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 June 30, 1998
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--6,222,011 shares outstanding as of
June 30, 1998 Preferred stock, No par value--No shares
outstanding as of June 30, 1998.
- -01-
INDEX
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1998
(Unaudited), December 31, 1997, and June 30, 1997(Unaudited).
Consolidated Statements of Income (Unaudited) - Six months
ended June 30, 1998 and 1997 and three months ended June 30, 1998
and 1997.
Consolidated Statement of Cash Flows (Unaudited) - Six
months ended June 30, 1998 and 1997.
Notes to Unaudited Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Item 3. Quantative and Qualitative Disclosure about Market Risk
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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Part I Financial Information
Item I. Financial Statements
FIRST UNITED CORPORATION
Consolidated Balance Sheet
(In Thousands)
June 30, Dec. 31, June 30,
Assets 1998 1997 1997
(Unaudited) (*) (Unaudited)
-----------------------------
Cash and due from banks $13,754 $17,586 $19,114
Investment securities:
Available-for-sale:
U.S. Treasury Securities 10,237 10,225 17,082
Obl. of other U S Gov. Agen. 39,540 31,468 28,643
Obl. of St. and Loc. Govt 6,214 6,360 6,365
Other investments 12,427 17,000 18,182
-------------------------
Total available-for-sale 68,418 65,053 70,272
Held-to-maturity:
Obl. of other U S Govt Agen 200 0 1,511
Obl. of St. and Loc. Govt 13,339 9,203 10,025
Other investments 11,983 20,339 15,162
---------------------------
Total held-to-maturity 25,522 29,542 26,698
---------------------------
Total investment securities 93,940 94,595 96,970
Federal funds sold 2,950 - 1,900
Loans 466,914 441,392 414,863
Reserve for poss. credit losses (2,957) (2,654) (2,188)
---------------------------
Net loans 463,957 438,738 412,675
Bank premises and equipment 9,616 9,250 9,272
Acc. int. Rec. and other assets 11,254 8,861 7,566
----------------------------
Total Assets $595,471 $569,030 $547,497
============================
* The balance sheet at December 31, 1997 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
June 30, Dec. 31, June 30,
1998 1997 1997
(Unaudited) (*) (Unaudited)
Liabilities ------------------------------
Deposits
Non-int. bearing deposits $ 56,182 $ 51,309 $ 57,718
Interest bearing deposits 437,001 448,751 414,663
---------------------------
Total deposits 493,183 500,060 472,381
Reserve for taxes, int., &
other liabilities 5,688 6,225 4,849
Fed funds purchased & other
borrowed money 38,200 5,094 13,000
Dividends payable 946 937 -
----------------------------
Total Liabilities 538,017 512,316 490,230
Shareholders' Equity
Preferred stock -no par value
Authorized and unissued; 2,000 Shares
Capital Stock -par value $.01 per share:
Authorized 25,000 shares; issued and
outstanding 6,222 shares at June 30,
1998, 6,260 outstanding at December
31, 1997, and 6,346 outstanding at
June 30, 1997 62 63 63
Surplus 22,736 23,461 25,035
Retained earnings 34,442 32,913 32,013
Unrealized gain on
available-for-sale securities
net of taxes 214 277 156
---------------------------
Total Shareholders' Equity 57,454 56,714 57,353
---------------------------
Total Liabilities and
Shareholders' Equity $595,471 $569,030 $547,497
============================
* The balance sheet at December 31, 1997 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) Six Months
Ended June 30,
1998 1997
-------------------
(Unaudited)
Interest income
Interest and fees on loans $ 19,945 $ 17,836
Interest on investment securities:
Taxable 2,460 2,733
Exempt from federal income tax 359 362
--------------------
2,819 3,095
Interest on federal funds sold 92 53
--------------------
Total interest income 22,856 20,984
Interest expense
Interest on deposits:
Savings 462 586
Interest-bearing transaction acct. 1,657 1,345
Time, $100,000 or more 1,680 1,119
Other time 6,192 5,770
Interest on fed funds purchased
& other borrowed money 508 125
--------------------
Total interest expense 10,499 8,945
--------------------
Net interest income 12,357 12,039
Provision for possible credit losses 475 247
--------------------
Net interest income after provision
for possible credit losses 11,882 11,792
Other operating income
Trust department income 700 690
Service charges on deposit accts. 1,244 904
Insurance premium income 126 146
Other income 999 1,217
--------------------
Total other operating income 3,069 2,957
Other operating expenses
Salaries and employees benefits 4,719 4,771
Occupancy expense of premises 522 492
Equipment expense 827 830
Data processing expense 272 295
Deposit assess. and related fees 84 90
Other expense 3,273 4,281
--------------------
Total other operating expenses 9,697 10,205
--------------------
Income before income taxes 5,254 4,544
Applicable income taxes (1,830) (1,471)
--------------------
Net income $3,424 $3,073
====================
Earnings per share $0.55 $0.48
====================
See Notes to Unaudited consolidated financial statements.
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FIRST UNITED CORPORATION
Consolidated Statement Of Income
(In Thousands, except per share data) Three Months
Ended June 30,
1998 1997
-------------------
(Unaudited)
Interest income
Interest and fees on loans $ 10,166 $ 9,075
Interest on investment securities:
Taxable 1,221 1,320
Exempt from federal income tax 191 182
-------------------
1,412 1,502
Interest on federal funds sold 52 26
-------------------
Total interest income 11,630 10,603
Interest expense
Interest on deposits:
Savings 210 297
Interest-bearing transaction acct. 829 699
Time, $100,000 or more 824 584
Other time 3,089 2,936
Interest on fed funds purchased
& other borrowed money 331 32
-------------------
Total interest expense 5,283 4,548
-------------------
Net interest income 6,347 6,055
Provision for possible credit losses 225 123
-------------------
Net interest income after provision
for possible credit losses 6,122 5,932
Other operating income
Trust department income 350 345
Service charges on deposit accts. 640 470
Insurance premium income 59 73
Other income 461 869
------------------
Total other operating income 1,510 1,757
Other operating expenses
Salaries and employees benefits 2,363 2,366
Occupancy expense of premises 253 253
Equipment expense 407 389
Data processing expense 124 150
Deposit assess. and related fees 44 43
Other expense 1,759 2,001
---------------------
Total other operating expenses 4,950 5,202
---------------------
Income before income taxes 2,682 2,487
Applicable income taxes (936) (790)
---------------------
Net income $1,746 $1,697
=====================
Earnings per share $0.28 $0.27
=====================
See Notes to Unaudited consolidated financial statements.
