<PAGE>
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, 1995
Commission File Number 0-17565
FIRST UNITED BANCORPORATION
(Exact name of registrant as specified in its charter)
South Carolina 57-0850174
(State or other jurisdiction (I. R. S. Employer
of incorporation) Identification No.)
304 North Main Street
Anderson, South Carolina 29621
(Address of principal executive
offices, including zip code)
(803) 224-1112
(Registrant's telephone number, including area code)
--------------------------------------------------
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 period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past ninety (90) days.
YES [X] NO [ ]
The number of shares outstanding of each of registrant's classes of common stock
as of September 30, 1995:
2,314,229 shares of common stock, $1.67 Par Value
<PAGE>
TABLE OF CONTENTS
PAGE
PART I ITEM 1 FINANCIAL INFORMATION
Consolidated Balance Sheets
September 30, 1995 and December 31, 1994
(unaudited) 3
Consolidated Statements of Income
Three months ended September 30, 1995 and
1994 (unaudited) 4
Consolidated Statements of Income
Nine months ended September 30, 1995 and
1994 (unaudited) 5
Consolidated Statement of Changes in
Shareholders' Equity
Year ended December 31, 1994 and nine months
ended September 30, 1994 (unaudited) 6
Consolidated Statement of Cash Flows
Nine months ended September 30, 1995 and
1994 (unaudited) 7
Notes to Consolidated Financial Statements
(unaudited) 8
PART I ITEM 2 MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION 10
PART II OTHER INFORMATION 25
SIGNATURES 26
INDEX TO EXHIBITS 27
Page 2
<PAGE>
FIRST UNITED BANCORPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------ ------------
(In thousands)
<S> <C> <C>
ASSETS:
Cash and due from banks $6,367 $4,586
Federal funds sold 1,580 4,580
Investment securities:
Held to maturity (Market value of $10,482 10,292 9,954
and $9,824)
Available for sale (Cost of $18,797 18,646 21,360
and $22,377)
Total loans 141,340 119,840
Less: Allowance for loan losses (2,140) (1,944)
-------- --------
Net loans 139,200 117,896
Premises, furniture and equipment (net) 5,055 3,672
Other real estate owned 74 74
Other assets 3,083 3,081
-------- --------
TOTAL ASSETS $184,297 $165,203
======== ========
LIABILITIES:
Demand deposits $20,449 $20,434
NOW accounts 23,950 22,431
Savings and money market deposits 23,971 24,296
Time deposits, $100,000 and over 21,822 16,645
Other time deposits 61,717 53,860
-------- --------
TOTAL DEPOSITS 151,909 137,666
-------- --------
Securities sold under repurchase agreements 3,719 3,298
Federal Home Loan Bank Borrowings 2,910 950
Other borrowed funds 7,970 7,850
Obligation under capital lease 5 173
Other liabilities 1,955 1,675
-------- --------
TOTAL LIABILITIES 168,468 151,612
SHAREHOLDERS' EQUITY:
Common stock ($1.67 par value, 15,000,000 3,674 3,471
shares authorized; 2,314,229 and 2,296,056
shares issued and outstanding, respectively)
Paid-in capital 9,567 8,309
Retained earnings 2,683 2,452
Unrealized gain (loss) on securities available
for sale, net of income taxes (95) (641)
-------- --------
TOTAL SHAREHOLDERS' EQUITY 15,829 13,591
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY $184,297 $165,203
======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 3
<PAGE>
FIRST UNITED BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
September 30, September 30,
1995 1994
------------ -------------
(In thousands except per share data)
<S> <C> <C>
INTEREST INCOME:
Loans $4,534 $3,504
Federal funds sold 36 65
Taxable investment securities 375 384
Non-taxable investment securities 65 61
------ ------
Total interest income 5,010 4,014
------ ------
INTEREST EXPENSE:
Interest on deposits 1,578 1,034
Interest on securities sold under repurchase 40 38
agreements
Interest on other borrowed funds 254 155
------ ------
Total interest expense 1,872 1,227
------ ------
Net interest income 3,138 2,787
Provision for loan losses 209 79
------ ------
Net interest income after provision 2,929 2,708
for loan losses
------ ------
OTHER INCOME:
Service fees 195 186
Other income 325 234
------ ------
Total other income 520 420
------ ------
OTHER EXPENSES:
Salaries, wages and benefits 1,490 1,276
Occupancy expenses 159 149
Furniture and equipment expenses 138 181
Other operating expenses 728 687
------ ------
Total other expenses 2,515 2,293
------ ------
Income before income taxes 934 835
Provision for income taxes 317 289
------ ------
NET INCOME $617 $546
====== ======
PER SHARE DATA:
Primary $0.25 $0.23
Fully diluted $0.25 $0.23
AVERAGE COMMON SHARES OUTSTANDING:
Primary 2,441 2,368
Fully diluted 2,449 2,368
Cash dividends per share $0.03 $0.00
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 4
<PAGE>
FIRST UNITED BANCORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
September 30, September 30,
1995 1994
------------ ------------
(In thousands except Per Share Data)
INTEREST INCOME:
<S> <C> <C>
Loans $12,734 $9,723
Federal funds sold 144 162
Taxable investment securities 1,169 1,163
Non-taxable investment securities 194 180
------- ------
Total interest income 14,241 11,228
------- ------
INTEREST EXPENSE:
Interest on deposits 4,194 2,972
Interest on securities sold under 128 86
repurchase agreements
Interest on other borrowed funds 724 389
------- ------
Total interest expense 5,046 3,447
------- ------
Net interest income 9,195 7,781
Provision for loan losses 420 208
------- ------
Net interest income after provision 8,775 7,573
for loan losses
------- ------
OTHER INCOME:
Service fees 580 547
Other income 747 760
------- ------
Total other income 1,327 1,307
------- ------
OTHER EXPENSES:
Salaries, wages and benefits 4,253 3,735
Occupancy expenses 475 424
Furniture and equipment expenses 459 530
Other operating expenses 2,157 1,899
------- ------
Total other expenses 7,344 6,588
------- ------
Income before income taxes 2,758 2,292
Provision for income taxes 961 774
------- ------
NET INCOME $1,797 $1,518
======= ======
PER SHARE DATA:
Primary $0.74 $0.66
Fully diluted $0.74 $0.66
AVERAGE COMMON SHARES OUTSTANDING:
Primary 2,423 2,308
Fully diluted 2,436 2,308
Cash dividends per share $0.09 $0.00
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 5
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FIRST UNITED BANCORPORATION
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR YEAR ENDED DECEMBER 31, 1994 AND THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
NUMBER OF COMMON PAID-IN RETAINED UNREALIZED SHARE-
SHARES STOCK CAPITAL EARNINGS NET GAIN HOLDERS'
OUTSTANDING (LOSS) ON EQUITY
SECURITIES
AVAILABLE
FOR SALE
----------- ------ ------- -------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December
31, 1993 1,879 $3,131 $7,279 $1,712 $164 $12,286
Issuance of 187,447
shares of common stock
relating to 10% stock
dividend 187 313 958 (1,274) - (3)
Cash in lieu of
fractional shares on 3
for 2 stock split - - - (2) - (2)
Cash dividends declared - - - (62) - (62)
Employee stock options
exercised 17 27 72 - - 99
Net income - - - 2,078 - 2,078
Change in unrealized
net loss on
securities available
for sale - - - - (805) (805)
----- ------ ------ ------ ---- -------
Balance at December
31, 1994 2,083 3,471 8,309 2,452 (641) 13,591
Issuance of 104,155
shares of common stock
relating to 5% stock
dividend 104 174 1,194 (1,371) - (3)
Issuance of 110,201
shares of common stock
relating to 5% stock
dividend 110 184 1,497 (1,681) - 0
Cash dividends declared - - - (195) - (195)
Employee stock options
exercised 17 29 64 - - 93
