FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 2000
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--6,080,568 shares outstanding as of
September 30, 2000 Preferred stock, No par value--No shares
outstanding as of September 30, 2000.
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INDEX
FIRST UNITED CORPORATION
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets - September 30, 2000
(unaudited) and December 31, 1999.
Consolidated Statements of Income (unaudited) - For the three and nine
Months ended September 30, 2000 and 1999.
Consolidated Statements of Cash Flows (unaudited) - For the nine
months ended September 30, 2000 and 1999.
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 Sheets
(in thousands, except per share data)
September 30, December 31
Assets 2000 1999
--------------------------
(unaudited)
Cash and due from banks $21,019 $20,879
Federal funds sold - 615
Interest-bearing deposits in banks 78 20,750
Investment securities:
U.S. Treasury Securities 598 896
Obligations of other U.S.
Government Agencies 46,162 48,584
Obligations of State and
Local Government 22,152 29,323
Other investments 73,619 71,762
------------------------
Total investment securities 142,531 150,565
Federal Home Loan Bank stock, at cost 6,572 5,200
Loans and Leases 615,497 569,182
Reserve for possible credit losses (5,185) (4,409)
------------------------
Net loans 610,312 564,773
Bank premises and equipment 10,239 9,760
Accrued interest receivable and other assets 21,258 20,738
------------------------
Total Assets $812,009 $793,280
========================
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FIRST UNITED CORPORATION
Consolidated Balance Sheets
(in thousands, except per share data)
September 30, December 31,
2000 1999
Liabilities and Shareholders' Equity -----------------------
unaudited)
Liabilities
Non-interest bearing deposits $ 52,624 $54,012
Interest bearing deposits 552,884 544,560
-----------------------
Total deposits 605,508 598,572
Reserve for taxes, accrued interest, and
other liabilities 9,117 8,643
Federal Home Loan Bank borrowings
and other borrowed funds 134,875 127,000
Dividends payable 966 969
-----------------------
Total Liabilities 750,466 735,184
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 6,081 shares at September 30,
2000, and 6,085 outstanding at December
31, 1999, 61 61
Surplus 20,199 20,269
Retained earnings 43,732 40,729
Accumulated comprehensive income (2,449) (2,963)
----------------------
Total Shareholders' Equity 61,543 58,096
----------------------
Total Liabilities and
Shareholders' Equity $812,009 $793,280
======================
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FIRST UNITED CORPORATION
Consolidated Statements Of Income
(in thousands, except per share data) Nine Months
Ended September 30,
2000 1999
-------------------
(unaudited)
Interest income
Interest and fees on loans and leases $ 39,017 $ 34,525
Interest on investment securities:
Taxable 6,825 3,989
Exempt from federal income tax 932 835
------------------
7,757 4,824
Interest on federal funds sold 108 217
------------------
Total interest income 46,882 39,566
Interest expense
Interest on deposits:
Savings 489 538
Interest-bearing transaction accounts 3,674 2,736
Time, $100,000 or more 4,903 3,542
Other time 10,444 9,122
Interest on Federal Home Loan Bank
borrowings and other borrowed
funds 6,191 2,887
------------------
Total interest expense 25,701 18,825
------------------
Net interest income 21,181 20,741
Provision for possible credit losses 1,906 1,396
------------------
Net interest income after provision
for possible credit losses 19,275 19,345
Other operating income
Trust department income 1,540 1,269
Service charges on deposit accounts 1,518 1,470
Insurance premium income 742 520
Securities (losses) gains (124) 116
Other income 2,071 1,581
--------------------
Total other operating income 5,747 4,956
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Other operating expenses
Salaries and employee benefits 8,430 7,628
Occupancy expense of premises 821 731
Equipment expense 1,358 1,258
Data processing expense 809 646
Deposit assessments and related fees 143 84
Other expense 4,764 5,166
--------------------
Total other operating expenses 16,325 15,513
--------------------
Income before income taxes 8,697 8,788
Applicable income taxes 2,789 3,017
--------------------
Net income $5,908 $5,771
====================
Earnings per share $0.97 $0.94
====================
Dividends per share $0.48 $0.47
====================
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FIRST UNITED CORPORATION
Consolidated Statements Of Income