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FIRST UNITED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Six Months
Ended June 30,
1998 1997
--------------------
(Unaudited)
Operating activities
Net Income $ 3,424 $ 3,073
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 475 247
Provision for depreciation 747 711
Net accretion & amortization of investment
security discounts & premiums 99 (126)
Realized gain on sale
of investment securities 3 0
Increase in acc. interest
& other assets (2,393) (145)
Increase / (decrease)in accrued interest
& other liabilities 603 (1,418)
--------------------
Net cash provided by operating activities 2,958 2,342
Investing activities
Proceeds from maturities of available-for-
sale securities 45,298 46,260
Purchases of available-for-sale securities (44,719) (33,700)
Proceeds form maturities of held-to-maturity
securities 5,398 3,951
Purchases of held-to-maturity securities (5,494) (3,345)
Net increase in loans (25,696) (32,328)
Purchases of premises & equipment (1,113) (652)
-------------------
Net cash used in investing activities ($26,326) (19,814)
Financing activities
Increase in Fed Fund Purchased
and Other Borrowed Money $ 31,975 $5,000
Net (decrease)/increase in demand deposits,
NOW accounts and savings accounts (2,196) 5,047
Net (decrease)/increase in
certificates of deposits (4,681) 14,793
Cash dividends paid or declared (1,887) (935)
Proceeds from issuance of capital stock - 105
Acquisition and retirement of Common Stock (725) (1,731)
Net cash provided by -------------------
financing activities 22,486 22,279
Cash and cash equivalents at beg. of year 17,586 16,207
Increase in cash & cash equiv. (882) 4,807
--------------------
Cash & cash equivalents at end of period $ 16,704 $ 21,014
====================
See Notes to unaudited consolidated financial statements.
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FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
June 30, 1998
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 six month period ended
June 30, 1998, are not necessarily indicative of the results that may be
expected for the year ending December 31, 1998. 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, 1997.
Earnings per share are based on the weighted average number of shares
outstanding of 6,240 and 6,392 for the six months ended June 30, 1998 and 1997,
respectively.
Note B - Comprehensive Income
As of January 1, 1998 the Company adopted FASB Statement 130, Reporting
Comprehensive Income. Statement 130 establishes new rules for reporting and
display of comprehensive income and its components; however, the adoption of
this statement had no impact on the Company's net income or shareholders'
equity. Accumulated other comprehensive income represents the unrealized gains
and losses on the company's available-for-sale securities, net of income taxes.
During the first six months of 1998 and 1997, total comprehensive income, net
income plus the change in unrealized gains on available-for-sale securities,
amounted to $3,361 and $3,016, net of income taxes, respectively.
Note C - New Accounting Pronouncements
In February 1998, Statement of Financial Accounting Standards No. 132,
"Employers' Disclosures about Pensions and Other Postretirement Benefits"
(Statement No. 132), was issued. This statement, effective for financial
statements issued for fiscal years beginning after December 15, 1997, revises
employers' disclosures about pension and other postretirement benefit plans.
It does not change the measurement or recognition of those plans. The adoption
of Statement No. 132 will not have an impact on the Corporation's consolidated
financial statements.
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In June 1998, Statement of Financial Accounting Standards No. 133,
"Accounting for Derivative Instruments and Hedging Activities" (Statement No.
133), was issued. Statement 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts, and hedging activities. This statement is effective for
financial statements issued for all quarters of all fiscal years beginning after
June 15, 1999. The adoption of Statement No. 133 will not have a material
impact on the Corporation's consolidated financial statements.
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Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations
A.
Consolidated net income for the quarter ended June 30, 1998 totaled $1.746
million, which is $.049 million more than was recorded for the second quarter of
1997. This translates into $.28 per share for the current period. For the same
quarter of 1997, each share earned $.27. Consolidated net income for the six
month period ended June 30, 1998 totaled $3.424 million, which is $.351 million
more than was recorded for the same period of 1997. This translates into $.55
per share for the year. For the same period of 1997, each share earned $.48.
Return on Average Equity (ROAE) increased from 11.70 percent, at December 31,
1997, to 12.01 percent as of June 30, 1998.
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) excluding nonrecurring items and securities gains and losses.
A lower ratio equals higher profitability and operating efficiencies. The
Corporation's efficiency ratio was 61.62% for the period ended June 30, 1998.
This represents a decline from year end 1997 when the ratio was 62.98%.
Fee income from our Business Manager, PrimeVest, and Trust Sevices has
increased 8.41% or $.079 million compared to the same period in 1997. Salaries
and employee benefits for the first half of 1998 decreased from $ 4.771 million
in 1997 to $ 4.719 million in 1998. Other operating income and other operating
expense for the first six months of 1998 were $3.07 million and $9.70 million
compared to $2.96 million $10.21 million for the same time period in 1997. This
represents an improvement of 3.72% in other operating income and 5.00% in other
operating expense.
The growth exhibited by the loan portfolio in the second quarter continued
to be strong. In the second quarter, net loans grew $16.398 million to a total
of $463.957 million. The growth for the same quarter of 1997 was $19.931
million, bringing the total to $412.675 million. Year to date 1998, loans have
grown $25.219 million.