Net income - - - 1,797 - 1,797
Change in unrealized
net loss on securities
available for sale - - - - 546 546
----- ------ ------ ------ ---- -------
Balance at September
30, 1995 2,314 $3,858 $11,064 $1,002 $(95) $15,829
===== ====== ======= ====== ==== =======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
Page 6
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FIRST UNITED BANCORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
September 30, September 30,
1995 1994
------------ ------------
(In thousands)
<S> <C> <C>
Cash flows from operating activities :
Net income $1,797 $1,518
Adjustments needed to reconcile net income to
net cash used by operating activities :
Provision for loan losses 420 208
Depreciation and amortization 475 515
Increase in other assets (413) (285)
Increase in other liabilities 280 195
------ ------
Net cash provided by operating activities 2,559 2,151
------ ------
Cash flows from investing activities :
Net (increase) decrease in federal funds sold 3,000 (3,105)
Purchases of investment securities (2,632) (6,009)
Proceeds from sale of investment securities
available for sale 896 -
Proceeds from maturities of investment securities 4,978 7,019
Net increase in loans (21,724) (11,292)
Additions to premises and equipment (1,909) (366)
Sale of premises and equipment 142 21
Proceeds from issuance of common stock 93 42
Cash dividends (198) (3)
------ ------
Net cash used by investing activities (17,354) (13,693)
------ ------
Cash flows from financing activities :
Net increase in deposits 14,243 9,871
Proceeds from other borrowed funds 28,905 5,190
Principal repayment of other borrowed funds (26,993) (4,102)
Net increase in securities sold under
repurchase agreements 421 1,130
------ ------
Net cash provided by financing activities 16,576 12,089
------ ------
Net increase in cash and cash equivalents 1,781 547
Cash and cash equivalents, beginning of period 4,586 6,131
------ ------
Cash and cash equivalents, end of period $6,367 $6,678
====== ======
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
PAGE 7
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FIRST UNITED BANCORPORATION AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The interim consolidated financial statements include the accounts of
First United Bancorporation (the "Company") and its wholly owned
subsidiaries, Anderson National Bank, Spartanburg National Bank and Quick
Credit Corporation.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies is included in
the 1994 Annual Report to Shareholders.
(3) COMMON STOCK, EARNINGS PER SHARE, STOCK SPLIT AND STOCK
DIVIDENDS
On October 15, 1994, the Company declared a three for two stock split to
shareholders of record on November 8, 1994. All earnings per share,
outstanding shares and weighted average outstanding equivalent shares have
been restated retroactively for all periods presented to reflect the
effects of the stock split as if it occurred prior to the earliest period
presented.
During the period ended September 30, 1995 the Company issued 17,282
shares of its common stock at an average price of $5.38 per share in
connection with the exercise of stock options under its employee stock
option plans.
The Board of Directors of First United Bancorporation issued a five
percent common stock dividend on June 15, 1995 to common stockholders of
record as of June 1, 1995. This dividend resulted in the issuance of
104,155 shares of the Company's $1.67 par value common stock. Per share
data for all periods have been restated to reflect this dividend as if it
occurred prior to the earliest period presented.
On October 24, 1995, the Board of Directors of the Company declared a five
percent common stock dividend payable on December 1, 1995 to shareholders
of record as of November 15, 1995. All earnings per share, outstanding
shares and weighted average outstanding equivalent shares have been
restated retroactively for all periods presented to reflect the effects of
the stock dividend as if it occurred prior to the earliest period
presented.
The Company calculates its earnings per share by dividing net
earnings for the periods presented by the weighted average
Page 8
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equivalent shares outstanding using the treasury stock method. Common
stock equivalents include options issued under the Company's Employee
Stock Option Plans. These options were dilutive for the quarter and
year-to-date periods ended September 30, 1995 and were included in
computing weighted average equivalent shares outstanding. For the 1994
periods presented, such options were not dilutive.
(4) MANAGEMENT'S OPINION
In the opinion of management, the accompanying interim consolidated
financial statements reflect all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the financial
position of the Company and its subsidiaries at September 30, 1995, the
results of their operations for the quarters and year-to-date periods
ended September 30, 1995 and 1994, and the statements of their cash flows
for the nine-month periods ended September 30, 1995 and 1994.
Page 9
<PAGE>
PART I
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Year-to-date period ended September 30, 1995 vs. Year-to-date
period ended September 30, 1994
Earnings Review
The Company's consolidated operations during the nine-month ended September
30, 1995 resulted in net income of $1,797,000, an 18.4% increase over the
$1,518,000 in net income recorded for the comparable 1994 nine-month period. The
increase in consolidated earnings for the 1995 period is attributable to a
$1,414,000, or 18.2%, increase in the Company's consolidated net interest income
resulting largely from an increase in consolidated loan interest income of
$3,011,000, or 31.0%, at the Company's three subsidiaries. For the year-to-date
period ended September 30, 1995, the Company recorded and absorbed expenses, net
of income tax benefits, associated with the formation of a proposed new bank
subsidiary, The Community Bank of Greenville, N.A., Greenville, South Carolina,
totaling $80,000. Company management expects to incur and absorb additional
formation expenses for the proposed new bank during the remainder of 1995.
Management does not expect these expenses to significantly impact earnings for
the remainder of 1995.
Anderson National Bank recorded net earnings of $722,000 for the period
ended September 30, 1995, a $121,000, or 20.1%, increase over the $601,000
recorded for the 1994 nine-month period. The increase in earnings for this
subsidiary resulted primarily from an increase in this subsidiary's net interest
income of $260,000, or 9.3%, which was attributable to a $996,000, or 30.0%,
increase in interest income on loans. The significant increase in loan interest
income for this subsidiary is attributable to an increase in the volume of
outstanding loans coupled with an increase in loan yields for the 1995 period.
Spartanburg National Bank recorded net earnings of $632,000 for the 1995
period, a $108,000, or 20.6%, increase over the $524,000 recorded for the 1994
period. The increase in earnings for this subsidiary resulted from an increase
in net interest income of $444,000, or 18.8%, which is attributable to an
increase in loan interest income of $1,106,000, or 32.4%. The increase in
revenues derived from Spartanburg National Bank's loan portfolio, like that of
Anderson National Bank's, resulted from an increase in the volume of outstanding
loans for the 1995 period coupled with an increase in loan yields.
