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, 1999
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--6,085,192 shares outstanding as of
June 30, 1999 Preferred stock, No par value--No shares
outstanding as of June 30, 1999.
-01-
INDEX
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - June 30, 1999
(Unaudited), December 31, 1998, and June 30, 1998(Unaudited).
Consolidated Statements of Income (Unaudited) - Six months
ended June 30, 1999 and 1998 and three months ended June 30, 1999
and 1998.
Consolidated Statement of Cash Flows (Unaudited) - Six
months ended June 30, 1999 and 1998.
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)
June 30, Dec. 31, June 30,
Assets 1999 1998 1998
(Unaudited) (*) (Unaudited)
-----------------------------
Cash and due from banks $18,545 $13,633 $13,754
Investment securities:
Available-for-sale:
U.S. Treasury Securities 1,105 1,921 10,237
Obl. of other U S Gov. Agen. 40,574 45,082 39,540
Obl. of St. and Loc. Govt 25,237 22,327 6,214
Other investments 33,048 31,365 12,427
-------------------------
Total available-for-sale 99,964 100,695 68,418
Held-to-maturity:
Obl. of other U S Govt Agen - - 200
Obl. of St. and Loc. Govt - - 13,339
Other investments - - 11,983
---------------------------
Total held-to-maturity - - 25,522
---------------------------
Total investment securities 99,964 100,695 93,940
Federal funds sold - - 2,950
Loans 551,003 508,972 466,914
Reserve for poss. credit losses (3,751) (3,304) (2,957)
---------------------------
Net loans 547,252 505,668 463,957
Bank premises and equipment 9,284 9,136 9,616
Acc. int. Rec. and other assets 14,843 11,982 11,254
----------------------------
Total Assets $689,888 $641,114 $595,471
============================
* The balance sheet at December 31, 1998 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
June 30, Dec. 31, June 30,
1999 1998 1998
(Unaudited) (*) (Unaudited)
Liabilities ------------------------------
Deposits
Non-int. bearing deposits $ 53,976 $ 54,554 $ 56,182
Interest bearing deposits 485,185 456,946 437,001
---------------------------
Total deposits 539,161 511,500 493,183
Reserve for taxes, int., &
other liabilities 5,811 5,594 5,688
Federal Home Loan Bank borrowings and
other borrowed money 86,800 64,575 38,200
Dividends payable 959 971 946
----------------------------
Total Liabilities 632,731 582,640 538,017
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 6,085 shares at June 30,
1999, 6,260 outstanding at December
31, 1998, and 6,222 outstanding at
June 30, 1998 61 62 62
Surplus 20,397 21,384 22,736
Retained earnings 37,903 36,559 34,442
Accumulated other
comprehensive income (1,204) 469 214
---------------------------
Total Shareholders' Equity 57,157 58,474 57,454
---------------------------
Total Liabilities and
Shareholders' Equity $689,888 $641,114 $595,471
============================
* The balance sheet at December 31, 1998 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,
1999 1998
-------------------
(Unaudited)
Interest income
Interest and fees on loans $ 22,462 $ 19,945
Interest on investment securities:
Taxable 2,436 2,460
Exempt from federal income tax 523 359
--------------------
2,959 2,819
Interest on federal funds sold 105 92
--------------------
Total interest income 25,526 22,856
Interest expense
Interest on deposits:
Savings 250 462
Interest-bearing transaction acct. 1,744 1,657
Time, $100,000 or more 2,450 1,680
Other time 5,811 6,192
Interest on fed funds purchased
& other borrowed money 1,664 508
--------------------
Total interest expense 11,919 10,499
--------------------
Net interest income 13,607 12,357
Provision for possible credit losses 836 475
--------------------
Net interest income after provision
for possible credit losses 12,771 11,882
Other operating income
Trust department income 837 700
Service charges on deposit accts. 993 1,244
Insurance premium income 168 126
Other income 1,076 999
--------------------
Total other operating income 3,074 3,069
Other operating expenses
Salaries and employees benefits 5,006 4,719
Occupancy expense of premises 480 522
Equipment expense 811 827
Data processing expense 415 272
Deposit assess. and related fees 54 84
Other expense 3,356 3,273
--------------------
Total other operating expenses 10,122 9,697
--------------------
Income before income taxes 5,723 5,254
Applicable income taxes (1,960) (1,830)
--------------------
Net income $3,763 $3,424
====================
Earnings per share $0.61 $0.55
====================
See Notes to Unaudited consolidated financial statements.