As a result of our loan growth, interest income at June 30, 1998 was $22.856
million compared to $20.984 at June 30, 1997. This total represents an increase
of $1.872 million or 8.92%.
The Corporation's interest expense year to date as of June 30, 1998 was
$1.554 higher than was recorded for the same period in 1997. Interest expense
increased $.735 million from the same quarter last year. The increase in expense
can be attributed to deposit growth of $20.80 million from June 30, 1997 to June
30, 1998. Although the deposits of the Corporation declined $6.877 million year
to date and $ 10.356 million for the second quarter, the Corporation was able to
meet its liquidity needs through borrowings from the Federal Home Loan Bank of
Atlanta and various correspondence banks. As always, it is of utmost importance
that the Corporation constantly evaluate the funding sources available to the
Corporation to choose the funding source that not only provides the greatest
cost benefit but allows the flexibility to be competitive in today's market
place.
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Net interest income for the first six months of 1998 increased
2.64 percent from the same period in 1997, to a total of $12.357 million. The
result was a corporate net interest margin of 4.62 percent in comparison to the
net interest margin of 4.83 percent at the end of year 1997. The decline can be
attributed to the intense competition for traditional deposits which have driven
our cost of funds upward. Although the margin is within the expectations of the
Corporation, varying market conditions and rising deposit costs constantly cause
us to reevaluate our acceptable margin on loans and deposits. Return on Average
Assets (ROAA) has increased 12.38% to 1.18% at June 30, 1998 compared to 1.16%
at June 30, 1997. This is a direct result of our increased earnings in 1998.
The provision for possible credit losses was $0.475 million for the first
six months of 1998 compared to $.247 million for the same period in 1997. Net
charge-offs for the first six monthswere $0.171 million, which equates to 0.04
percent of our net loan total of $463.957 million. For the same period of 1997,
net charge-offs were $.245 million or 0.06% of the June 30, 1997 net loan total
of $412.375 million. The increase in the provision for possible credit losses
was made to maintain an adequate reserve in light of the strong loan growth
experienced year to date. The Corporation continues to place strong emphasis on
maintaining a 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
June 30, 1998
----------------
Balance at the Beginning of the period $2,654
Charge-offs:
Domestic:
Commercial, financial and agricultural 45
Real estate - mortgage 84
Installment loans to individuals 112
----------------
241
----------------
Recoveries:
Domestics:
Commercial, financial and agricultural 15
Real estate - mortgage 1
Installment loans to individuals 53
---------------
69
---------------
Net Charge-offs 172
---------------
Additions charged to operations 475
---------------
Balance at end of period $2,957
===============
Ratio of net charge-offs during the period to average
Loans outstanding during the period .04%
===============
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. First
United National Bank and Trust (now "First United Bank and Trust")(the "Bank")
has no foreign loans or loans defined as troubled debt restructurings. Further,
the Bank is not aware of any potential problem loans other
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than those in the table below. The Corporation's non-accrual loans increased
$.323 million in the first half of 1998 from the year end total of $.562
million. The increase is due to three large mortgages placed in non-accrual
status in the first half of 1998.
June 30 Dec. 31
1998 1997
-----------------------
Non-accrual loans $885 $562
Accruing loans past due 90 days or more 692 563
Information with respect to non-accrual loans at June 30, 1998 is as follows:
Non-accrual Loans $885 $562
Interest income that would have been recorded
under original terms 38 40
Interest income recorded during the period 7 20
A strength of the Corporation has always been its capital position.
Shareholders' equity remained strong at $57.454 million, a .32 percent increase
from the second quarter of 1997, which was $57.267 million. Risk based capital,
which is an expression of the Corporation's stability and security was 14.74
percent, which is excess of the regulatory minimum of 8.00 percent.
On July 31, 1996, the Corporation's 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 the Corporation at a price management deems
appropriate. As of June 30, 1998, the Corporation has repurchased 284,220 shares
at a price of $4.899 million. This represents 4.368% of the approved 5%.
The Corporation paid cash dividends of $.15 on February 1, 1998 and May 1,
1998. On July 1,1998, the Corporation declared another dividend of equal
amount, to be paid August 1, 1998, to shareholders of record at July 18, 1998.
Item III. Quantitative and Qualitative Disclosure about Market Risk.
None.
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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.
The Corporation's annual meeting of
Shareholders' was held on April 28, 1998. Items
approved by 1998 proxy vote included the election of
directors, approval of the Articles of Amendment and
Restatement as outlined in the 1997's proxy statement and the
appointment of Ernst & Young, LLC as the independent
auditors.
1. Proposal to elect 18 Directors. The proposed Articles of Admendment
and Restatement specified in Proposal 2 was adopted by the
shareholders. Therfore the Board of Directors consists of three classes
as listed:
Class I (Expires 1999) Class II (Expires 2000) Class III (Expires 2001)
David J. Beachy Maynard G. Grossnickle Karen F. Meyers
Donald M. Browning Raymond F. Hinkle I. Robert Rudy
Rex W. Burton Robert W. Kurtz James F. Scarpelli, Sr.
Paul Cox, Jr. Andrew E. Mance Richard G. Stanton
Richard D. Daily, Jr. Elaine L. McDonald Robert G. Stuck
William B. Grant Donald E. Moran Frederick A Thayer, III
For Against Abstain
86.51% 0.70% 12.79%
2. Proposal to approve the Articles of Admendment and Restatement:
(a) Increase the authorized shares of Common Stock from 12,000,000 to
25,000,000.
For Against Abstain
73.42% 7.01% 1.76%
(b) Stagger the terms of Directors and provide that they be removed only
for cause, subject to regular Board elections
For Against Abstain
70.99% 4.70% 1.07%
(c) Establish parameters for consideration by the Directors in
evaluating aquisition offers
For Against Abstain
69.96% 3.62% 3.19%
(d) Limitation of Director and Officer liability consistent with
Maryland law
For Against Abstain
79.14% 1.90% 1.16%
(e) All technical and clarifying amendments
For Against Abstain
70.66% 3.48% 2.62%
3. Proposal to ratify the Appointment of Ernst and Young LLp as the
independent auditors of First United Corporation.