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<PAGE>
The Company's consumer finance subsidiary, Quick Credit Corporation,
recorded net earnings of $539,000 for the nine-month period ended September 30,
1995, a $112,000, or 26.2%, increase over the $427,000 recorded for the 1994
comparable period. The increase in earnings for this subsidiary, like that of
the Company's banking subsidiaries, resulted primarily from an increase in net
interest income of $691,000, or 26.3%. The increase in this subsidiary's net
interest income is attributable to a $926,000, or 30.9%, increase in interest
and fees on loans as a result of an increase in the volume of outstanding loans
for the 1995 period when compared to the 1994 period. This subsidiary also
experienced an increase in other income of $29,000, or 13.4%, primarily as a
result of an increase in commissions received from the sale of credit life and
accident and health insurance coverage, resulting from insurance sales
associated with the larger volume of outstanding loans for the 1995 period.
Interest Income, Interest Expense and Net Interest Income
Net interest income, the major component of the Company's income, is the
amount by which interest and fees on interest-earning assets exceeds the
interest paid on interest-bearing deposits and other interest-bearing funds. The
Company's net interest income increased 18.2% to $9,195,000 for the period ended
September 30, 1995 compared to $7,781,000 for the period ended September 30,
1994. The increase is attributable to an increase in interest income on loans
resulting from an increase in the volume of outstanding loans for the 1995
period coupled with an increase in loan yields on the Company's banking
subsidiaries' loan portfolios resulting from increases in the prime lending rate
during 1994 and 1995.
The Company's total interest income increased $3,013,000, or 26.8%, to
$14,241,000 for the 1995 period compared to $11,228,000 for the 1994 period. The
increase is largely attributable to a $3,011,000, or 31.0%, increase in loan
interest income resulting from a $20,519,000, or 18.8%, increase in the volume
of average outstanding loans for the 1995 period coupled with an increase in the
average yield on loans for the 1995 period of 10.2% over the 1994 period. The
average yield on loans for the September 30, 1995 year-to-date period was 13.10%
compared to 11.88% for the September 30, 1994 year-to-date period.
Average balances on securities and federal funds sold, collectively,
decreased by $2,686,000, or 7.5%, in the 1995 period over the 1994 period.
Although average balances on these categories of earning assets decreased during
the 1995 period, interest income associated with these categories of earning
assets, collectively, increased $2,000 as a result of increases in market
interest rates since 1994.
Interest expense on deposits increased $1,222,000, or 41.1%, to $4,194,000
for the period ended September 30, 1995 compared to $2,972,000 for the period
ended September 30, 1994. The increase
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<PAGE>
is attributable to increases in the Company's costs of interest-bearing deposits
resulting from increases in market interest rates and an increase of $8,153,000,
or 7.1%, in the volume of average interest-bearing deposits for the 1995 period
compared to the 1994 period. The weighted average cost of interest-bearing
deposits for the first nine months of 1995 was 4.53% compared to 3.43% for the
first nine months of 1994.
Although average balances on Securities Sold Under Repurchase Agreements
decreased $433,000, or 11.8%, in the 1995 period when compared to the 1994
period, interest expense on this category of interest-bearing liabilities
increased $42,000, or 48.8%, as a result of higher market rates of interest paid
during the 1995 period. Interest expense incurred by the Company's banking
subsidiaries on average borrowings of $2,915,000 from the Federal Home Loan Bank
of Atlanta for the 1995 period amounted to $148,000. The Company's banking
subsidiaries had nominal Federal Home Loan Bank of Atlanta borrowings during the
1994 period with interest expense for the 1994 period amounting to only $4,000.
Interest expense on the various categories of other interest-bearing
liabilities, which includes Capitalized Leases, Subordinated Debt, Federal Funds
Purchased and Other Borrowed Funds, collectively, increased $191,000, or 49.6%,
in the 1995 period when compared to the 1994 period. The increase in interest
expense associated with these other interest-bearing liabilities is attributable
to an increase of $2,016,000, or 38.2%, in the volume of average borrowings by
Quick Credit Corporation, primarily from a third party lender, coupled with an
increase in the rate paid for these funds in the 1995 period as a result of
increases in the prime rate since 1994. Interest paid on Quick Credit
Corporation's borrowings from the third party lender amounted to $294,000 in the
1994 period compared to $527,000 in the 1994 period an increase of $232,000, or
78.9%.
Other Income
Total consolidated other income increased $20,000, or 1.5%, during the
nine-month period ended September 30, 1995. The nominal increase for the 1995
period resulted primarily from an increase in service charges and fees on
deposit accounts at the Company's banking subsidiaries and an increase in
commissions received on the sale of credit related insurance by Quick Credit
Corporation as a result of an increase in the volume of loans at this subsidiary
during the 1995 period. The Company experienced a decline in fee income
generated from the sale of alternative investment products (mutual funds and
annuities) of $43,000, or 40.8%, during the 1995 period as a result of a
decrease in the volume of sales of these types of products. The Company's
mortgage lending activities, which had been sluggish during the first six months
of 1995, rebounded during the third quarter of 1995. As a result, fee income
generated by this activity for the year-to-date period ended September 30, 1995
amounted to $136,000, a 3.6% increase over the $131,000 generated during the
comparable 1994
Page 12
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period. During the 1995 period, the Company recorded gains on the sale of Other
Real Estate of $25,000 compared to gains on the sale of Other Real Estate in the
1994 period of $52,000. The Company also recorded gains on the sale of SBA loans
during the 1995 period of $63,000 compared to $28,000 recorded during the 1994
period.
Other Expenses
Total other expenses increased $756,000, or 11.5%, in 1995 over the 1994
comparable period. Salaries, wages and benefits, the largest category of other
operating expenses, increased $518,000, or 13.9%, in 1995 over the 1994
comparative period. This increase in personnel expenses resulted largely from
additions to the staff of Quick Credit Corporation associated with the opening
of eight new offices since the third quarter of 1994.
Occupancy expense increased $51,000, or 12.0%, in 1995 over 1994 largely as
a result of expenses associated with the new offices for Quick Credit
Corporation.
Furniture and equipment expense decreased $71,000, or 13.4%, in 1995 over
1994 largely as a result of a decline in depreciation expense associated with
the Company's data processing equipment, which was sold during the second
quarter of 1995.
Other operating expenses, the second largest category of other expenses,
increased $258,000, or 13.6%, in 1995 over the 1994 period. This increase is
largely the result of costs associated with the additional offices of Quick
Credit Corporation opened since the end of the third quarter of 1994, higher
expenses associated with growth at the Company's banking subsidiaries and costs
associated with the outsourcing of the Company's data processing function. The
increase in other operating expenses was partially offset by refunds of FDIC
premiums totalling $85,000 received by the Company's banking subsidiaries during
the third quarter of 1995.
Provision and Allowance for Loan Losses, Loan Loss Experience
The purpose of the allowance for loan losses is to absorb loan losses that
occur in the loan portfolio. Management determines the adequacy of the allowance
quarterly and considers a variety of factors in establishing a level of the
allowance for losses and the related provision, which is charged to expense.
