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, 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--6,391,880 shares outstanding as of
March 31, 1997 Preferred stock, No par value-No shares
outstanding as of March 31, 1997.
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INDEX
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - March 31, 1997
(Unaudited), December 31, 1996, and March 31, 1996
(Unaudited).
Consolidated Statements of Income (Unaudited) - Three months
ended March 31, 1997 and 1996.
Consolidated Statement of Cash Flows (Unaudited) - Three
months ended March 31, 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
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FIRST UNITED CORPORATION
Consolidated Balance Sheet
(In Thousands)
Mar. 31, Dec. 31, Mar. 31,
Assets 1997 1996 1996
(Unaudited) (*) (Unaudited)
-----------------------------
Cash and due from banks $21,307 $15,307 $15,978
Investment securities:
Available-for-sale:
U.S. Treasury Securities 18,023 20,576 15,493
Obl. of other U S Gov. Agen. 33,599 36,182 37,343
Obl. of St. and Loc. Govt 6,820 6,956 5,508
Other investments 19,025 19,997 23,583
--------------------------
Total available-for-sale 77,467 83,711 81,927
Held-to-maturity:
Obl. of other U S Govt Agen 1,515 1,518 1,528
Obl. of St. and Loc. Govt 8,620 8,362 4,748
Other investments 16,078 16,477 15,884
---------------------------
Total held-to-maturity 26,213 26,357 22,160
---------------------------
Total investment securities 103,680 110,068 104,087
Federal funds sold 0 900 0
Loans 395,025 382,780 356,417
Reserve for poss. credit losses (2,181) (2,186) (2,164)
---------------------------
Net loans 392,844 380,594 354,253
Bank premises and equipment 9,399 9,331 9,392
Acc. int. Rec. and other assets 6,947 7,421 6,136
----------------------------
Total Assets $534,177 $523,621 $489,846
============================
* 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
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FIRST UNITED CORPORATION
Consolidated Balance Sheet
Mar. 31, Dec. 31, Mar. 31,
1997 1996 1996
(Unaudited) (*) (Unaudited)
Liabiliities ------------------------------
Deposits
Non-int. bearing deposits $ 54,113 $ 52,530 $ 46,830
Interest bearing deposits 411,430 400,009 380,462
---------------------------
Total deposits 465,543 452,539 427,292
Reserve for taxes, int., &
Other liabilities 4,470 8,000 5,159
Fed funds purchased & other
borrowed money 6,500 5,365 1,300
Dividends payable 900 902 846
----------------------------
Total Liabitities 477,413 466,806 434,597
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 6,392 shares at March 31,
1997, 6,442 outstanding at December
31, 1996, and 6,506 outstanding at
March 31, 1996 64 64 65
Surplus 25,994 26,661 27,314
Retained earnings 30,753 29,877 27,908
Unrealized (loss)gain on
available-for-sale securities
net of taxes (47) 213 (38)
---------------------------
Total Shareholder's Equity 56,764 56,815 55,249
---------------------------
Total Liabilities and
Shareholder's Equity $534,177 $523,621 $489,846
============================
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* 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
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FIRST UNITED CORPORATION
Consolidated Statement Of Income
(In Thousands, except per share data)
Three Months
Ended March 31,
1997 1996
-------------------
(Unaudited)
Interest income
Interest and fees on loans $ 8,761 $ 8,093
Interest on investment securities:
Taxable 1,413 1,310
Exempt from federal income tax 180 119
--------------------
1,593 1,429
Interest on federal funds sold 27 63
--------------------
Total interest income 10,381 9,585
Interest expense
Interest on deposits:
Savings 289 462
Interest-bearing transaction acct. 646 694
Time, $100,000 or more 535 469
Other time 2,834 2,322
Interest on fed funds purchased
& other borrowed money 93 25
--------------------
Total interest expense 4,397 3,972
--------------------
Net interest income 5,984 5,613
Provision for possible credit losses 124 99
--------------------
Net interest income after provision
for possible credit losses 5,860 5,514
Other operating income
Trust department income $345 $300
Service charges on deposit accts. 434 395
Insurance premium income 73 76
Other income 348 309
--------------------
Total other operating income 1,200 1,080
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Three Months
Ended March 31,
1997 1996
-------------------
(Unaudited)
Other operating expenses
Salaries and employees benefits 2,404 2,218
Occupancy expense of premises 239 277
Equipment expense 441 336
Data processing expense 145 139
Deposit assess. and related fees 47 19
Restructing charge 350 0
Other expense 1,377 1,187
---------------------
Total other operating expenses 5,003 4,176
---------------------
Income before income taxes 2,057 2,418
Applicable income taxes (681) (819)
---------------------
Net income $1,376 $1,599
=====================
Earnings per share $0.21 $0.25
=====================
See Notes to Unaudited consolidated financial statements.