For Against Abstain
99.55% 0.03% 0.42%
Item 5. Other Information.
Pursuant to a Plan of Conversion dated May 20, 1998, the Bank, converted from
a national banking association into a Maryland state-chartered trust company.
The conversion was made effective on July 15, 1998. As a result of the
conversion, the name of the Bank changed from "First United National Bank &
Trust" to "First United Bank & Trust". The primary banking regulators for the
Bank will be the Maryland Commissioner of Financial Regulation the
("Commissioner") and the Federal Deposit Insurance Corporation ("FDIC"). Prior
to the conversion, the Bank was principally regulated by the Office of the
Comptroller of the Currency (the "OCC").
Like First United National Bank & Trust, the Bank is extensively regulated
under federal and state laws and regulations. Generally, these laws and
regulations are intended to protect depositors, not stockholders. The following
is a summary description of certain provisions of certain laws which affect the
regulation of bank holding companies and Maryland state-chartered trust
companies. The discussion is qualified in its entirety by reference to
applicable laws and regulations. Changes in such laws and regulations may have
a material effect on the business and prospects of the Corporation and the Bank.
Federal Bank Holding Company Regulation and Structure
The Corporation is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended, and as such, it is subject to
regulation, supervision, and examination by the Federal Reserve Board ("FRB").
The Corporation is required to file annual and quarterly reports with the FRB
and to provide the FRB with such additional information as the FRB may require.
The FRB may conduct examinations of the Corporation and its subsidiaries.
With certain limited exceptions, the Corporation is required to obtain prior
approval from the FRB before acquiring direct or indirect ownership or control
of more than 5% of any voting securities or substantially all of the assets of a
bank or bank holding company, or before merging or consolidating with another
bank holding company. Additionally, with certain exceptions, any person
proposing to acquire control through direct or indirect ownership of 25% or
more of any voting securities of the Corporation is required to give 60 days'
written notice of the aquisition to the FRB, which may prohibit the transaction,
and to publish notice to the public.
Generally, a bank holding company may not engage in any activities other than
banking, managing or controlling its bank and other authorized subsidiaries, and
providing services to these subsidiaries. With prior approval of the FRB, the
Corporation may acquire more than 5% of the assets or outstanding shares of a
company engaging in non-bank activities determined by the FRB to be closely
related to the business of banking or of managing or controlling banks.
Subsidiary banks of a bank holding company are subject to certain quantitative
and qualitative restrictions on extensions of credit to the bank holding company
or its subsidiaries, on investments in their securities and on the use of their
ecurities as collateral for loans to any borrower. These regulations and
restrictions may limit the Corporation's ability to obtain funds from the Bank
for its cash needs, including funds for the payment of dividends, interest and
operating expenses. Further, a bank holding company and itssubsidiaries are
prohibited generally from engaging in certain tie-in arrangements in connection
with any extention of credit, lease or sale of property or furnishing of
services.
Under FRB policy, a bank holding company is expected to act as a source of
financial strength to its subsidiary banks and to make capital injections into
a troubled subsidiary bank, and the FRB may charge the bank holding company with
engaging in unsafe and unsound practices for failure to commit resources to a
subsidiary bank when required. A required capital injection may be called for
at a time when the holding company does not have the resources to provide it.
In addition, depository institutions insured by the FDIC can be held liable for
any lossses incurred by, or reasonably anticipated to be incurred by, the FDIC
in connection with the default of, or assistance provided to, a commonly
controlled FDIC-insured depository institution. Accordingly, in the event that
any insured subsidiary of the Corporation causes a loss to the FDIC, other
insured subsidiaries of the Corporation could be required to compensate the FDIC
by reimbursing it for the estimated amount of such loss. Such cross guaranty
liabilities generally are superior in priority to the obligations of the
depository institution to its shareholders due solely to their status as
shareholders and obligations to other affiliates.
State Bank Holding Company Regulation
As a Maryland bank holding company, the Corporation is subject to various
restrictions on its activities as set forth in Maryland law, in addition to
those restrictions set forth in federal law. Under Maryland law, a bank holding
company that desires to acquire a bank or bank holding company that has its
principal place of business in Maryland must obtain approval from the
Commissioner. Also, a bank holding company and its Maryland state-chartered
bank or trust company cannot directly or indirectly acquire banking or
non-banking subsidiaries or affiliates until the bank or trust company receives
the approval of the Commissioner.
Federal and State Bank Regulation
The Bank is a Maryland state-chartered trust company, with all the powers of a
commercial bank, regulated and examined by the Commissioner and the FDIC. The
FDIC has extensive enforcement authority over the institutions it regulates to
prohibit or correct activities which violate law, regulation or written
agreement with the FDIC or which are deemed to constitute unsafe or unsound
practices. Enforcement actions may include the appointment of a conservator or
receiver, the issuance of a cease and desist order, the termination of deposit
insurance, the imposition of civil money penalities on the institition, its
directors, officers, employees and institution-affiliated parties, and the
enforcement of any such mechanisms through restraining orders or other court
actions.
In its lending activities, the maximum legal rate of interest, fees and charges
which a financial institution may charge on a particular loan depends on a
variety of factors such as the type of borrower, the purpose of the loan, the
amount of the loan and the date the loan is made. Other laws tie the maximum
amount which may be loaned to any one customer and its related interests to
capital levels. The Bank is also subject to certain restrictions on extensions
of credit to executive officers, directors, principal shareholders or any
related interest of such persons which generally require that such credit
extentions be made on substantially the same terms as are available to third
persons dealing with the Bank and not involve more than the normal risk of
repayment.