Factors considered in determining the adequacy of the reserve for loan losses
include: (1) previously classified loans deemed less than 100% collectible, (2)
loans reflecting a recurring delinquent status, (3) past-due loans on which
interest is not being collected in accordance with the terms of the loan, and
loans whose terms have been modified by reducing the interest rates or deferring
interest, (4) excessive loan renewals or payment extensions, (5) general and
local economic conditions, (6) risk in consumer credit products, (7) subjective
Page 13
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considerations as a result of internal discussions with the Company's loan
officers, (8) known loan deteriorations and/or concentrations of credit, (9)
historical loss experience based on volume and types of loans, (10) trends in
portfolio volume, maturity and composition, (11) projected collateral values,
(12) off balance sheet risk, and (13) depth and experience of the Company's
existing lending staff. By considering the above factors, management attempts to
determine the amount of reserves necessary to provide for potential losses in
the loan portfolio, however the amount of reserves may change in response to
changes in the financial condition of larger borrowers or changes in the
Company's local economies.
While it is the Company's policy to charge off in the current period loans
in which a loss is considered probable, there are additional risks of future
losses which cannot be quantified precisely or attributed to particular loans or
classes of loans. Because these risks include the state of the economy as well
as conditions affecting individual borrowers, management's judgment of the
allowance is necessarily approximate and imprecise. The Company is also subject
to regulatory examinations and determinations as to adequacy, which may take
into account such factors as the methodology used to calculate the allowance for
loan losses and the size of the allowance for loan losses in comparison to a
group of peer companies identified by the regulatory agencies.
At September 30, 1995 the allowance for loan losses as a percentage of
outstanding loans was 1.51% compared to 1.61% at September 30, 1994, and 1.62%
at December 31, 1994. The decrease in the allowance for loan losses as a
percentage of outstanding loans in the 1995 period is largely a result of the
significant loan growth experienced by the Company's banking subsidiaries during
the period coupled with the credit quality of the Company's loan portfolios.
Management considers the allowance for loan losses adequate to cover possible
losses on the loans outstanding at September 30, 1995.
The provision for loan losses was $420,000 for the period ended September
30, 1995, a $212,000, or 101.9%, increase over the $208,000 recorded for the
comparable 1994 period. The increase is attributable to increases in the
provision made by Spartanburg National Bank and Quick Credit Corporation in the
1995 period when compared to the 1994 period. The increase made by Spartanburg
National Bank was a result of significant loan growth experienced by this
subsidiary during the 1995 period. Spartanburg National Bank made provisions of
$155,000 for the 1995 period compared to $35,000 for the 1994 period. Quick
Credit Corporation made provisions of $265,000 for the 1995 period compared to
$173,000 for the 1994 period. Anderson National Bank made no provisions in
either of the comparable periods.
Net loan charge-offs amounted to $231,000, or 0.18%, of average loans
outstanding for the year-to-date period ended September 30, 1995, compared to
net loan charge-offs of $94,000, or 0.08%, of average loans outstanding for the
year-to-date period
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ended September 30, 1994. The increase in net loan charge-offs is attributable
to increased charge-offs made by Quick Credit Corporation and came as a result
of a conscious decision by management to emphasize loan growth in this
subsidiary with a reduced emphasis on collection efforts. The higher earnings
resulting from this loan growth more than offset the higher charge-off rate.
Quick Credit Corporation makes high rate consumer finance loans which generally
carry higher risk of nonpayment than other categories of loans. The Company
believes the increased risk is substantially offset by the smaller amounts of
such loans and the higher rates charged thereon. Quick Credit recorded net loan
charge-offs of $290,000, or 3.26%, of average loans outstanding in the 1995
period compared to net loan charge-offs of $147,000, or 2.17%, of average loans
outstanding during the 1994 period. The present charge-off ratio is in line with
industry standards and the Company expects Quick Credit to experience similar
levels of net charge-offs in future periods and corresponding increases in its
provision as the levels of outstanding loans and numbers of loans continue to
increase. Spartanburg National Bank recorded net loan charge-offs of $15,000 in
the 1995 period compared to net loan charge-offs of $2,000 in the 1994 period.
Anderson National Bank recorded net loan recoveries of $74,000 in the 1995
period compared to net loan recoveries of $57,000 in the 1994 period.
At September 30, 1995 the Company had $106,000 in non-accrual loans,
$311,000 in loans past due 90 days or more and still accruing interest and
$74,000 in OREO, compared to $328,000, $109,000 and $74,000 at September 30,
1994 and $281,000, $144,000, and $74,000 at December 31, 1994, respectively.
Loans on non-accrual amounted to 0.07% of total loans at September 30, 1995,
compared to 0.28% and 0.23% at September 30, 1994 and December 31, 1994,
respectively. At September 30, 1995 the Company had $797,000, or 0.56%, of total
loans outstanding that had been restructured. All of the restructured loans at
September 30, 1995 were in compliance with their modified terms. The Company
expects its restructured loans to continue to perform in accordance with their
modified terms. At September 30, 1994 and December 31, 1994 the Company did not
have any material amount of restructured loans. At September 30, 1995, September
30, 1994 and December 31, 1994 the Company did not have any impaired loans.
In the cases of all non-performing loans, management of the Company has
reviewed the carrying value of any underlying collateral. In those cases where
the collateral value may be less than the carrying value of the loan the Company
has taken specific writedowns to the credits, even though such credits may still
be performing. Management of the Company does not believe it has any non-accrual
loan which, individually, could materially impact the reserve for loan losses or
long term future operating results of the Company.
The Company records real estate acquired through foreclosure at the lower
of cost or estimated market value less estimated selling costs. Estimated market
value is based upon the assumption of a sale in the normal course of business
and not on a quick
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<PAGE>
liquidation or distress basis. Estimated market value is established by
independent appraisal at the time acquisition is completed. Management believes
that other real estate owned at September 30, 1995 will not require significant
write-downs in future accounting periods and therefore, will not have a
significant effect on the Company's future operations. Management further
believes that adequate reserves have been established for other loans secured by
real estate that may deteriorate as a result of the borrowers' inability to
properly service the debt.
Income Taxes
As a result of increased income before income taxes, the Company incurred
income tax expense of $961,000 for the year-to-date period ended September 30,
1995 compared to income tax expense of $774,000 for the period ended September
30, 1994.
Quarter ended September 30, 1995 vs. Quarter ended September 30,
1994
Earnings Review
The Company's operations for the quarter ended September 30, 1995, resulted
in net income of $617,000, a $71,000, or 13.0%, increase over the $546,000
reported for the comparable 1994 quarter. Third quarter 1995 profits increased
over third quarter 1994 profits largely as a result of a $351,000, or 12.6%,
increase in the Company's net interest income resulting primarily from an
increase in loan interest income of $1,030,000, or 29.4%. During the quarter
ended September 30, 1995, the Company recorded and absorbed $32,000 in expenses,
net of income tax benefits, associated with the formation of its proposed new
bank subsidiary, The Community Bank of Greenville, N.A., Greenville, South
Carolina.
Anderson National Bank, Spartanburg National Bank and Quick Credit
Corporation, the Company's three subsidiaries, recorded 1995 third quarter
earnings of $245,000, $250,000 and $157,000, respectively, compared to $220,000,
$215,000 and $125,000, respectively, for the third quarter of 1994.
