans (47,473) (13,924)
Purchases of premises & equipment (918) (422)
-------------------
Net cash used in investing activities ($39,040) (29,304)
Financing activities
(Decrease) increase in Fed Fund Purchased
and Other Borrowed Money ($3,000) $4,500
Net increase in demand deposits,
NOW accounts and savings accounts 7,540 6,956
Net increase in certificates of deposits 37,802 20,886
Cash dividends paid or declared (2,666) (3,351)
Proceeds from issuance of capital stock (18) (215)
Acquisition and retirement of Common Stock (2,666) -
Net cash provided by -------------------
financing activities 36,992 28,776
Cash and cash equivalents at beg. of year 16,207 16,011
Increase in cash & cash equiv. 2,362 8,190
--------------------
Cash & cash equivalents at end of period $ 18,569 $ 24,201
====================
See Notes to unaudited consolidated financial statements.
-07-
FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
September 30, 1997
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 nine month period ended September 30, 1997, are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1997. 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, 1996.
Earnings per share are based on the weighted average number of
shares outstanding of 6,367 and 6,506 for the nine months ended
September 30, 1997 and 1996.
-08-
Part I. Financial Information
Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Consolidated net income for the quarter ended September 30, 1997 totaled
$1.649 million, which is $.157 million less than was recorded for the third
quarter of 1996. This translates into $.26 per share for the current period.
For the same quarter of 1996, each share earned $.28. Consolidated net
income for the nine month period ended September 30, 1997 totaled $4.722
million, which is $.301 million less than was recorded for the same period of
1996. This translates into $.74 per share for the year. For the same period
of 1996, each share earned $.77. Return on Average Equity (ROAE) decreased
from 11.48 percent, at December 31, 1996, to 11.07 percent as of September
30, 1997.
The decreases in net income, Return on Average Equity and other key ratios,
are the direct result of the Corporation's process improvement program. The
Company engaged the services of Alex Sheshunoff Management Services, Inc., a
highly respected financial consulting group, to facilitate this process.
Based on the recommendations of the Alex Shesunoff Management group, Inc.
and the vision of executive management, several positions in the organization
were changed, new positions were created, and a few positions were eliminated
All employees were offered a severance package during the restructuring process
and 63 employees chose to accept this package. Throughout this process First
United National Bank & Trust maintained its tradition of no lay-offs
affecting its employees. For those employees accepting the voluntary
severance package, the Board of Directors authorized a total of $554,000 to
be charged against earnings during the first six months of 1997.
The "efficiency ratio" is a key measuring tool for
profitability and operating efficiency. The calculation for the
efficiency ratio is noninterest expense divided by net operating
revenue,(net interest income plus other operating income plus the tax benefit
of non-taxable securities and loans )excluding nonrecurring items and
securities gains and losses. A lower ratio equals higher profitability and
operating efficiencies. The Corporation's efficiency ratio was 65.04 percent
for the period ended September 30, 1997. This represents a decline from year
end 1996 when the ratio was 61.48%. The decline in our efficiency ratio was
again primarily attributed to the process improvement project discussed
above. Adjusting for the $.554 million severance package and the $.250
million paid to Alex Shesunoff in the first half of 1997, the efficiency
ratio would have been 61.57%.
Income from fiduciary services increased by $.135 million to $1.035
million for the nine months ended September 30, 1997 compared to the same
time period in 1996. The increase in salaries and employee benefits expense
from $ 6.698 million in September, 1996 to $ 6.997 million in September, 1997
was the result of the severance program offered to employees as part of the
process improvement. These expense items should decline in 1998 because of
management's actions in 1997. Other Operating Income and Other Operating Expense
in 1997 were $4.534 million and $15.066 million compared to $3.591 million and
$12.829 million in 1996.
-09-
The growth exhibited by the loan portfolio in the third quarter
continued to be strong. In the third quarter, net loans grew $14.769 million
to a total of $427.444 million. The growth for the same quarter of 1996 was
$14.784 million, bringing the total to $372.032 million. Year to date, loans
have grown $46.850 million.
As a result of our solid loan growth, interest income at September 30,
1997 was $32.009 million compared to $29.127 September 30, 1996. This total
represents an increase of $2.882 million or 9.89%.
The Corporation's interest expense as of September 30, 1997 was
$1.801 higher than was recorded for the same period in 1996.
Interest expense increased $.756 million from the same quarter
last year. During the first nine months of 1997, the Corporation was
successful in increasing its deposit base through various deposit campaigns
and competitive pricing strategies. Consequently, deposits have exhibited
growth beyond management projections. Since December 31,1996, total deposits
have increased $45.343 million to $497.882 million. During the first nine
months of 1996, deposits grew from $425.277 million to $453.857 million or
$28.580 million. The Corporation will strive to continue to increase its
deposit base, which is a less expensive source of funding to support loan growth
versus other sources.