The Community Reinvestment Act ("CRA") requires that, in connection with the
examination of financial institutions within their jurisdictions, the FDIC
evaluate the record of the financial institutions in meeting the credit needs of
their local communities, including low and moderate income neighborhoods,
consistent with the safe and sound operation of those banks. These factors are
also considered by all regulatory agencies in evaluating mergers, acquisitions
and applications to open a branch or facility.
Under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), each federal banking agency is required to prescribe, by regulation,
non-capital safety and soundness standards for institutions under its authority.
The federal banking agencies, including the FDIC, have adopted standards
covering internal controls, information systems and internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, and
compensation, fees and benefits. An institution which fails to meet those
standards may be required by the agency to develop a plan acceptable to the
agency, specifying the steps that the institution will take to meet those
standards. Failure to submit or implement such a plan may subject the
institution to regulatory santions. The Corporation, on behalf of the Bank
believes that it meets substantially all standards which have been adopted.
FDICIA also imposed new capital standards on insured depository institutions.
See "Capital Requirements."
Before establishing new branch offices, the Bank must meet certain minimum
capital stock and surplus requirements. With each new branch located outside
the municipal area of the Bank's principal banking office, these minimal levels
increase by $120,000 to $900,000, based on the population size of the municipal
area in which the branch will be located. Prior to establishment of the branch,
the Bank must obtain Commissioner and FDIC approval. If establishment of the
branch involves the purchase of a bank building or furnishings, the total
investment in bank buildings and furnishings can not exceed, with certain
exceptions, 50% of the Bank's unimpaired capital and surplus.
Deposit Insurance
As a FDIC member institution, deposits of the Bank are currently insured to a
maximum of $100,000 per depositor through the Bank Insurance Fund ("BIF"). As a
result of the capital position of the Bank, the Bank incurred a reduction in its
FDIC premium, and was not required to pay FDIC premiums in 1997 and 1996.
Limits on Dividends and Other Payments
The Corporation's current ability to pay dividends is largely dependent upon
the receipt of dividends from the Bank. Both federal and state laws impose
restrictions on the ability of the Bank to pay dividends. The FRB has issued a
policy statement which provides that, as a general matter, insured banks and
bank holding companies may pay dividends only out of prior operating earnings.
For a Maryland state-chartered bank or trust company, dividends may be paid out
of undivided profits or, with the prior approval of the Commissioner, from
surplus of a Maryland bank is less than 100% of its required capital stock, cash
dividends may not be paid in excess of 90% of net earnings. In addition to
these specific restrictions, bank regulatory agencies, in general , also have
the ability to prohibit proposed dividends by a financial institution which
would otherwise be permitted under applicable regulations if the regulatory body
determines that such distribution would constitute an unsafe or unsound
practice.
Capital Requirements
The FRB and FDIC have adopted certain risk-based capital guidelines to assist
in the assessment of the capital adequacy of a banking organization's operations
for both transactions reported on the balance sheet as assets and transactions,
such as letters of credit and recourse arrangements, which are recorded as off
balance sheet items. Under these guidelines, nominal dollar amounts of assets
and credit equivalent amounts of off balance sheet items are multiplied by one
of several risk adjustment percentages, which range from 0% for assets with low
credit risk, such as certain U.S Treasury securities, to 100% for assets with
relatively high credit risk, such as business loans.
A banking organization's risk-based capital ratios are obtained by dividing its
qualifying capital by its total risk adjusted assets. The regulators measure
risk-adjusted assets, which include off balance sheet items, against both total
qualifying capital (the sum of Tier 1 capital and limited amounts of Tier 2
capital) and Tier 1 capital. "Tier 1," or core capital, includes common equity,
perpetual preferred stock (excluding auction rate issues) and minority interest
in equity accounts of consolidated subsidiaries, less goodwill, and other
intangibles subject to certain exceptions. "Tier 2," or supplementary capital,
includes, among other things, limited-life preferred stock, hybridcapital
instruments, mandatory convertible securities, qualifyingsubordinated debt, and
the allowance for loan losses and lease losses, subject to certain limitations
and less required deductions. The inclusion of elements of Tier 2 capital is
subject to certain other requirements and limitations of the federal banking
agenices. Banks and bank holding companies subject to the risk-based capital
guidelines are required to maintain a ratio of Tier I capital to risk-weighted
assets of at least 4% and a ratio of total capital to risk-weighted assets of at
least 8%. The Corporation and the Bank exceed these required minimum levels.
Federal banking agencies include, as part of their evaluations of a bank's
capital adequacy, an assessment of the bank's interest rate risk exposure.
The standards for measuring the adequacy and effectiveness of a banking
organization's interest rate risk management includes a measurement of board of
director and senior management oversight, and a determination of whether a
banking organization's procedures for comprehensive risk management are
appropriate to the circumstances of the specific banking organization.
Failure to meet applicable capital guidelines could subject a banking
organization to a variety of enforcement actions, including limitations on its
ability to pay dividends, the issuance by the applicable regulatory authority of
a capital directive to increase capital and, in the case of depository
institutions, the termination of deposit insurance by the FDIC, as well as to
the measures described under "Federal Deposit Insurance Corporation Improvement
Act of 1991" below, as applicable to undercapitalize institutions. In addition,
future changes in regulations or practices could further reduce the amount of
capital recognized for purposes of capital adequacy. Such a change could affect
the Bank to grow and could restrict the amount of profits, if any, available for
the payment of dividends to the Corporation.
Federal Deposit Insurance Corporation Improvement Act of 1991
In December, 1991, Congress enacted the FDICIA, which substantially revised the
bank regulatory and funding provisions of the Federal Deposit Insurance Act and
made significant revisions to several other federal banking statutes. FDICIA
provides for, among other things, (i) publicly available annual financial
condition and management reports for financial institutions, including audits
by independent accountants, (ii) the establishment of uniform accounting
standards by federal banking agencies, (iii) the establishment of a "prompt
corrective action" system of regulatory supervision and intervention, based on
capitalization levels, with more scrutiny and restictions placed on depository
institutions with lower levels of capital, (iv) additional grounds for the
appointment of a conservator or receiver, and (v) restictions or prohibitions on
accepting broker deposits, except for instituions which significantly exceed
minimum capital requirements. FDICIA also provides for increased funding of the
FDIC insurance funds and the implementation of risked-based premiums. See
"Deposit Insurance."