Interest Income, Interest Expense and Net Interest Income
As discussed above, the Company's net interest income increased $351,000,
or 12.6%, during the third quarter of 1995 over the third quarter of 1994 and
was primarily attributable to a $1,030,000, or 29.4%, increase in loan interest
income. The increase in loan interest income resulted from a larger base of
average outstanding loans for the 1995 period coupled with an increase in the
average yield on loans. Total loans outstanding averaged $137,676,000 for the
1995 quarter compared to $112,574,000 for the 1994 quarter, a 22.3% increase.
The average yield on the Company's loan portfolios was 13.17% for the 1995
quarter compared to 12.45% for the 1994 quarter.
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Interest expense increased $645,000, or 52.6%, in the 1995 period. Interest
on deposit accounts, the largest category of total interest expense, increased
$544,000, or 52.6%, during the 1995 period largely as a result of an increase in
the rates paid on deposits as a result of increases in market interest rates
during the 1995 period. The average rate paid on interest-bearing deposits was
4.90% for the 1995 quarter compared to 3.56% for the 1994 quarter. Interest
expense on the other categories of interest-bearing liabilities, collectively,
increased $101,000, or 52.3%, largely as a result of an increase in the volume,
collectively, of these categories of interest-bearing liabilities of $4,791,000,
or 51.4%, coupled with increases in the rates paid as a result of higher market
rates of interest in the 1995 period.
Other Income
The Company's total other income increased $100,000, or 23.8%, to $520,000
for the 1995 quarter. The major contributors to this increase were the Company's
mortgage lending activities and gains recorded from the sale of SBA loans during
the 1995 quarter. During the 1995 quarter the Company's mortgage lending
activities produced fee income of $61,000, an increase of $43,000, or 300%, over
the $18,000 recorded for the 1994 quarter. In addition, the Company recorded
gains on the sales of SBA loans of $51,000 during the 1995 quarter. The Company
had no gains on the sale of SBA loans during the 1994 quarter.
Other Expenses
Total other expenses increased $222,000, or 9.7%, during the third quarter
of 1995. $32,000, or 14.4%, of the increase in total other expenses is
attributable to expenses associated with the formation of the Company's proposed
new bank subsidiary, The Community Bank of Greenville, N.A., Greenville, SC.
During the second quarter of 1995, the Company sold its data processing
equipment to an outside data processing vendor. Largely as a result of this
transaction, the Company experienced a decrease of $43,000, or 23.8%, in
furniture and equipment expenses which is comprised largely of depreciation
expense. The remaining increases in other expense categories, salaries, wages &
benefits, other operating expenses and occupancy expense, are largely
attributable to Quick Credit Corporation as this subsidiary continued to expand
its total number of offices and staff. Increases in total other expenses were
partially offset by the refund of FDIC insurance premiums received by the
Company's banking subsidiaries of $85,000 during the 1995 quarter.
Provision and Allowance for Loan Losses
The provision for loan losses was $209,000 for the quarter ended September
30, 1995, a $130,000, or 164.6%, increase over the $79,000 provision made for
the 1994 quarter. The increase for the 1995 period is a result of increases in
the provisions made by Quick Credit Corporation and Spartanburg National Bank
during the 1995 period. Quick Credit Corporation made provisions of $147,000
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in the 1995 quarter compared to $79,000 for the 1994 quarter. The increase in
the provision for Quick Credit Corporation is a result of the loan growth
experienced by this subsidiary and management's conscious decision to emphasis
growth with a lessened emphasis on collection efforts; the higher earnings on
which more than offset the higher provision. Spartanburg National Bank made
provisions of $62,000 for the 1995 period compared to no provisions for the 1994
period. The higher provision at Spartanburg National Bank was related to loan
growth experienced by this subsidiary during the 1995 period. Anderson National
Bank made no provisions in the 1995 and 1994 periods.
Income Taxes
The Company incurred income tax expense of $317,000 for the quarter ended
September 30, 1995 compared to income tax expense of $289,000 for the quarter
ended September 30, 1994 as a result of higher pre-tax earnings.
CHANGES IN FINANCIAL CONDITION
Total assets increased $19,094,000, or 11.6%, from December 31, 1994 to
September 30, 1995. Total loans, the largest single category of assets,
increased $21,500,000, or 17.9%, during the period ended September 30, 1995,
largely as a result of an increase in the amount of outstanding loans at the
Company's banking subsidiaries. Total loans outstanding at September 30, 1995
for Spartanburg National Bank amounted to $68,807,000, a $12,869,000, or 23.0%,
increase over the $55,938,000 reported at December 31, 1994. Anderson National
Bank, which experienced a 24.3% increase in its outstanding loans for the year
ended December 31, 1994, continued to experience strong loan growth during the
first nine months of 1995 as total outstanding loans, net of inter-company
loans, increased $6,162,000, or 11.2%, to $61,891,000 at September 30, 1995.
During the nine-month period, Quick Credit Corporation increased its outstanding
loans $670,000, or 7.5%, to $9,643,000.
The Company's securities portfolios, collectively, at amortized cost,
decreased $3,242,000, or 10.0%, for the period ended September 30, 1995 as a
result of maturities in the portfolios. Funds generated from maturing securities
during the period were used to help fund the loan portfolios of the banking
subsidiaries. Cash and due from banks increased $1,781,000, or 38.8%, to
$6,367,000 at September 30, 1995 as a result of an increase in the amount of
uncollected funds at the quarter end. Federal funds sold decreased $3,000,000,
or 65.5%, to $1,580,000 at September 30, 1995 as excess funds were used to help
fund the loan growth at the banking subsidiaries.
Premises, furniture and equipment increased $1,383,000, or 37.7%, during
the nine-month period ended September 30, 1995. $453,000 of this increase is
attributable to renovations made by Anderson National Bank to its main office
facilities during the nine-month period ending September 30, 1995. The remaining
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increase is largely attributable to the purchase by the Company of a piece of
property from an unaffiliated third party totaling $784,000 in the city of
Greenville, South Carolina on which it will locate its proposed new bank
subsidiary and related construction costs to date of $101,000 for that facility.
The Company intends to divide the Greenville property into two parcels and to
sell one parcel for a price approximating half the original purchase price of
the entire property. The Company expects to incur additional fixed asset costs
of approximately $950,000 in connection with the Greenville bank subsidiary.
Other real estate owned amounted to $74,000 at September 30, 1995 and
December 31, 1994, respectively. Management continues to actively pursue
liquidation of its other real estate owned.
Total liabilities increased $16,856,000, or 11.1%, largely as a result of a
$14,243,000, or 10.4%, increase in total deposits and short-term borrowings of
$2,000,000 by Spartanburg National Bank from the Federal Home Bank of Atlanta.
The borrowings from the Federal Home Loan Bank of Atlanta were used to help fund
the loan growth at Spartanburg National Bank during the period.
Time deposits of $100,000 or more, comprised largely of certificates of
deposit and representing 14.4% of total deposits at September 30, 1995,
increased $5,177,000, or 31.1%, from December 31, 1994 to $21,822,000 at
September 30, 1995. The increase in time deposits of $100,000 or more resulted
largely from growth in these sizes of deposits at both Anderson National Bank
and Spartanburg National Bank. Such deposits are potentially volatile and
significant repricing could result in a loss of a significant portion thereof.