-05-
FIRST UNITED CORPORATION
Consolidated Statement Of Income
(In Thousands, except per share data) Three Months
Ended June 30,
1999 1998
-------------------
(Unaudited)
Interest income
Interest and fees on loans $ 11,449 $ 10,166
Interest on investment securities:
Taxable 1,238 1,221
Exempt from federal income tax 258 191
-------------------
1,496 1,412
Interest on federal funds sold 62 52
-------------------
Total interest income 13,007 11,630
Interest expense
Interest on deposits:
Savings 77 210
Interest-bearing transaction acct. 885 829
Time, $100,000 or more 1,367 824
Other time 2,877 3,089
Interest on fed funds purchased
& other borrowed money 821 331
-------------------
Total interest expense 6,027 5,283
-------------------
Net interest income 6,980 6,347
Provision for possible credit losses 411 225
-------------------
Net interest income after provision
for possible credit losses 6,569 6,122
Other operating income
Trust department income 418 350
Service charges on deposit accts. 454 640
Insurance premium income 105 59
Other income 606 461
------------------
Total other operating income 1,583 1,510
Other operating expenses
Salaries and employees benefits 2,607 2,363
Occupancy expense of premises 219 253
Equipment expense 407 407
Data processing expense 217 124
Deposit assess. and related fees 30 44
Other expense 1,698 1,759
---------------------
Total other operating expenses 5,178 4,950
---------------------
Income before income taxes 2,974 2,682
Applicable income taxes (1,026) (936)
---------------------
Net income $1,948 $1,746
=====================
Earnings per share $0.31 $0.28
=====================
See Notes to Unaudited consolidated financial statements.
-06-
FIRST UNITED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
Six Months
Ended June 30,
1999 1998
--------------------
(Unaudited)
Operating activities
Net Income $ 3,763 $ 3,424
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 836 475
Provision for depreciation 803 747
Net accretion & amortization of investment
security discounts & premiums 138 99
Realized gain on sale
of investment securities 10 3
Increase in acc. interest
& other assets (2,858) (2,393)
Increase in accrued interest
& other liabilities 205 603
--------------------
Net cash provided by operating activities 2,897 2,958
Investing activities
Proceeds from maturities of available-for-
sale securities 37,160 45,298
Purchases of available-for-sale securities (38,251) (44,719)
Proceeds form maturities of held-to-maturity
securities - 5,398
Purchases of held-to-maturity securities - (5,494)
Net increase in loans (42,421) (25,696)
Purchases of premises & equipment (951) (1,113)
-------------------
Net cash used in investing activities (44,463) (26,326)
Financing activities
Increase in Federal Home Loan Bank borrowings
and other borrowed money $ 22,225 $31,975
Net increase (decrease) in demand deposits,
NOW accounts and savings accounts 5,248 (2,196)
Net increase (decrease) in
certificates of deposits 22,413 (4,681)
Cash dividends paid or declared (2,421) (1,887)
Acquisition and retirement of Common Stock (987) (725)
Net cash provided by -------------------
financing activities 46,478 22,486
Cash and cash equivalents at beg. of year 13,633 17,586
Increase (decrease) in cash & cash equiv. 4,912 (882)
--------------------
Cash & cash equivalents at end of period $ 18,545 $ 16,704
====================
See Notes to unaudited consolidated financial statements.
-07-
FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
June 30, 1999
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, 1999, are not necessarily
indicative of the results that may be expected for the year
ending December 31, 1999. 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, 1998.
Earnings per share are based on the weighted average number of
shares outstanding of 6,127 and 6,240 for the six months ended
June 30, 1999 and 1998, respectively.
Note B - Comprehensive Income
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 1999 and 1998, total comprehensive income, net
income plus the change in unrealized gains (losses) on available-for-sale
securities, amounted to $2,090 million and $3,361 million, net of income taxes,
respectively.
-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 June 30, 1998 totaled $1.95
million, which is $.20 million more than was recorded for the second quarter of
1998. This translates into $.31 per share for the current period. For the same
quarter of 1998, each share earned $.28. Consolidated net income for the six
month period ended June 30, 1999 totaled $3.76 million, which is $.34 million
more than was recorded for the same period of 1998. This translates into $.61
per share for the year. For the same period of 1998, eachshare earned $.55.
Return on Average Equity (ROAE) increased slightly from 12.92%, at December 31,
1998, to 12.98% as of June 30, 1999.
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 59.34% for the period ended June 30, 1999.
This represents a decline in efficiency from year end 1998 when the ratio was
58.98%.
Fee income from our Business Manager, PrimeVest, and Trust Sevices has
increased 16.80% or $.1 million compared to the same period in 1998. Salaries
and employee benefits for the first half of 1999 increased from $ 4.72 million
in 1998 to $ 5.01 million in 1999. This represents an increase of 6.08%. Other
operating income and other operating expense for the first six months of 1999
were $3.07 million and $10.12 million compared to $3.07 million and $9.70
million for the same time period in 1998. Other Operating Income has remained
constant while Other Operating Expense has increased 4.38% in comparison to June
30, 1998.
The growth exhibited by the loan portfolio in the second quarter continued
to be strong. In the second quarter, net loans grew $25.47 million to a total of
$547.25 million. The growth for the same quarter of 1998 was $16.40 million,
bringing the total to $463.96 million. Year to date 1999, net loans have grown
$41.59 million.