A central feature of FDICIA is the requirement that the federal banking
agencies take "prompt corrective action" with respect to depository institutions
that do not meet minimum capital requirements. Pursuant to FDICIA, the federal
bank regulatory authorities have adopted regulations setting forth a five-tiered
system for measuring the capital adequacy of the depository institutions that
they supervise. Under these regulations, a depository institution is classified
in one of the following capital categories: "well capitalized," "adequately
capitalized," "under capitalized," "significantly undercapitalized," and
"critically undercapitalized." An institution may be deemed by the regulators
to be in a capitalization category that is lower than is indicated by its
capital position if, among other things, it receives an unsatisfactory
examination rating with respect to asset quality, management, earnings or
liquidity.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a cash dividend) or paying any management
fees to its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to
growth limitations and are required to submit capital restoration plans. If a
depository institution fails to submit an acceptable plan, it is treated as if
it is significantly undercapitalized. Significantly undercapitalized depository
institutionsmay be subject to a number of other requirements and restictions,
including orders to sell sufficient voting stock to become adequately
capitalized, requirements to reduce total assets and stop accepting deposits
from correspondent banks. Critically undercapitalized institutions are subject
to the appointment of a receiver or conservator, generally within 90 days of the
date such institution is determined to be critically undercapitalized.
FDICIA provides the federal banking agencies with significantly expanded powers
to take enforcement action against institutions which fail to comply with
capital or other standards. Such action may include the termination of deposit
insurance by the FDIC or the appointment of a receiver or conservator for the
institution. FDICIA also limits the circumstances under which the FDIC is
permitted to provide financial assistance to an insured institution before
appointment of a conservator or receiver.
Interstate Banking Legislation
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 was
enacted into law on September 29, 1994. Among other things, the law eliminated
substantially all state law barriers to the acquisition of banks by out-of-state
bank holding companies as of September 29, 1995. The law will also permitted
interstate branching by banks effective as of June 1, 1997, subject to the
ability of states to opt-out completely or to set an earlier effective date.
Maryland generally established an earlier effective date of September 29, 1995.
On December 13, 1995, Maryland, Delaware, Virginia and Pennsylvania signed a
supervisory pact establishing uniform rules for the supervision of
state-chartered banks and trust companies that operate branches across state
lines. Under the agreement, home-state regulators will have primary
responsiblity for banks charted in the home state, including those that branch
into other jurisdiction's regulatory authorities in certain circumstances. The
Corporation anticipates that the effect of the new law and the supervisory
compact may be to increase competition within the markets in which the
Corporation now operates, although the Corporation can not predict the extent to
which competition will increase in such markets or the timing of such increase.
Monetary Policy
The earnings of a bank holding company are affected by the policies of
regulatory authorities, including the FRB, in connection with the FRB's
regulation of the money supply. Various methods employed by the FRB are open
market operations in United States Government securities, changes in the
discount rate on member bank borrowings and changes in reserve requirements
against member bank deposits. These methods are used in varying combinations to
influence overall growth and distribution of bank loans, investments and
deposits, and their use may also affect interest rates charged on loans or paid
on deposits. The money policies of the FRB have had a significant effect on the
operating results of commerical banks in the past and are expected to continue
to do so in the future.
Item 6. Exhibits and Reports on Form 8-K.
Exhibit 3.1 - Articles of Amendment and Restatement
-12-
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 07/29/98 /s/ WILLIAM B. GRANT
---------- ----------------------------------------
William B. Grant, Chairman of the Board
and Chief Executive Officer
Date 07/29/98 /s/ Robert W. Kurtz
---------- ----------------------------------------
Robert W Kurtz, President and Chief
Financial Officer
-13-
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 07/29/98
---------- ----------------------------------------
William B. Grant, Chairman of the
Board and Chief Executive Officer
Date 07/29/98
---------- ---------------------------------------
Robert W. Kurtz, President and Chief
Financial Officer
-14-
Exhibit 3.1
FIRST UNITED CORPORATION
ARTICLES OF AMENDMENT AND RESTATEMENT
First United Corporation, a Maryland corporation (hereinafter called the
"Corporation"), having its principal office in Garrett County, Maryland, hereby
certifies to the State Department of Assessments and Taxation of Maryland that:
SECTION I. The Corporation desires to completely amend and restate its
Charter by striking all paragraphs of the Articles of Incorporation and
amendments thereto, and inserting in lieu thereof the following:
FIRST: The name of the corporation (hereinafter called the "Corporation") is:
FIRST UNITED CORPORATION
SECOND: The purposes for which the Corporation is formed are as follows:
(a) To exercise all powers of a bank holding company.
(b) To engage in any lawful act or activities permitted by a
corporation organized under the laws of the State of Maryland.
The foregoing enumeration of the purposes, objects and business of the
Corporation is made in furtherance, and not in limitation, of the powers
conferred upon the Corporation by law, and is not intended, by the mention of
any particular purpose, object or business, in any manner to limit or restrict
the generality of any other purpose, object or business mentioned, or to limit
or restrict any of the powers of the Corporation, and the said Corporation shall
enjoy and exercise all of the powers and rights now or hereafter conferred by
statute upon corporations. Nothing herein contained shall be deemed to
authorize or permit the Corporation to carry on any business or exercise any
power or do any act which a corporation formed under the laws of the State of
Maryland may not at the time lawfully carry on or do.
THIRD: The post office address of the principal office of the Corporation in
this State is 19 South Second Street, Oakland, Maryland 21550-0009.