Both banking subsidiaries also experienced an increase in other time deposits,
comprised of certificates of deposit of $100,000 or less and NOW accounts during
the period as a result of an increase in the rates paid for these types of
accounts and renewed marketing efforts for these types of deposits.
Securities Sold Under Agreements to Repurchase, comprised largely of
overnight repurchase agreements, increased $421,000 or 12.8%, from December 31,
1994 to September 30, 1995 as a result of increases in temporary quarter-end
investments of funds by customers of the Company's banking subsidiaries.
Other borrowed funds, comprised of various types of borrowings by Quick
Credit Corporation and Federal funds purchased, collectively, increased
$120,000, or 1.6%, during the period as a result increased borrowings by Quick
Credit Corporation. Anderson National Bank, which had borrowed $150,000 in the
form of Federal funds purchased at December 31, 1994, repaid these borrowings
during the period. Obligations under capital leases declined $168,000, or 97.1%,
during the period largely as a result of the early termination of leases
relating to the Company's data processing equipment, which was purchased and
ultimately sold during the second quarter of 1995.
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<PAGE>
Shareholders' equity increased $2,238,000 from December 31, 1994 to
September 30, 1995 as a result of net earnings for the period of $1,797,000, a
decrease in the amount of net unrealized losses on the Company's "available for
sale" securities portfolio of $546,000, and the exercise of stock options under
the Company's Employee Stock Option Plans in the amount of $93,000. These
increases were partially offset by the payment of cash dividends and
cash-in-lieu of stock on the Company's 5% stock dividends in June and October of
1995, collectively totaling $198,000.
LIQUIDITY
Liquidity management involves meeting the cash flow requirements of the
Company. The Company's liquidity position is primarily dependent upon its need
to respond to short-term demand for funds caused by withdrawals from deposit
accounts and upon the liquidity of its assets. The Company's primary liquidity
sources include cash and due from banks, federal funds sold and "securities
available for sale". In addition, the Company (through Anderson National Bank
and Spartanburg National Bank) has the ability, on a short-term basis, to borrow
funds from the Federal Reserve System and to purchase federal funds from other
financial institutions. Spartanburg National Bank and Anderson National Bank are
also members of the Federal Home Loan Bank System and have the ability to borrow
both short and longer term funds on a secured basis. At September 30, 1995
Anderson National Bank had $360,000 in long-term borrowings from the Federal
Home Loan Bank of Atlanta. At September 30, 1995 Spartanburg National Bank had
$2,000,000 in short-term borrowings and $550,000 in long-term borrowings from
the Federal Home Loan Bank of Atlanta.
First United Bancorporation, the parent holding company, has limited
liquidity needs. First United requires liquidity to pay limited operating
expenses and dividends, and to service its debt. In addition, First United has a
$100,000 line of credit with a third party lender, of which $50,000 was
available at September 30, 1995. Further sources of liquidity for First United
include management fees which are paid by all of its subsidiaries and dividends
from its subsidiaries.
At September 30, 1995 the Company's consumer finance subsidiary, Quick
Credit Corporation, had debt outstanding of $100,000 in the form of a short term
note payable, $400,000 in subordinated debt and $7,420,000 outstanding under a
line of credit with a third party lender . The Company believes the short-term
note will be renewed at maturity or repaid from the availability under Quick
Credit's line of credit with the third party lender, of which $2,580,000 was
available at September 30, 1995.
During the second quarter of 1995, First United Bancorporation obtained a
line of credit in the amount of $5,000,000 from an unaffiliated third party
lender to be used for general corporate purposes. The line of credit allows for
interest to be paid on a quarterly basis for a period of up to five (5) years if
certain criteria are met. At the end of (5) years, or sooner if the Company
desires, the line of credit can be converted to a term loan
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with quarterly interest payments and annual principal reductions required over a
period of five (5) years. The line of credit bears interest at a variable rate.
The Company intends to utilize $4,000,000 of this line of credit to capitalize
its proposed new bank subsidiary. At September 30, 1995, the entire amount was
available to the Company.
Management believes its liquidity sources are adequate to meet its
operating needs and does not know of any trends, other than those previously
discussed, that may result in the Company's liquidity materially increasing or
decreasing.
CAPITAL ADEQUACY AND RESOURCES
The capital needs of the Company have been met through the retention of
earnings and from the proceeds of a prior public stock offering in 1988.
For bank holding companies with total assets of more than $150 million,
such as the Company, capital adequacy is generally evaluated based upon the
capital of its banking subsidiaries. Generally, the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") expects bank holding
companies to operate above minimum capital levels. The Office of the Comptroller
of the Currency ("Comptroller") regulations establish the minimum leverage
capital ratio requirement for national banks at 3% in the case of a national
bank that has the highest regulatory examination rating and is not contemplating
significant growth or expansion. All other national banks are expected to
maintain a ratio of at least 1% to 2% above the stated minimum. Furthermore, the
Comptroller reserves the right to require higher capital ratios in individual
banks on a case by case basis when, in its judgment, additional capital is
warranted by a deterioration of financial condition or when high levels of risk
otherwise exist. Neither of the Company's subsidiary banks have been notified
that they must maintain capital levels above regulatory minimums. The Company's
leverage capital ratio was 8.38% at September 30, 1995, compared to 8.35% at
December 31, 1994. The leverage capital ratios for Anderson National Bank and
Spartanburg National Bank were 7.60% and 7.39%, respectively at September 30,
1995, compared to 8.29% and 7.54%, respectively, at December 31, 1994. The
decrease in the leverage capital ratio for Anderson National Bank during the
period ending September 30, 1995 resulted largely from the payment of $726,000
in dividends to the Company. The decrease in the leverage capital ratio for
Spartanburg National Bank is attributable to growth experienced by this
subsidiary since December 31, 1994.
The Federal Reserve Board's risk-based capital rule became effective on
December 31, 1990. The rule requires bank holding companies to have qualifying
capital to risk-weighted assets of at least 8.00%, with at least 4% being "Tier
1" capital. Tier 1 capital consists principally of common stockholders' equity,
noncumulative preferred stock, qualifying perpetual preferred
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stock, and minority interests in equity accounts of consolidated subsidiaries,
less goodwill and certain other intangible assets. "Tier 2" (or supplementary)
capital consists of general loan loss reserves (subject to certain limitations),
certain types of preferred stock and subordinated debt, and certain hybrid
capital instruments and other debt securities such as equity commitment notes. A
bank holding company's qualifying capital base for purposes of its risk-based
capital ratio consists of the sum of its Tier 1 and Tier 2 capital components,
provided that the maximum amount of Tier 2 capital that may be treated as
qualifying capital is limited to 100% of Tier 1 capital. The Comptroller imposes
a similar standard on national banks. The regulatory agencies expect national
banks and bank holding companies to operate above minimum risk-based capital
levels. The Company's risk-based capital ratio was 12.93% and its Tier 1 capital
to risk weighted assets ratio was 11.68% at September 30, 1995, compared to
13.78% and 12.25%, respectively, at December 31, 1994. The risk-based capital
ratios for Anderson National Bank and Spartanburg National Bank were 12.13% and
11.59%, respectively, at September 30, 1995 compared to 13.80% and 12.34%,
respectively, at December 31, 1994. Their Tier 1 capital to risk weighted assets
ratios were 10.88% and 10.34%, respectively, at September 30, 1995 compared to
12.55% and 10.12%, respectively, at December 31, 1994. The decline in Anderson
National Bank's risk-based and Tier 1 capital to risk weighted assets ratios
from year-end 1994 levels resulted largely from the payment of $726,000 in
dividends to the Company during the period ending September 30, 1995. The
decrease in Spartanburg National Bank's risk-based and Tier 1 capital to risk
weighted assets ratios from year-end 1994 levels is a result of growth
experienced by this subsidiary during the period ending September 30, 1995. The
decreases in the consolidated Company's capital ratios are the result of growth
experienced by all of the Company's subsidiaries during the period.