As a result of our loan growth, interest income at June 30, 1999 was $25.53
million compared to $22.86 at June 30, 1998. This total represents an increase
of $2.67 million or 11.68%.
The corporation's interest expense year to date was $1.42 million higher
than was recorded for the same period in 1998.Interest expense increased $.74
million from the same quarter last year. The increase in expense can be
attributed to deposit growth of $45.98 million from June 30, 1998 to June 30,
1999 as well as growth of $48.60 million in Federal Home Loan Bank Borrowings
and other borrowed funds in the same time frame. The deposits of the Corporation
grew $27.66 million year to date and $ 1.84 million for the second quarter. To
help fund the liquidity needs of the Corporation,
-09-
additional borrowings from the Federal Home Loan Bank of Atlanta and various
correspondence banks were utilized. Borrowed funds increased from $64.58 million
at December 31, 1998 to $86.80 million at June 30, 1999. This represents an
increase of $22.23 million or 34.42%. As always, it is of utmost importance that
we constantly evaluate the funding sources available to the Corporation to
choose the one that not only provides the greatest cost benefit but allows us
the flexibility to be competitive in today's market place.
Net interest income for the first six months of 1999 increased 10.12% from
the same period in 1998, to a total of $13.61 million. The result was a
Corporate net interest margin of 4.43% in comparison to the net interest margin
of 4.56% at the end of year 1998. 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
decreased 4.24% to 1.13% at June 30, 1999 compared to 1.18% at June 30, 1998.
The provision for possible credit losses was $0.84 million for the first
six months of 1999 compared to $.48 million for the same period in 1998. Net
charge-offs for the first six months were $0.39 million, which equates to 0.07
percent of our net loan total of $547.25 million. For the same period of 1998,
net charge-offs were $.17 million or 0.04% of the June 30, 1998 net loans of
$463.96 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 and to provide for the increase in net charge-offs. Our
loan quality continues to be strong as demonstrated by the over 30-day
delinquency ratio of .94% of gross loans, a number which compares very
favorably with our peers. Non performing loans were .34% of total loans as of
June 30, 1999, and our loan loss reserve of .68% of total loans represents
198.89% of nonperforming loans.
Summary of Loan Loss Experience
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES
June 30, 1999
----------------
Balance at the Beginning of the period $3,304
Charge-offs:
Domestic:
Commercial, financial and agricultural 106
Real estate - mortgage 15
Installment loans to individuals 471
----------------
592
----------------
Recoveries:
Domestics:
Commercial, financial and agricultural 128
Real estate - mortgage 17
Installment loans to individuals 58
---------------
203
---------------
-10-
Net Charge-offs 390
---------------
Additions charged to operations 836
---------------
Balance at end of period $3,751
===============
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.
First United's non-accrual loans increased $.43 million in the first half of
1999 from the year end total of $.46 million.
June 30 Dec. 31
1999 1998
----------------------
Non-accrual loans $890 $460
Accruing loans past due 90 days or more 996 544
Information with respect to non-accrual loans at June 30, 1999 and
December 31,1998 are as follows:
Non-accrual Loans $890 $460
Interest income that would have been recorded
under original terms 16 30
Interest income recorded during the period 12 6
A strength of First United has always been its capital position.
Shareholders' equity remained strong at $57.16 million, a 2.25% decrease from
December 31, 1998, which was $58.47 million. Risk based capital, which is an
expression of the Corporation's stability and security was 11.78%, which is
less than the 13.40% reported at December 31, 1999 but both are 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 percent of the
outstanding shares of First United Corporation at a price management deems
appropriate. On April 29, 1998 the Board of Directors ratified an amendment to
the Plan which would enable the Corporation's management to repurchase an
additional 5 percent or 309,048 shares. As of June 30, 1999 the Corporation has
repurchased 421,189 at a price of $7.37 million. This represents 6.47% of the
approved 10 percent.
The Corporation paid cash dividends of $.155 on February 1, 1999 and May 1,
1999. On June 16, 1999, the Corporation declared another dividend of equal
amount, to be paid August 1, 1999, to shareholders of record at July 20, 1999.
-11-
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 27, 1999. The only
item ratified by 1999 proxy vote was the election of
six directors.
For Against Abstain
Directors 97.99% 2.01% 0.00%
Item 5. Other Information.
-12-
SIGNATURES
Pursuant to the requirement of the Securities Exchange Act of1934,
the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST UNITED CORPORATION
Date 08/3/99 /s/ WILLIAM B. GRANT
---------- ----------------------------------------
William B. Grant, Chairman of the Board
and Chief Executive Officer
Date 08/3/99 /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 08/3/99
---------- ----------------------------------------
William B. Grant, Chairman of the
Board and Chief Executive Officer
Date 08/3/99
---------- ---------------------------------------
Robert W. Kurtz, President and Chief
Financial Officer
-14-
<PAGE>
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