The name and post office address of the resident agent of the
Corporation in this State are William B. Grant, 19 South Second
Street, Oakland, Maryland 21550-0009. Said resident agent is an
individual and a citizen of this State who resides in this State.
FOURTH: The total number of shares of stock which the Corporation has
authority to issue is Twenty-Seven Million (27,000,000) shares,
consisting of Twenty-Five Million
-15-
Exhibit 3.1
(25,000,000) shares of common stock, $.01 par value per share, and Two
Million (2,000,000) shares of preferred stock, without par value. The
aggregate value of all authorized shares having a par value is Two
Hundred Fifty Thousand Dollars ($250,000).
A description of each class of stock of the Corporation, including any
preferences, conversion and other rights, voting powers, restrictions,
limitations as to dividends, qualifications, and terms and conditions of
redemption, is as follows:
(a) Common Stock. Subject to the rights of holders of any series of
preferred stock established pursuant to paragraph (b) of this Article FOURTH,
each share of common stock shall entitle the holder to one vote per share on all
matters upon which stockholders are entitled to vote, to receive dividends and
other distributions as authorized by the Board of Directors in accordance with
the Maryland General Corporation Law ("MGCL"), and to all rights of a
stockholder pursuant to the MGCL. The common stock shall have no preference,
preemptive, conversion or exchange rights.
Dividends may be declared on the common stock at such time and in such
amounts as the Board of Directors may deem advisable; however, any such
dividends shall be subject to the rights of any preferred stock outstanding,
and any share of common stock shall entitle the holder thereof to one (1) vote
in any proceedings in which action shall be taken by stockholders of the
Corporation.
(b) Series Preferred Stock. Shares of Preferred Stock may be issued
in one or more series, from time to time, with each such series to consist of
such number of shares and to have such voting powers, full or limited, or no
voting powers, and such designations, preferences and relative, participating,
optional or other special rights, and the qualifications, limitations or
restrictions thereof, as shall be stated in the resolution or resolutions
providing for the issuance of such series adopted by the Board of Directors of
the Corporation, and the Board of Directors is hereby expressly vested with
authority, to the full extent now or hereafter provided by law, to adopt any
such resolution or resolutions.
The authority of the Board of Directors with respect to each series of
Preferred Stock shall include, but not be limited to, determination of the
following: (i) the number of shares constituting that series and the distinctive
designation thereof; (ii) the dividend rate on the shares of that series,
whether dividends shall be cumulative, and, if so, from which dates, and the
relative rights of priority, if any, of payment of dividends on shares of that
series; (iii) whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights; (iv)
whether that series shall have conversion privileges, and, if so, the terms
-16-
Exhibit 3.1
and conditions of such conversion, including provision for adjustment of the
conversion rate in such events as the Board of Directors shall determine; (v)
whether or not the shares of that series shall be redeemable, and, if so, the
terms and conditions of such redemption, including the date or date upon or
after which they shall be redeemable, and the amount per share payable in case
of redemption, which amount may vary under different conditions and at different
redemption dates; (vi) whether that series shall have a sinking fund for the
redemption or purchase of shares of that series, and, if so, the terms and
amount of such sinking fund; (vii) the rights of the shares of that series in
the event of voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, and the relative rights of priority, if any, of payment of
shares of that series; and (viii) any other relative rights, preferences and
limitations of that series.
The Board of Directors shall have the power from time to time to (i) classify
or reclassify, in one or more series, any unissued shares of series preferred
stock, and (ii) reclassify any unissued shares of any series of series preferred
stock, in either case by setting or changing the number of shares constituting
such series and the designation, preferences conversion or other rights, voting
powers, restrictions, limitations as to dividends, qualifications and terms and
conditions of redemption of such shares and, in such event, the Corporation
shall file for record with the State Department of Assessments and Taxation of
Maryland articles supplementary in substance and form as prescribed by Maryland
law.
FIFTH: The number of Directors of the Corporation shall be not less than three
(3) nor more than twenty-five (25). The number of Directors may be increased or
decreased in accordance with the Bylaws of the Corporation. The Directors shall
be divided into three classes with respect to the time for which they shall hold
office. Directors of Class I shall hold office for one year or until the first
annual meeting of stockholders following their election; Directors of Class
II shall hold office for two years or until the second annual meeting of
stockholders following their election; and Directors of Class III shall hold
office for three years or until the third annual meeting of stockholders
following their election; and in each case until their successors are elected
and qualify. At each future annual meeting of stockholders, the successors to
the Class of Directors whose term shall expire at that time shall be elected to
hold office for a term of three years, so that the term of office of one Class
of Directors shall expire in each year. As of the date hereof, the Directors of
Class I are David J. Beachy, Donald M. Browning, Rex W. Burton, Paul Cox, Jr.,
Richard D. Dailey, Jr., and William B. Grant; the Directors of Class II are
Maynard G. Grossnickle, Raymond F. Hinkle, Robert W. Kurtz, Andrew E. Mance,
Elaine L. McDonald, and Donald E. Moran; the Directors of Class III are Karen
F. Myers, I. Robert Rudy, James F. Scarpelli, Sr., Richard G. Stanton, Robert
G. Stuck, and Frederick A. Thayer, III.
-17-
Exhibit 3.1
SIXTH: The following provisions are hereby adopted for the purposes of
describing the rights and powers of the Corporation and of the Directors and
stockholders:
(a) The Board of Directors of the Corporation is hereby empowered to
authorize the issuance from time to time of shares of stock of any class,
whether now or hereafter authorized, and securities convertible into shares of
its stock of any class whether now or hereafter authorized, for such
consideration as the Board of Directors may deem advisable, subject to such
limitations and restrictions, if any, as may be set forth in the Bylaws of the
Corporation.
(b) The Board of Directors of the Corporation may from time to time classify
or reclassify any unissued shares of stock of any class or series by setting,
fixing, eliminating or altering in any one or more respects the preferences,
rights, voting powers, restrictions and qualifications of, dividends on, and
redemption, conversion, exchange and other rights of, such shares.