The Company has plans to open a new subsidiary bank in the city of
Greenville, South Carolina during the first quarter of 1996 to be named The
Community Bank of Greenville, N.A. The new bank will require the approval of the
Comptroller of the Currency, the FDIC, the Federal Reserve Board and the South
Carolina Board of Financial Institutions. The Company has filed the appropriate
applications with the Comptroller of the Currency and the Federal Deposit
Insurance Corporation. Although the Company does not anticipate any problems
with obtaining such approvals, there can be no assurance that such approvals
will be granted or that the new bank will be organized. Management of the
Company expects the new bank to require an estimated $4 million of capital. Such
capital will come from the proceeds of a line of credit that has been obtained
from an unaffiliated third-party lender which has committed to lend the Company
up to $5 million.
EFFECT OF INFLATION AND CHANGING PRICES
The consolidated financial statements have been prepared in accordance with
generally accepted accounting principles which require the measurement of
financial position and results of
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operations in terms of historical dollars, without consideration of changes in
the relative purchasing power over time due to inflation. Unlike most other
industries, virtually all of the assets and liabilities of a financial
institution are monetary in nature. As a result, interest rates generally have a
more significant effect on a financial institution's performance than does the
effect of inflation. Interest rates do not necessarily change in the same
magnitude as the prices of goods and services.
While the effect of inflation on banks is normally not as significant as is
its influence on those businesses which have large investments in plant and
inventories, it does have an effect. During periods of high inflation, there are
normally corresponding increases in the money supply, and banks will normally
experience above average growth in assets, loans and deposits. Also, general
increases in the prices of goods and services will result in increased operating
expenses.
ACCOUNTING AND REPORTING MATTERS
In October 1994, the FASB issued SFAS 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments". The statement
requires disclosures about amounts, nature, and terms of derivative financial
instruments. The statement amends SFAS 105, "Disclosure of Information about
Financial Instruments with Off-Balance-Sheet Risk and Financial Instruments".
The statement is effective for the Company for the fiscal year ending December
31, 1995. In light of the Company's current portfolio, this statement is not
expected to have a significant impact on the Company.
The FASB adopted Statement 107, "Disclosure about Fair Value of Financial
Instruments" in December, 1991. This statement extends existing fair value
disclosure practices for some instruments by requiring entities to disclose the
fair value of financial instruments, both assets and liabilities, recognized and
not recognized in the statement of financial position, for which it is
practicable to estimate fair value. The statement is effective for the Company
for the fiscal year ending December 31, 1995. The effect on the Company is
increased disclosure requirements.
In 1995, the FASB adopted Statement 121, "Accounting for the Impairment of
Long-Lived Assets and Long-Lived Assets to Be Disposed Of". This Statement
establishes accounting standards for the impairment of long-lived assets,
certain identifiable intangibles, and goodwill related to those assets to be
held and used and for long-lived assets and certain identifiable intangibles to
be disposed of.
This Statement requires that long-lived assets and certain identifiable
intangibles to be held and used by an entity be reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. In performing the review for recoverability, the entity
should estimate the future cash flows expected to result
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from the use of the asset and its eventual disposition. If the sum of the
expected future cash flows (undiscounted and without interest charges) is less
than the carrying amount of the asset, an impairment loss is recognized.
Otherwise, an impairment loss is not recognized. Measurement of an impairment
loss for long-lived assets and identifiable intangibles that an entity expects
to hold and used should be based on the fair value of the asset.
The Statement request that long-lived assets and certain identifiable
intangibles to be disposed of be reported at the lower of carrying amount or
fair value less cost to sell. This Statement is effective for financial
statements for fiscal years beginning after December 15, 1995. This Statement is
not expected to have a material impact on financial statements of the Company.
In May, 1995, the FASB adopted Statement 122, "Accounting for Mortgage
Servicing Rights, an amendment of FASB Statement No. 65". This statement
requires that a mortgage banking enterprise recognize as a separate asset rights
to service mortgage loans for others, however the servicing rights are acquired.
The statement also requires that a mortgage banking enterprise assess its
capitalized mortgage servicing rights for impairment based on fair value of
those rights. The statement is effective prospectively in fiscal years beginning
after December 15, 1995 to transactions in which a company sells or securities
mortgage loans with servicing rights retained and to impairment evaluations of
amounts capitalized as mortgage servicing rights, including those purchased
before the adoption of this statement. Earlier application is encouraged. Based
on the current amount of servicing retained by the Company's banking
subsidiaries, this statement is not expected to have a material impact on the
financial statements of the Company.
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PART II
OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is from time to time involved in various legal
proceedings arising out of the ordinary course of business,
primarily related to the collection of loans receivable. Based upon
current information available, management believes there are no
legal proceedings threatened or pending against the Company that
could result in a materially adverse change in the business or
financial condition of the Company.
Item 2. Changes in Securities.
The Credit Agreement between Registrant and Bank South, N.A.,
Atlanta, GA, dated as of May 16, 1995 and amended September 25,
1995, provides that if any Default or Event of Default (as defined
in such Agreement) shall have occurred thereunder, the Registrant
may not declare or pay any dividend on its capital stock, or make
any payment to purchase, redeem, retire or acquire any of its
capital stock or any option, warrant, or other right to acquire such
capital stock, without the prior written consent of Bank South, N.A.
No Default or Event of Default currently exists under such
Agreement.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of Security Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
10.14 - Second Modification, dated as of September 25, 1995 to
Credit Agreement between Registrant and Bank South, N.A.,
Atlanta, GA, dated as of May 16, 1995.
27 - Financial Data Schedule
Page 25
<PAGE>
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 BANCORPORATION
Dated: October 31, 1995 Mason Y. Garrett
-----------------------------
Mason Y. Garrett, President
and Chief Executive Officer
William B. West
----------------------------
William B. West, Sr. Vice
President and Chief Financial
and Accounting Officer
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<PAGE>
INDEX TO EXHIBITS
No. Description
10.14 - Second Modification, dated as of September 25, 1995 to Credit
Agreement between Registrant and Bank South, N.A., Atlanta, GA, dated
as of May 16, 1995.
27 - Financial Data Schedule
Page 27
<PAGE>
EXHIBIT 10.14
SECOND MODIFICATION OF CREDIT AGREEMENT
THIS MODIFICATION AGREEMENT is made and entered into as of the 25th day of
September, 1995, by and between FIRST UNITED BANCORPORATION, a South Carolina
corporation (hereinafter referred to as "Borrower") and BANK SOUTH, a Georgia
banking corporation which is the successor by merger to Bank South, N.A., a
national banking association (hereinafter referred to as "Bank").