(in thousands, except per share data) Three Months
Ended September 30,
2000 1999
-------------------
(unaudited)
Interest income
Interest and fees on loans and leases $ 13,561 $ 12,063
Interest on investment securities:
Taxable 2,194 1,553
Exempt from federal income tax 269 312
--------------------
2,463 1,865
Interest on federal funds sold 16 112
--------------------
Total interest income 16,040 14,040
Interest expense
Interest on deposits:
Savings 162 288
Interest-bearing transaction accounts 1,233 992
Time, $100,000 or more 1,765 1,092
Other time 3,733 3,311
Interest on Federal Home Loan Bank
borrowings and other borrowed
funds 2,235 1,223
--------------------
Total interest expense 9,128 6,906
-------------------
Net interest income 6,912 7,134
Provision for possible credit losses 393 560
--------------------
Net interest income after provision
for possible credit losses 6,519 6,574
Other operating income
Trust department income 540 432
Service charges on deposit accounts 493 477
Insurance premium income 282 352
Securities gains - 106
Other income 767 515
--------------------
Total other operating income 2,082 1,882
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Other operating expenses
Salaries and employees benefits 2,851 2,622
Occupancy expense of premises 282 251
Equipment expense 454 447
Data processing expense 264 231
Deposit assessments and related fees 55 30
Other expense 1,578 1,810
--------------------
Total other operating expenses 5,484 5,391
--------------------
Income before income taxes 3,117 3,065
Applicable income taxes 1,016 1,057
--------------------
Net income $2,101 $2,008
====================
Earnings per share $0.34 $0.33
====================
Dividends per share $0.16 $0.155
====================
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FIRST UNITED CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine Months
Ended September 30,
2000 1999
--------------------
(unaudited)
Operating activities
Net Income $ 5,908 $ 5,771
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for possible credit losses 1,906 1,396
Provision for depreciation 1,148 1,990
Net accretion and amortization of investment
security discounts and premiums 17 191
Realized loss (gain) on sale of investment
securities 124 (116)
Increase in accrued interest and other assets (520) (7,671)
Increase in reserve for taxes, accrued interest
and other liabilities 473 2,722
--------------------
Net cash provided by operating activities 9,056 4,283
Investing activities
Proceeds from maturities of available-for-
sale securities 181,506 104,311
Purchases of available-for-sale securities (155,126) (163,515)
Net increase in loans (46,102) (60,602)
Purchases of premises and equipment (1,627) (2,372)
-------------------
Net cash used in investing activities (21,349) (122,178)
Financing activities
Increase in Federal Home Loan Bank borrowings
and other borrowed money 7,875 44,425
Net increase in demand deposits,
NOW accounts and savings accounts 4,035 15,671
Net increase in certificates of deposits 2,901 62,547
Cash dividends paid or declared (2,923) (2,841)
Proceeds from Issuance of Long Term Debt 23,000
Acquisition and retirement of Common Stock (70) (1,115)
-------------------
Net cash provided by financing activities 11,818 141,687
Cash and cash equivalents at beginning of the period 21,494 13,633
Increase (decrease) in cash and cash equivalents (475) 23,792
--------------------
Cash and cash equivalents at end of period $21,019 $37,425
====================
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FIRST UNITED CORPORATION
Note to Unaudited Consolidated Financial Statements
September 30, 2000
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 and nine month periods ended September 30, 2000, are not
necessarily indicative of the results that may be expected for the year
ending December 31, 2000. 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, 1999.
Earnings per share are based on the weighted average number of
shares outstanding of 6,081,000 and 6,113,000 for the nine months ended
September 30, 2000 and 1999, respectively and 6,081,000 and 6,085,000 for the
three months ended September 30, 2000 and 1999, respectively.
Note B - Accumulated Comprehensive Income
Accumulated comprehensive income represents the unrealized gains
and losses on the company's available-for-sale securities, net of income taxes.
During the first nine months of 2000 and 1999, total comprehensive
income, net income plus the change in unrealized gains (losses) on
available-for-sale securities, amounted to $6.42 million and $3.45
million, net of income taxes, respectively.