(c) The Corporation reserves the right, upon authorization by the Board of
Directors and requisite approval by the affirmative vote of holders of two-
thirds of the outstanding stock, to amend its Charter so that such amendment may
alter the contract rights, as expressly set forth in the Charter, of any such
class of outstanding stock.
The enumeration and definition of a particular power of the Board of
Directors included in the foregoing is for descriptive purposes only and shall
in no way limit or restrict the terms of any other clause of this or any other
Article of these Articles of Incorporation, or in any manner exclude or limit
any powers conferred upon the Board of Directors under the MGCL now or hereafter
in force.
SEVENTH: The Directors of the Corporation shall consider all factors they deem
relevant in evaluating any proposed offer for the Corporation or any of its
stock, any proposed merger or consolidation of the Corporation or subsidiary of
the Corporation with or into another entity, any proposal to purchase or
otherwise acquire all or substantially all the assets of the Corporation or any
subsidiary of the Corporation, and any other business combination (as such term
is defined in the MGCL). The Directors shall evaluate whether the proposal is
in the best interests of the Corporation and its subsidiaries by considering the
best interests of the stockholders and other factors the Directors determine to
be relevant. The Directors shall evaluate the consideration being offered to
the stockholders in relation to the then current market value of the Corporation
and its subsidiaries, the then current market value of the stock of the
Corporation or any subsidiary in a freely negotiated transaction, and the
Directors' judgment as to the future value of the stock of the Corporation as
an independent entity.
-18-
Exhibit 3.1
EIGHTH: A Director of the Corporation may be removed during his or her term
of office only for cause, which is defined as a final unappealable conviction of
a felony, unsound mind, adjudication of bankruptcy, or action that causes
material injury to the Corporation. Action to remove a Director may be taken
only upon by the affirmative vote of a majority of the entire Board of Directors
of the Corporation or by the affirmative vote of a majority of the outstanding
voting stock of the Corporation. Stockholders shall not have the right to
remove Directors without such cause. Stockholders may only attempt to remove a
Director for cause after service of specific charges, adequate notice and full
opportunity to refute the charges.
NINTH: No Director or officer of the Corporation shall be liable to the
Corporation or to its stockholders for money damages except (i) to the extent
that it is proved that such Director or officer actually received an improper
benefit or profit in money, property or services, for the amount of the benefit
or profit in money, property or services actually received, or (ii) to the
extent that a judgment or other final adjudication adverse to such Director or
officer is entered in a proceeding based on a finding in the proceeding that
such Director's or officer's action, or failure to act, was the result of active
and deliberate dishonesty and was material to the cause of action adjudicated in
the proceeding. No amendment of these Articles of Incorporation or repeal of
any of its provisions shall limit or eliminate the benefits provided to
directors and officers under this provision with respect to any act or omission
which occurred prior to such amendment.
SECTION II. The provisions set forth in these Articles of Amendment and
Restatement are all of the provisions of the Charter of the Corporation in
effect upon acceptance of these Articles of Amendment and Restatement (the
"Articles") for record by the State Department of Assessments and Taxation of
Maryland, and upon such acceptance these Articles shall constitute the entire
Charter of the Corporation and supersede all prior Charter papers.
SECTION III. The foregoing complete Amendment and Restatement of the Charter
of the Corporation includes amendments to the Charter duly advised by the Board
of Directors and approved by the stockholders of the Corporation in the manner
required for a Charter amendment under the Charter and By-laws of the
Corporation and the laws of the State of Maryland.
SECTION IV. (a) The Board of Directors of the Corporation at a meeting
held on December 17, 1997, adopted a resolution in which was set forth the
foregoing complete Amendment and Restatement of the Articles of Incorporation,
declaring that said Amendment and Restatement were advisable, and directing that
they be submitted to the stockholders of the Corporation for their
consideration.
(b) The stockholders of the Corporation approved the complete
Amendment and Restatement of the Articles of the Corporation as hereinabove set
forth at a meeting of the stockholders held on April 28, 1998.
-19-
Exhibit 3.1
SECTION V. (a) The total number of shares of all classes of stock of the
Corporation heretofore authorized, and the number and par value of the shares of
each class are as follows:
The total number of shares of stock which the Corporation has authority to
issue is fourteen million (14,000,000) shares, consisting of twelve million
(12,000,000) shares of common stock, $.01 par value per share, and two million
(2,000,000) shares of preferred stock, without par value. The aggregate value
of all authorized shares having a par value is one hundred twenty thousand
dollars ($120,000).
(b) The total number of shares of all classes of stock of the
Corporation, as increased, and the number and par value of the shares of each
class are as follows:
The total number of shares of stock which the Corporation has authority to
issue is Twenty-Seven Million (27,000,000) shares, consisting of Twenty-Five
Million (25,000,000) shares of common stock, $.01 par value per share, and Two
Million (2,000,000) shares of preferred stock, without par value. The aggregate
value of all authorized shares having a par value is Two Hundred Fifty Thousand
Dollars ($250,000).
(c) The preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms
and conditions of redemption of each class of authorized capital stock, as
increased, are as set forth in Section 1, Article FOURTH of these Articles of
Amendment and Restatement.
IN WITNESS WHEREOF, First United Corporation has caused these Articles of
Amendment and Restatement to be signed and acknowledged in its name and on its
behalf by its Chairman of the Board and witnessed and attested by its Secretary
on this 29th day of April, 1998, and they acknowledged the same to be the act of
said Corporation, and that to the best of their knowledge, information and
belief, all matters and facts stated herein are true in all material respects
and that this statement is made under the penalties of perjury.
ATTEST: FIRST UNITED CORPORATION
/s/ Robert W. Kurtz By: /s/ William B. Grant (SEAL)
Robert W. Kurtz, Secretary William B. Grant
Chairman of the Board
-20-
<PAGE>
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