Statement of Facts
Borrower and Bank have previously entered into that certain Credit
Agreement dated as of May 16, 1995 (hereinafter referred to as the "Credit
Agreement").
Borrower and Bank now desire to modify the Credit Agreement in certain
respects, and entering into this agreement in order to modify the Credit
Agreement as hereinafter set forth.
NOW, THEREFORE, for and in consideration of the foregoing premises, and
the sum of Ten and No/100 Dollars ($10.00) cash in hand paid by each party
hereto to the other, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Borrower and Bank hereby agree as
follows:
Statement of Terms
1. Amendment of Section 8.10. (a) Section 8.10(f) of the Credit Agreement
is hereby modified to read as follows:
"(f) The borrower, Anderson and Spartanburg shall each have Net
Income for each fiscal year of not less than 0.75% of its average assets for
such fiscal year."
2. Amendment of Exhibit E. The Exhibit E originally attached to the Credit
Agreement and Exhibit E attached to the First Modification are hereby deleted in
their entirety and the Exhibit E attached hereto is substituted in lieu thereof.
3. Enforceability. Except as expressly modified and amended herein, the
Credit Agreement is and shall remain in full force and effect. This modification
agreement is not intended to be nor shall it constitute a novation of the Credit
Agreement or of the indebtedness evidenced thereby or advanced thereunder, and
Borrower hereby agrees that the Credit Agreement as modified and amended by this
modification agreement constitutes the valid and binding obligation and
agreement of Borrower, enforceable by Bank in accordance with its terms.
4. Strict Compliance Notice. Bank hereby notifies Borrower that Bank
intends to rely upon the strict terms and conditions of the Credit Agreement (as
modified hereby) and the other Credit Documents and Bank expects that Borrower
will strictly comply with the terms and conditions thereof from and after this
date.
5. Governing Law. This modification agreement shall be governed by,
construed, interpreted and enforced in accordance with the laws of the State of
Georgia.
6. Binding Effect. This modification agreement is binding upon and shall
inure to the benefit of the parties hereto, and their respective heirs, legal
representatives, successors and assigns.
<PAGE>
IN WITNESS WHEREOF, Borrower has executed this modification agreement
under seal, and Bank has executed this modification agreement, all effective as
of the day, month and year first above written.
BORROWER:
[CORPORATE SEAL] FIRST UNITED BANCORPORATION
s/William B. West s/Mason Y. Garrett
Attest:_________________________ By:___________________________
President
BANK:
BANK SOUTH
s/L. Douglas Higgins
By:_____________________________
Correspondent Banking Officer
<PAGE>
EXHIBIT E
COMPLIANCE CERTIFICATE OF
FIRST UNITED BANCORPORATION
AS OF _____________, 19___
This certificate is delivered pursuant to Section 7.01 of that certain
Credit Agreement, dated as of May 16, 1995 (said agreement, as amended or
supplemented from time to time, is herein called the "Credit Agreement"),
between First United Bancorporation (the "Borrower") and Bank South, ("Bank").
All capitalized terms used in this Certificate which are defined in the Credit
Agreement are used in this Certificate with the same meanings provided in the
Credit Agreement.
I hereby certify, to the best of my knowledge and belief and in my
representative capacity on behalf of the Borrower, to the Lender as follows:
1. I am duly qualified and presently acting president or chief financial
officer of the Borrower.
2. I further certify that as of, and for the fiscal quarter ending on, the
date of this certificate, and except as may be disclosed on Exhibit 1 attached
hereto:
(a) The Borrower's consolidated Primary Capital was $_____________
as of such date and the Borrower's consolidated Primary Capital was
not less than $13,000,000 at any time during such fiscal period, and
was not less than 7.5% of its consolidated total assets at any time
during such fiscal period.
(b) Anderson's Primary Capital was ___% of its total assets as of
such date and such Primary capital was not less than 7.0% of its
total assets at any time during such fiscal period.
(c) Spartanburg's Primary Capital was ___% of its total assets as of
such date and such Primary capital was not less than 6.5% of its
total assets at any time during such fiscal period.
(d) Anderson's Non-Performing Assets were ___% of the sum of its
gross loans plus its other real estate owned as of such date and
such Non-Performing Assets did not equal or exceed 2.5% of the sum
of its gross loans plus its other real estate owned at any time
during such fiscal period.
(e) Spartanburg's Non-Performing Assets were ___% of the sum of its
gross loans plus its other real estate owned as of such date and
such Non-Performing Assets did not equal or exceed 2.5% of the sum
of its gross loans plus its other real estate owned at any time
during such fiscal period.
(f) Each Bank Subsidiary's loan loss reserve was not less than 100%
of its consolidated Non-Performing Assets (excluding other real
estate owned) as of such date.
(g) The Borrower's, Anderson's and Spartanburg's Net Income for its
fiscal year ending on the date hereof was not less than 0.75% of its
average assets for such fiscal year.
(h) The Borrower's Cash Flow Ratio for the fiscal quarter ending
on the date hereof was ____________: 1.0.
3. No Default or Event of Default exists as of this date except as may be
disclosed on Exhibit 1 attached hereto.
I represent to the Bank that the foregoing information is true and correct
to the best of my personal knowledge and belief and I have executed this
Certificate in my representative capacity on behalf of the Borrower as of the
day and year first above set forth.
Name:_________________________________
Title:_____________________________
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Statement of Financial Condition at September 30, 1995 (Unaudited)
and the Consolidated Statement of Income for the Nine Months Ended September 30,
1995 (Unaudited) and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 6,367
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 1,580
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 18,646
<INVESTMENTS-CARRYING> 10,292
<INVESTMENTS-MARKET> 10,482
<LOANS> 141,340
<ALLOWANCE> 2,140
<TOTAL-ASSETS> 184,297
<DEPOSITS> 151,909
<SHORT-TERM> 5,819
<LIABILITIES-OTHER> 1,955
<LONG-TERM> 8,785
<COMMON> 3,674
0
0
<OTHER-SE> 12,155
<TOTAL-LIABILITIES-AND-EQUITY> 184,297
<INTEREST-LOAN> 12,734
<INTEREST-INVEST> 1,507
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 14,241
<INTEREST-DEPOSIT> 4,194
<INTEREST-EXPENSE> 5,046
<INTEREST-INCOME-NET> 9,195
<LOAN-LOSSES> 420
<SECURITIES-GAINS> 1
<EXPENSE-OTHER> 7,344
<INCOME-PRETAX> 2,758
<INCOME-PRE-EXTRAORDINARY> 2,758
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,797
<EPS-PRIMARY> .74
<EPS-DILUTED> .74
<YIELD-ACTUAL> 7.53
<LOANS-NON> 106
<LOANS-PAST> 311
<LOANS-TROUBLED> 797
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 1,944
<CHARGE-OFFS> 364
<RECOVERIES> 132
<ALLOWANCE-CLOSE> 2,140
<ALLOWANCE-DOMESTIC> 2,140
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