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Part I. Financial Information
Item II. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Consolidated net income for the nine months ended September 30, 2000 totaled
$5.91 million, which is $.14 million more than was recorded for the
nine months ended September 30, 1999. This translates into $.97 per share for
the current period. For the same period of 1999, each share earned $.94.
Annualized Return on Average Equity (ROAE)decreased from 13.19% for the nine
months ended September 30, 1999, to 12.69% for the nine months ended
September 30, 2000.
The efficiency ratio is a key measuring tool for profitability
and operating efficiency. The calculation of 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 59.25% for the nine months ended
September 30, 2000. This represents a decline in efficiency from year-end 1999
when the ratio was 58.06%.
Fee income from our Business Manager, PrimeVest, and Trust Services
has increased 22.22% or $.40 million for the nine months ended September 30,
2000 compared to the same period in 1999. Driven by these three income sources,
other operating income increased 15.96% to $5.75 million in comparison to
September 30, 1999. Other operating expense for the first nine months of 2000
was $16.33 million compared to $15.51 million for the same period in 1999.
This 5.29% increase is a direct result of salaries and employee benefits
increasing from $7.63 million in 1999 to $8.43 million in 2000. The increase
of 10.49% in salaries and employee benefits is primarily due to the purchase
of Gonder Insurance Agency in the second quarter of 1999 and the Corporation's
continued policy of rewarding its employees for exceeding their goals.
In the first nine months of 2000, net loans grew $45.54 million to a total
of $610.31 million. The growth for the same period of 1999 was $59.21
million, bringing the total to $564.77 million. The $45.54 million in net loan
growth has been well diversified. Installment loans continue to increase,
increasing $1.77 million. Mortgage loans increased $31.70 million with $12.62
million of that growth being in the commercial portfolio. Business lines of
credit and consumer auto leases have also contributed to the growth, increasing
$5.82 million and $5.87 million respectively.
As a result of our loan growth, interest income for the nine months ending
September 30, 2000, was $46.88 million compared to $39.57 million for the same
period in 1999. This represents an increase of $7.31 million or 18.48%.
Total investment securities, interest bearing deposits, and Federal
Home Loan Bank stock have decreased a total $27.34 million or 15.48% since
December 31, 1999. Proceeds from a fourth quarter 1999 mortgage loan sale were
used to purchase short term investment securities which upon maturity were used
to fund new loans during the current year.
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The Corporation's interest expense year to date was $6.88 million
higher than was incurred for the same period in 1999. The increase in expense
can be attributed to deposit growth of $15.79 million from September 30, 1999
to September 30, 2000 as well as growth of $2.88 million in Federal Home Loan
Bank borrowings and other borrowed funds during the same time frame. Deposits
have increased $6.94 million since December 31, 1999. Federal Home Loan Bank
borrowings and other borrowed funds increased $7.88 million since December 31,
1999. These additional borrowings were used to fund part of the current year's
loan growth. 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 also allows us the flexibility to
be competitive in today's marketplace.
Net interest income for the nine months of 2000 increased 2.13% from the
same period in 1999, to a total of $21.18 million. The result was a Corporate
net interest margin of 3.83% in comparison to the net interest margin
of 4.44% for the year ending 1999. The decline can be attributed to the intense
competition for traditional deposits which has driven our cost of funds upward
and the addition of the $23.00 million in Trust Preferred securities during the
third quarter of 1999. These securities bear interest at 9.375%. 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. Annualized Return on Average Assets (ROAA) has
decreased 12.50% to .98% for the nine months ended September 30, 2000 compared
to 1.12% for the nine months ended September 30,1999.
The provision for possible credit losses was $1.91 million for the
first nine months of 2000 compared to $1.40 million for the same period
in 1999. Net charge-offs for the first nine months of 2000 were $1.13 million,
which on an annualized basis equates to 0.26% of average net loans of $597.51
million. For the same period of 1999, net charge-offs were $.79 million or on
an annualized basis, .20% of the September 30, 1999 average net loans of
$538.52 million. In addition to covering current net charge-offs, the increase
in the provision for possible credit losses was made to maintain an adequate
reserve in light current charge-off experience and loan growth. Our loan qual-
ity continues to be strong as demonstrated by the over 30-day delinquency ratio
of 1.21% of gross loans, a number which compares very favorably with our peers.