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FIRST UNITED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS) Three Months
Ended March 31,
1997 1996
--------------------
(Unaudited)
Operating activities
Net Income $ 1,376 $ 1,599
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 124 99
Provision for depreciation 343 318
Net accretion & amortization of investment
security discounts & premiums 60 118
Decrease in accrued interest
& other receivables. 474 802
(Decrease)increase in accrued interest
& other payables (897) 2,934
--------------------
Net cash provided by operating activities 1,480 5,870
--------------------
Investing activities
Proceeds from maturities of available-for-
sale securities 23,284 17,255
Purchases of available-for-sale securities (18,328) (23,379)
Proceeds form maturities of held-to-maturity
securities 2,641 462
Purchases of held-to-maturity securities (1,529) (2,620)
Net (increase) decrease in loans (12,374) 4,112
Purchases of premises & equipment (411) (105)
-------------------
Net cash used in investing activities (6,717) (4,275)
-------------------
Financing activities
(Decrease)in Fed Fund Purchased
and Other Borrowed Money $ (1,500) (3,000)
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 1,370 (2,693)
Net increase in certificates of deposits 11,634 5,691
Cash dividends paid or declared (500) (5,756)
Proceeds from issuance of capital stock 172 4,130
Repurchases and retirement of Common Stock (839) 0
-------------------
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Three Months
Ended March 31,
1997 1996
---------------------
Net cash provided (used) by ---------------------
financing activities 10,337 (1,628)
--------------------
Cash and cash equivalents at beg. of qtr. 16,207 16,011
Increase (decrease) in cash & cash equiv. 5,100 (33)
--------------------
Cash & cash equivalents at end of period $ 21,307 $ 15,978
====================
See Notes to unaudited consolidated financial statements.
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FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
March 31, 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 three month period ended March 31, 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 6,411 and 6,505 for the three months
ended March 31, 1997 and 1996.
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Part I. Financial Information
Item II. Management's Discussion and Analysis
Consolidated net earnings for the quarter totaled $1.376
million, which is $.223 million less than was recorded for the
first quarter of 1996. This translates into $.21 per share for
the current period. For the same quarter of 1996, each share
earned $.25. Return on average equity (ROAE) fell from 11.48
percent, at December 31, 1996, to 9.68 percent as of March 31,
1997. These decreases are a result of the continuation 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 Sheshunoff
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 generous severance package during the
restructuring process, and 56 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 $350,000 to
be charged against earnings during the first quarter 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, excluding nonrecurring items and securities gains and
losses. The Corporation's efficiency ratio was -68.25 percent
for the period ended March 31, 1997. This represents an increase
from year end 1996 when the ratio was -61.48. This increase was
due to a rise in non-interest expense and a slowly declining net
interest margin. Salaries and employee benefits expense
increased from $2.218 million in March, 1996 to $2.404 million in
March, 1997. Noninterest expense also was impacted this quarter
by a $.450 million charge. This $.450 million was comprised of
$.100 million for consulting fees related to the process
improvement project as previously mentioned and $.350 million for
employee voluntary severance. Income from fiduciary services
increased by $45,000 to $345,000 in the first quarter of 1997
compared to the first quarter of 1996. Noninterest income and
noninterest expense in 1997 were $1.200 million and $5.003
million compared to $1.080 million and $4.176 million in 1996.
Interest expense increased $.425 million from the same
quarter last year. As interest rates continue to rise, it is of
utmost importance that the Company takes advantage of increasing
the deposit base which is a less expensive source of funding to
support loan growth versus other sources.
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In the first quarter of 1996, the Corporation was successful in
increasing its deposit base through various deposit campaigns and
competitive pricing strategies. Likewise, deposits have
exhibited growth beyond first quarter 1997 predictions. Since
year end 1996, total deposits have increased $13.00 million to
$465.54 million.
Net interest income for the first three months of 1997
increased 6.61 percent from the same period in 1996, to $5.984
million. Because interest expense has increased, coupled with
the $.450 million charge to non-interest expense as previously
noted, ROAA declined to 1.05 percent at March 31, 1997 compared
to 1.32 percent March 31, 1996. The result was a Corporate net
interest margin of 4.95 percent in comparison to the interest
margin of 5.05 percent at the end of year 1996. The 4.95 percent
net interest margin is within the expectations of the
Corporation, as deposit costs increase and market conditions
continue to cause us to reevaluate our margin on loans.