Net interest income for the first nine months of 1997 increased
6.32 percent from the same period in 1996, to $18.177 million.
The result was a Corporate net interest margin of 4.87 percent in comparison
to the net interest margin of 4.97 percent at the end of year 1996. The 4.87
percent net interest margin is comparable with the results achieved at year
end 1996. Although the margin is within the expectations of the Corporation,
varying market conditions and rising deposit costs constantly cause a
reevaluation of acceptable margins on loans and deposits. Because interest
expense has increased, coupled with the expenses associated with the process
improvement program, Return on Average Assets ( ROAA ) dropped to 1.17 percent
at September 30, 1997 compared to 1.32 percent at September 30, 1996.
The provision for possible credit losses was $0.623 million
for the first nine months of 1997 compared to $.356 million for the
same period in 1996. A total provision of $.376 million was made during the
third quarter primarily for the loan growth exhibited during the first three
quarters of 1997. Net charge-offs for the nine months were $0.281 million,
which equates to 0.07 percent of our net loan total of $427.444 million.
During the first nine months of 1996, net charge-offs were $.465 million or
1.25% of our net loan total at September 30, 1996 of $372.032 million. First
United Corporation continues to place strong emphasis on maintaining a quality
loan portfolio, achieved through stringent underwriting standards and a
consistent loan review process.
-10-
Summary of Loan Loss Experience
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
September 30, 1997
---------------
Balance at the Beginning of the period $2,186
Charge-offs:
Commercial, financial and agricultural 65
Real estate - mortgage 168
Installment loans to individuals 180
----------------
413
----------------
Recoveries:
Commercial, financial and agricultural 33
Real estate - mortgage 39
Installment loans to individuals 60
---------------
132
---------------
Net Charge-offs 281
---------------
Additions charged to operations 623
---------------
Balance at end of period $2,528
===============
Ratio of net charge-offs during the period to average
Loans outstanding during the period .07%
===============
Risk Elements of Loan Portfolio
The following table provides a comparison of the Risk Elements of the Loan
Portfolio in the format prescribed by Item III-C of Industry Guide 3. The
Bank has no foreign loans or loans defined as troubled debt restructurings.
Further, the Bank has no potential problem loans other than those in the
table below. FUNB&T's non-accrual loans decreased $.564 million in the first
three quarters of 1997 from the year end total of $.976 million. This
decrease was primarily due to a single residential mortgage loan that was moved
from non-accural status to accrual status as a result of the debtor paying all
arrearages and demonstrating the capaicty to make scheduled payments when due.
September 30 Dec. 31
1997 1996
-----------------------
Non-accrual loans $412 $976
Accruing loans past due 90 days or more 1,091 659
Restructured Loans 0 0
Information with respect to non-accrual loans at September 30, 1997 is as
follows:
Non-accrual Loans $412 $976
Interest income that would have been recorded
under original terms 30 70
Interest income recorded during the period 0 33
-11-
First United opened its newest supermarket community office on January
29, 1997. This office is located in the Martin's Food Store on Foxcroft
Avenue in Martinsburg, WV. This is the fourth supermarket office opened by
the First United family of community banks.
One strength of First United is its capital position. Shareholders' equity
as of September 30, 1997 was equal to $56.238 million, comparable to the
third quarter total of 1996, which was $56.572 million. Risk based capital,
which is an expression of the Corporation's stability and security was 15.27
percent, which is in excess of the regulatory minimum of 8.00 percent.
On July 31, 1996, the Board of Directors ratified a stock buy back
program. The Corporation's management has authority to repurchase up to 5%
of the outstanding shares of First United Corporation at a price management
deems appropriate. On a cumulative basis, the Corporation has repurchased
219,989 shares at a price of $3.665 million as of September 30, 1997. This
represents 3.387% of the approved 5%.
The Corporation paid cash dividends of $.14 on February 1, 1997, May 1,
1997 and August 1, 1997. On September 24,1997, the Corporation declared
another dividend of equal amount, to be paid November 1, 1997, to
shareholders on record at October 20, 1997.
-12-
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 period ending September 30, 1997.
-13-
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 10/29/97 /s/ WILLIAM B. GRANT
---------- ----------------------------------------
William B. Grant, Chairman of the Board
and Chief Executive Officer
Date 10/29/97 /s/ Robert W. Kurtz
---------- ----------------------------------------
Robert W Kurtz, President and Chief
Financial Officer
-14-
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