Non-performing loans were .44% of gross loans as of September 30, 2000, and our
loan loss reserve was 0.84% of gross loans representing 191.40% of non-perform-
ing loans.
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Summary of Loan Loss Experience
ANALYSIS OF THE RESERVE FOR POSSIBLE CREDIT LOSSES
September 30, 2000
----------------
Balance at the Beginning of the period $4,409
Charge-offs:
Domestic:
Commercial, financial and agricultural 23
Real estate - mortgage 64
Installment loans to individuals 1,269
----------------
1,356
----------------
Recoveries:
Domestics:
Commercial, financial and agricultural 9
Real estate - mortgage 6
Installment loans to individuals 210
---------------
225
---------------
Net Charge-offs 1,131
---------------
Additions charged to operations 1,907
---------------
Balance at end of period $5,185
===============
Annualized ratio of net charge-offs during the
period to average loans outstanding during
the period .26%
===============
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 restructur-
ings. Further, the Bank has no potential problem loans other than those in the
table below. As of September 30, 2000, First United's non-accrual loans
increased $1.48 million from the year end total of $.38 million. One
commercial loan accounts for $1.00 million of this increase. The loan is well
secured, and the Corporation does not anticipate a loss.
September 30 December 31
2000 1999
----------------------
Non-accrual loans $1,864 $379
Accruing loans past due 90 days or more 845 763
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Information with respect to non-accrual loans at September 30, 2000 and
December 31,1999 are as follows:
Non-accrual Loans $1,864 $379
Interest income that would have been recorded
under original terms 9 7
Interest income recorded during the period 37 3
A strength of First United has always been its capital position.
Shareholders' equity remained strong at $61.54 million, a 5.92%
increase from December 31, 1999, which was $58.10 million. Risk based capital,
total qualifying capital divided by risk-weighted assets, was 15.01%, which is
slightly less than the 15.03% reported at December 31, 1999. Both are in excess
of the regulatory minimum of 8.00%.
The Corporation through First United Capital Trust, a Delaware
Business Trust, issued $23 million of aggregate liquidation amount of 9.375%
Preferred Securities on August 25, 1999. The payment terms require the Trust
to distribute 9.375% per $10 liquidation amount of Capital Securities on March
31, June 30, September 30, and December 31 of each year, beginning September
30, 1999.
The proceeds from the issuance of the Preferred Securities were used
by the Trust to purchase $23 million aggregate principal amount of junior sub-
ordinated debentures issued by the Company to the Trust. These debentures,
which are included in the Corporation's risk based capital calculations, were
issued to enhance the capital position of First United Bank & Trust and to
allow the Bank to continue its growth strategies. The debentures are scheduled
to mature on September 30, 2029. The Trust may redeem the Preferred Secur-
ities, in whole or in part, if the Trust repays the junior subordinated
debentures on or after September 30, 2004.
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 manage-
ment to repurchase an additional 5 percent or 309,048 shares. As of September
30, 2000, the Corporation has repurchased 421,189 shares at a cost of $7.37
million. This represents 6.47 percent of the approved 10 percent. No shares
were repurchased during the nine month period ending September 30, 2000.
The Corporation paid a cash dividend of $.16 on August 1,
2000. On September 20, 2000, the Corporation declared another dividend of an
equal amount, to be paid November 1, 2000, to shareholders of record at
October 20, 2000.
Part II. OTHER INFORMATION
Item 1. Legal Proceedings.
None.
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Item 2. Changes in Securities and Use of Proceeds.
None.
Item 3. Defaults upon Senior Securities.
None.
Item 4. Submission of Matters to a Vote of Security Holders.
Item 5. Other Information.
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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 11/13/00 /s/ WILLIAM B. GRANT
---------- ----------------------------------------
William B. Grant, Chairman of the Board
and Chief Executive Officer
Date 11/13/00 /s/ Robert W. Kurtz
---------- ----------------------------------------
Robert W Kurtz, President and Chief
Financial Officer
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
FIRST UNITED CORPORATION
Date 11/13/00
---------- ----------------------------------------
William B. Grant, Chairman of the
Board and Chief Executive Officer
Date 11/13/00
---------- ---------------------------------------
Robert W. Kurtz, President and Chief
Financial Officer
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