The provision for possible credit losses was $0.124 million
for the first three months of 1997 compared to $0.099 million for
the same period in 1996. Net charge-offs for the first quarter
were $0.129 million, which equates to 0.03 percent of our net
loan total of $392.844 million. First United Corporation
continues to place strong emphasis on maintaining a top quality
loan portfolio, achieved through stringent underwriting standards
and a consistent loan review process.
Summary of Loan Loss Experience
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
March 31, 1997
---------------
Balance at the Beginning of the period $2,186
Charge-offs:
Domestic:
Commercial, financial and agricultural 16
Real estate-mortgage 61
Installment loans to individuals 74
-----------
151
-----------
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March 31, 1997
---------------
Recoveries:
Domestic:
Commercial, financial and agricultural 6
Installment loans to individuals 16
------------
22
------------
Net charge-offs 129
------------
Additions charged to operations 124
-----------
Balance at end of period $2,181
===========
Ratio of net charge-offs during the period to
average loans outstanding during the period .03%
===========
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. FUNB&T 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 $.252M in the first quarter
of 1997 from the year-end total of $.976M. This decrease was
primarily due to a single residential mortgage loan that was
moved from non-accrual status to accrual status as a result of
the debtor paying all arrearages and demonstrating the capacity
to make scheduled payments.
Mar 31 Dec. 31
1997 1996
---------------
on-accrual loans $724 $976
Accruing loans past due 90 days or more 481 659
Restructed Loans 0 0
Information with respect to non-accrual loans at March 31, 1997
is as follows:
Non-accrual Loans $724 $976
Interest income that would have been recorded
original terms 16 70
Interest income recorded during the period 7 33
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First United opened its newest supermarket community office
on January 29, 1997. This office is located in the new 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.
A strength of First United is its capital position.
Shareholders' equity increased to $56.764 million, a 2.74 percent
increase from the first quarter of 1996, which was $55.249
million. Risk based capital, another measurement of stability
and security was 17.00 percent, which far surpasses the
regulatory minimum of 8.00 percent.
The Board of Directors authorized the Corporation's officers
to repurchase up to 5% of its outstanding common stock in August
of 1996. Purchases of the Corporation's stock under the program
were completed in brokered transactions or directly from the
Corporation's market makers. As of March 31, 1997, 114,401
shares have been repurchased and retired under the plan
authorized by the Board of Directors.
The Corporation paid a cash dividend of .14 on February 1,
1997, and on March 26, 1997, declared another dividend of equal
amount, to be paid May 1, 1997, to shareholders on record at
April 17, 1997.
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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.
First United Corporation's annual meeting of
shareholders was held on April 29, 1997. Items ratified by
the 1997 proxy vote included the election of directors and
the appointment of Ernst & Young LLP as the independent
auditors of First United Corporation. Results of 1997 proxy
vote were:
# of Shares
Eligible to
Vote For Against Abstain
--------------------------------------------------
Directors 5,761,637 3,294,383 22,027
Ernst & Young 6,443,923 3,946,811 9,453 42,150
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, 1997.
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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 05/14/97 /s/ WILLIAM B. GRANT
---------- ----------------------------------------
William B. Grant, Chairman of the Board
& Chief Executive Officer
Date 05/14/97 /s/ ROBERT W. KURTZ
---------- ----------------------------------------
Robert W. Kurtz, President, Secretary,
& Chief Financial Officer
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<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 21307
<INT-BEARING-DEPOSITS> 411430
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 77467
<INVESTMENTS-CARRYING> 26213
<INVESTMENTS-MARKET> 26416
<LOANS> 395025
<ALLOWANCE> 2181
<TOTAL-ASSETS> 534177
<DEPOSITS> 465543
<SHORT-TERM> 6500
<LIABILITIES-OTHER> 5370
<LONG-TERM> 0
<COMMON> 64
0
0
<OTHER-SE> 56700
<TOTAL-LIABILITIES-AND-EQUITY> 534177
<INTEREST-LOAN> 8761
<INTEREST-INVEST> 1593
<INTEREST-OTHER> 27
<INTEREST-TOTAL> 10381
<INTEREST-DEPOSIT> 4304
<INTEREST-EXPENSE> 4397
<INTEREST-INCOME-NET> 5860
<LOAN-LOSSES> 124
<SECURITIES-GAINS> 0
<EXPENSE-OTHER> 5003
<INCOME-PRETAX> 2057
<INCOME-PRE-EXTRAORDINARY> 2057
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1376
<EPS-PRIMARY> .21
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.95
<LOANS-NON> 723
<LOANS-PAST> 481
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 0
<CHARGE-OFFS> 151
<RECOVERIES> 22
<ALLOWANCE-CLOSE> 2181
<ALLOWANCE-DOMESTIC> 2181
<ALLOWANCE-FOREIGN> 0
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</TABLE>
